Bookkeeping is How To Easily Know Where Your Business’s Money Comes From and Goes To
Two general contractor friends had a chat over coffee the other day. A fly on the wall would have overheard the following:
Contractor 1: “My sales in the last six months were good. I closed $645,000 in projects. I did a few kitchens, a couple of basements and a couple of other things. And you know what, I finally got a few jobs from those Facebook ads. How about you?”
Contractor 2: “Well, our sales in the last six months were $725,627. Of that, 54% was from kitchen rebuilds, 22% was from basements, 16% was from decks, and the other 18% was other types of jobs.
“And what I found interesting was that 12% of that was repeat business, 37% came from referrals from previous customers, 19% came from online advertising and another 23% came from that Home Show we had a booth in last spring.
“And guess what, it’s the trends I find to be really interesting. In the same six months from last year our income went up by 11%, which is good. But the income from kitchen jobs went up by 17% and the income from basements went down by 9%. So I’m trying to figure out if this is a big trend or we did something in our marketing that made that happen.
“But here’s what I really like: The gross margin on our kitchen jobs went from 28% to 34%. So, not only did our total income go up for kitchens, so did our profit for each job! Sweet!”
Gobsmacked, Contractor 1 said, “How the heck do you know all this. You sound like some high-falutin’ financial analyst!”
Contractor 2 smiled and replied, “Well, three things happened. First, we got a bookkeeper who showed us how we could record our numbers better. It’s called a Chart of Accounts. Then they showed us how to collect our invoices and receipts, and cost out our labour on a job-by-job basis. And finally, they gave us envelopes with the month on it to put in all that damn paperwork and send over to them each month at the same time.
“Then they process it and send me back reports. My profit and loss for the month, and the same thing for the last six months. Regular as clockwork. It took some effort to create new habits but, I’ll tell you, I’ve never felt more on top of my company’s finances like this. And you know me, I’ve been doing this for years!”
Contractor 2 shook his head. “Well, dammit, if you can do it so can I. Who should I call?”
There is true power in the Chart of Accounts. Work with your bookkeeper to set it up so the information from your financials is revealed like never before. By changing a few habits you can harness the insights you need to really understand the financial side of your business.