If you are reading this article, there’s a good chance that you are in the water feature business. Therefore, you understand that what we do is fun and changes people’s lives. I started Premier Ponds the day after the planes crashed into the World Trade Center 15 years ago with the following mantra: “Have fun, change lives and make money.”
It’s the making-money part of the business that is the hardest aspect to master for most of us. There’s only one way to consistently know whether you’re making money or not – by tracking your numbers. Whether it’s in QuickBooks (my choice) or another accounting software, you must keep track of the money.
I think of money in terms of either it’s coming in, or it’s going out. Every time someone gives me money, I tell QuickBooks who gave it to me and why. Each time I spend money, I tell QuickBooks why I spent it and on whom.
Keep It Classy
Most accounting software comes loaded with its own chart of accounts. These are fine, but it’s a bit generic. In QuickBooks, in addition to the chart of accounts, I track everything in classes. There is a “class” feature you can turn on and customize for your business. It’s easy and allows you to create the specific classes that are important to your business.
Some classes I use include spring cleanings, new construction, renovations, service, fall maintenance, mid-season maintenance, winter drive-by, training, consulting, hardscaping, marketing and overhead.
I view each of these classes, or categories, as if it were its own stand-alone businesses. They represent the only reasons someone would give me money or how I would spend money. With the press of a button, I can tell if I’m ahead or behind in any of my business segments, or classes. By looking at each class and adding everything up, I can set my financial goals for the next year. I know after each season how progress is going. Are we on target?
I’ve met too many contractors who simply throw all their job receipts into a shoebox — job after job. At the end of the year, they hand the shoebox to an accountant, expecting him or her to make sense of the mess. Does this sound like you?
It does require discipline. Truly, most of us can get this done in one hour each week, if we make the inputs consistently every week. But just like going to the gym, we skip one week, and then two, and before we know it, we haven’t been to the gym in two years. Been there, done that.
Within one week of a job’s completion, I make a point of knowing exactly how much money was made on that specific job. If I was diligent about inputting the info, one press of a button will tell me the truth. I don’t wait until an accountant tells me at the end of the year. Usually it’s way too late to react and right your sinking ship if you do your accounting that way.
Gross Profit Margin
Our goal is to always make a minimum gross profit margin of 50 percent on each job, no matter how large. This also includes all classes. For example, at the end of the spring cleaning season, I just hit the magic button, and QuickBooks will tell me if we hit our goal – 50 percent or greater — for the year in that class.
Gross profit margin includes everything you had to buy to specifically get that job done. Everything else is overhead. The size of your operation and how efficient you are will determine your overhead as a percentage of your overall sales. Obviously, the lower that number, the better.
To summarize our simple approach to business:
- Bid every job to make a 50-percent gross profit margin.
- Input your numbers every week.
- Confirm how you did within one week of each job completion.
This is the simple formula I have followed repeatedly over the last 15 years, and we haven’t had a down year in this time period.
I realize that some of you feel you can’t bid your jobs with a 50-percent gross profit margin. You could price yourself out of the market. This is your call. My attitude is that the customer will pay what we are strong enough to ask for. The final price has nothing to do with what they would have paid in the first place.
Have you ever been dismissed from a backyard because your price was too high? I have plenty of times. They say, “I just can’t pay $20,000 for you to fix up my pond.” Then, as I’m walking to my car, I pass their garage with his-and-hers, matching Mercedes-Benzes! This situation and how to handle it is a whole different topic, but my point is that you have to present a perceived value.
Keep Your Eyes on the Prize
Last year I co-founded the Contractor Sales Academy with my friend, Tom Reber, to help other small contractors get a handle on their businesses. We’ve created a group of like-minded companies that share everything from sales and attitude to wins and losses. And yes, we hold QuickBooks webinars, too. Do you have a place where you can go to learn how to improve your current situation? Are you enjoying running your business? Are you making the money you deserve? The average Home Depot manager makes $91,000 per year, according to Google. Think about it. Are you “having fun, changing lives and making money?”
If you are not tracking your numbers, then you are just winging it. The end game — your eventual retirement — depends on more than simply a hope and prayer. So, either start tracking your numbers or consider hiring someone who will do it for you. You deserve a good life. But only you can take the necessary actions in order to make it happen.