There are probably many reasons why you opened up your own construction company, including being your own boss, you love what you do, etc. But, let’s be real here, the main reason you are in business is to make money, period! It seems like a silly question but do you know if your company is making money? Trust us, it’s not as uncommon as you’d think to truly not know how profitable you are. Some think they have a good idea from what numbers are in their head but after their bookkeeping is reconciled correctly and financial reports are run, they are surprised at their numbers.
To know if your construction company is profitable, you need to be reviewing and analyzing your profit & loss statement and your balance sheet regularly. Why both? Well, reviewing both gives you a full picture of your company’s financial position. They work together to tell a full story and without you will be missing valuable information. Think of them like the nuts and bolts of your financials – they have to work together to be effective. When looking at them separately, the reports don’t tell the entire story… and this is what can cause big issues when making business decisions based on only half of the data.
Although you need to review these reports together, let’s talk about each report separately so you can understand the different views each gives.
Balance Sheet
Your balance sheet is a snapshot of your financial position at a moment in time. It tells you how much cash you have, how much you own (assets), how much you owe (liabilities) and how much is invested in the company (equity) at any given time. Instead of going to each credit card, bank account or vendor to see your balances separately, your balance sheet will summarize all of this information for you quickly and easily, that is, as long as your financials are updated and accurate. When you think of your balance sheet, think a view of what you own and owe.
Profit & Loss Statement
Just as the name suggests, your profit & loss statement summarizes your profits and losses in a given period of time — did you make or lose money? Other terms used here are P&L for short, income and expense statement or statement of financial results. You’ve probably heard the terms top line and bottom line when talking about finances. This report is where you find your top line, or your revenue, and your bottom line, or your net income. When reviewing, you will be able to see if you are increasing profits, reducing costs or increasing sales. You will get data from the past to use going forward to forecast and make projections.
Role of the Financial Base
You’ve heard us say that you need to have your financial base set up properly. We will say it again, your financial base needs to be set up properly… and these reports are exactly why. You need to have your chart of accounts set up correctly because the financial data it organizes and pulls is shown on your balance sheet and P&L. Your cost codes also organize your expenses and feed into the reports. If you don’t have the data organized properly, your reports will not be pulling accurate data and won’t reflect the true numbers you should be using to evaluate how your company is financially performing.
10,000 Foot View
It is also important to mention that both your balance sheet and P&L give their information from a company view, and do not get into specific details about costs, jobs, etc. You can get that information from other reports and sources, but these reports are meant to give you a 10,000 foot view of how your construction company is doing financially.
They Are The Total Package
Again, it is so important to look at the balance sheet and P&L together—remember the nuts and bolts example. The balance sheet shows you the value of what you own and what you owe but doesn’t show if you made or lost money in that time period. The P&L shows you if you made or lost money, but doesn’t show you how much of the company is owned or financed. That is why it is crucial to look at them together so you can be confident in how your company is doing and make business decisions on the whole picture. You may be making a ton of money in profit, but you may have a long list of liabilities to pay back. Looking at them together shows you all of the pieces and the different views of your financials.
Reviewing Your Reports
First of all, if you have not been reviewing these reports, you need to start… and start as soon as you possibly can. You will need to have your financial base set up and your books completely reconciled to be able to trust these reports so if you aren’t here yet, that is where you should start.
Once you have everything updated, a process to keep them updated and you are reviewing your reports regularly, you will be able to maintain control over your business. You will be able to see if your expenses are out of control. You will confidently be able to account for the seasonality of construction. You will be able to see areas where you can grow and know what is working and what might not be working. You will be able to proactively make decisions for your company. Sounds great, right?
Among many other things, the COVID-19 pandemic has shown us that we can’t predict everything, and being prepared and proactive is so important. Were you scrambling to get your books and reports cleaned up when the PPP loan was announced? Or is your company growing so fast and you are only using your online banking to determine if you are making money? These situations happen, but it is possible to be prepared when they do happen. Accurate reports are what will help guide your business decisions through whatever situation lies ahead.
Make the Tough Parts Easy
24hr Bookkeeper can save you the headache and stress of not knowing or not trusting your financials. You are busy. It is easy to get behind on the little things. But your bookkeeping and accounting are not one of those little things. It is too important these days when the world is moving 1,000 miles per hour to let these things slip because it’s even harder to get caught up.
Our team is experienced in construction accounting and can help get your company set up for success. If your books are outdated, we will get them updated and current so you can see where your company stands. If things are moving too fast in your company and you don’t have time to do your bookkeeping, you can trust our team to manage it for you so you can pull your reports and trust what you are seeing. If you need help getting your financials set up and started, we will work with you to get your base set up and a smooth process going that works for your company, including integrating any software you have, like QuickBooks, CoConstruct or BuilderTrend.
You know financial management is important, but it is equally important as getting a new build, or getting the lumber to the job site. You put so much into your business, don’t let the numbers be what holds you back.
Let us know how we can help by sending us a message or setting up a meeting. We want to make financial management the easy part of running your business.
