Is your business profitable? What tools are you using to achieve and maintain profitability? How often do you re-evaluate if your business is making or losing money? How much time and effort would it take if immediately after you read this column you completed a written analysis that proves your business will make or lose money this month or this year?
Given the state of the national real estate market and the sub-prime mortgage debacle that has dominated the real estate market and national press in recent months, a prudent business owner should have immediately available a series of current reports that provide a clear and accurate snapshot of current profitability.
If you do not have the necessary data organized and current to produce these reports on one day’s notice, is it possible you already know the answer and you just do not want to see it in black and white? Do you have only a sinking gut feeling or a vaguely optimistic hope that you will make money this year? Current profitability reports are important all the time but even more so in this stagnant, declining market.
Overhead expense report. What is your monthly cost of doing business? It may seem like a simple question but many owners I speak to have no idea. I have eight salaried employees and I spend $52,000 per month, (which breaks out to more than $300 per hour!) to pay my overhead expenses.
While operating expenses may be the easiest to identify, they are also the most difficult to cut, especially when it comes to personnel. One of the hardest things you will do as a business owner is to lay off an employee, especially one you feel has been loyal and dedicated. If you need motivation to make a tough decision, remind yourself that if you fail to act promptly, it may cost you your livelihood.
Monthly cash flow report. This is an essential management tool yet many business owners overlook it. If you are not maintaining a monthly cash flow report, you should create one for each company you own today. If you and your bookkeeper lack the expertise to create one, consult your CPA. Your report should project your cash in and out on a monthly basis for one year. As soon as new cash in or out events occur, update the report. Review it at least biweekly.
If you lend personal cash to your company, you need to maintain a personal cash flow report. Understanding the level of cash in your business and how much, if any, personal pocket cash was contributed to the business, will assist you in making critical business decisions on a timely basis.
Sales and profit report. This report should tell you at a glance who your clients are, what you believe they will spend, how much gross profit you project from each client and a year-end sales and profit total. At the end of my one-year sales and profit report, I deduct from my projected year-end gross profit my total anticipated corporate overhead … that’s $52,000 x 12 = $624,000. If I do not have enough sales for the year, the bottom line will be a negative number. This would be my wake-up call to take action immediately.
Do not be the ostrich by attempting to ignore the financial future your business is headed toward. Whether or not your reports show you making or losing money, you need to know which way your ship is sailing so you can hold steady or immediately start plotting a new course!
Jay Grant is president of Grant Homes (granthomesusa.com), a residential design/build firm in Mendham, N.J. Grant’s business focuses on controlling and developing land for construction of luxury custom and speculation quick-delivery homes. His strict attention to weekly cash flow reporting results in industry-leading profit margins. Grant has given numerous seminars across the country and is available for consulting by sending e-mail to firstname.lastname@example.org. Read his past columns at rdbmagazine.com.