Thursday, July 31, 2014

Half way there 2014

I just read the opening lines to an article talking about us being halfway through the summer. As a mom, with school starting just a few weeks away, summer seems much further along than "half way."  But in the concrete business, we are only half way through the season. For us here in Ohio, the construction season typically starts around April 1st, depending on how Mother Nature treats us, and winds down around December 15th again depending on the weather. So we are just about half way.

So how is your year going? Now is the time, regardless of how busy you are, to take a look at your business and review how the first half of the year has been.  Are you on track to be profitable? What is your plan for the rest of the year to finish with a strong bottom line?  Here are some tips based on how we review our business this time of year that might be helpful.

Review your Profit & Loss Statement:  In the concrete construction business in Ohio, first quarter financials are never pretty. Winters can be a challenge in which to work, and if we do work, it takes longer and with more resources than it would in the summer. So while I look at the P&L for the first half, I also run it for each quarter and compare it to the previous year.  I review each line to see if there are any significant increases or decreases and then ascertain what caused the swings. For us this year, there has been a dramatic increase in fuel costs. While gas prices are high, they are not significantly higher than last year, but we have been working on projects much further away from our shop than usual, so I can justify it. Are there any other significant differences? If so, can you justify them, or is there something you need to investigate. I look at dollar changes, and also percent changes from last year. I look at each line as a percent of sales to see if there are trends over time. Now is the time to make adjustments for the second half of the year to move that bottom line to the black if not already there.

Review your Balance Sheet:  This is one report it took me a while to understand why I needed to review it. However, once I began to understand what it shows me, I found it to be a good tool to see a snapshot of the business. It will show you your bank balances, how much your customers owe you (accounts receivables,) and how much you owe others (liabilities.)  If you are having someone else do your books for you, make sure you request this report often and review it. It gives you a great overview of your business financials.

Sales: Compare your overall sales to the goals you set, or compare your numbers to last year. Are you growing? Are your sales people or estimators hitting their goals? Do you see a trend that you can build upon? Look at who your customers have been. Are they helping you grow your business?  You may find that you need to fire a customer if they are not helping you move forward.  We are also delving into each project type to determine where we are profitable. As our business evolves based on the demands of the market, we need to know where we can make money and where we fall short. It doesn't make sense as a for-profit business to continue to do work where it is not profitable.

Overhead:  Do you understand your overhead, where it comes from and how to manage it?  Your overhead includes any expenses that are not directly related to the project. If you can charge the expense to a job, it is not overhead but a Cost of Goods Sold (COGS.)  If the expense will be there regardless if you are working on a project, like your rent, phone and electric bills, etc.,  it is overhead. Talk to your accountant if you don't understand your overhead versus your job related expenses. George Headley also explains it well here.

Budget and Business Plan: Did you start your year with a budget and plan for your business?  If not, you can make one for the 2nd half of the year based on what you now know from reviewing your financials. And guess what? - a budget and business plan is a living document that will evolve and change just like your business!  They are not set in stone, so don't get too discouraged if your actual numbers don't match your budget. The budget will need to be adjusted from time to time. These plans are like road maps to success. Sometimes you need to alter your course, but at least you have direction to get where you want to go.

In thinking about being half way there, I am also reminded of someone who suggested that when you move into your late 40's, you still have half of your working life to obtain your goals. I have held on to that thought as I fit that category. The thinking was that you start your working career around age 25 to 30 and stop working around 65 or 70.  It was encouraging to me to think that I still have half of my working life to build my dream. I encourage you to dream big and set goals to make them come true. You may be, like me, only half way there.

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