Business Building Ideas from HomeTech

Understand Your Remodeling Finances
Most likely, you have pulled together a budget for your business. (In a previous BBI issue, we discussed budgets related to marketing efforts.) Reviewing your company's finances relative to this budget will give you a good understanding as to whether or not you are on track with your goals.

If you're interested in growing your business, you need to continually monitor your progress against your budget. If you are not on track, then you can figure out what adjustments you need to make to get back on track. And, if you are doing well respective to your budget, then figuring out what resources you have to put towards expanding your business is instrumental to growing it.

Financial Reports
There are two primary financial reports you should be reviewing at least monthly -- your Profit & Loss Report and your Actual Job Cost Report. By reviewing these reports monthly, you will get a good, accurate picture of how well, or not so well, your business is operating.

Profit & Loss Report
Monthly, you should compare your Budget to your Profit & Loss Report (also known as your "Operating Statement"). You developed your Budget as a guideline to how you see your business has been operating over the course of the year. (If you don't have a budget, you should definitely think about creating one. It's a very important tool in your financial toolbox.) Your Profit & Loss Report tells you how your business is actually operating over the selected time period. Reviewing both the current month's Budget and Profit & Loss as well as the year-to-date Budget and Profit & Loss will let you know how your business is performing for that particular month, and how your business is performing for the current year.

An example of a typical Profit & Loss Report is as follows:

Profit & Loss Report

Terms Defined

Income: All monies collected during the specified time period.
Job Costs: Include only those items that you identified as job costs in your estimate. Should include both actual labor costs and benefit related costs. Make sure to include the cost of having you on a job site if that is what you do (selling and administrative costs associated with you would be in Overhead Costs). Should include all materials costs associated with jobs.
Gross Profit: This is your Income less Job Costs. You might look at the gross profit for different segments of your business (remodeling versus kitchen and bath work for example) to determine which line of work is more profitable for you.
Overhead Costs -- costs associated with running your business -- rent on offices, electricity, phones, depreciation on equipment, your salary for managing the business.
Net Profit: Gross Profit less Operating Costs. How much profit is actually generated from your business? This could be reinvested in the business or your "extra income" for running the business.

Actual Job Cost Report
An Actual Job Cost Report simply shows all the actual costs associated with a specific job, and this should be compared to the estimate for that same job. The Actual Job Cost Report is used to compare actual job costs to estimates -- the analysis of which can be used to improve your estimating. If your Actual Job Costs are vastly different from your estimates, adjustments to estimating percentages and markup might be in order. This is where HomeTech's estimating guides and software can also be a huge help.

Reviewing Actual Job Cost Reports will also give you a clear picture as to whether or not your production department is operating efficiently and, by looking at job cost percentages (the percent of an actual job cost to the total value of a job) from month to month, you will be alerted to things running amuck if the percentages vary considerably.

When compiling an Actual Job Cost Report, it is important to identify and track three primary things:

Timecards: Complete and accurate timecards should be submitted for each actual job showing the total number of hours worked, per workman, on that specific job during that specific time period (usually 1 month).
Invoices for materials: Total costs for materials should invoiced for each job separately.
Invoices from subcontractors: Subcontractor costs should be identified for each job separately.

These three primary items, totaled, will give you your Actual Job Cost Report per job and, when totaled together for all jobs, the total cost for all your jobs.

HomeTech recommends that you track job costs even more closely. Issue purchase orders for materials and subcontractors and require your employees to identify not just which job they were working on but which phase of the job. Using HomeTech's 25 divisions you can break down your material, labor and subcontract costs to identify where your estimates are too high or too low and make changes to increase your accuracy in the future.

We've included a bonus download of a time sheet your employees can use that will allow you to track your costs by category within each job.

Using Financial Reports
When compiling and using financial reports, you should keep the following in mind:

Develop reports that are easy for you to read, digest and explain to others. If you can't master the information in the report, it won't be helpful to you in running your business.
Review your reports monthly. Make sure your reports are compiled for you at a maximum of two weeks after the close of a month. Timely information is critical if changes to your business practices need to be made.
Look at percentages in addition to raw numbers. Percentages will allow you to trend the data. If your overhead expenses are typically 10% of your business and they show up one period as 15% or 20%, what made them increase?

Your accountant should be able to assist you in either teaching you how to create these reports or will run these reports for you. I can't stress enough how important it is to know your numbers. This little bit of time reviewing these numbers each month can pay back in many ways -- how you estimate your jobs, how you price, who you use as subcontractors, and much more. Let your accountant help you through this, if necessary. That's what they do for a living. Being busy does not mean your business is thriving. Make sure you understand the finances of your business in order to run it optimally and, to position your business for growth.

Much of the content for the article above was taken from: Mastering the Business of Remodeling by Linda Case and Victoria Downing and was provided courtesy of: Remodelers Advantage, Inc.™