If you make more sales year after year, that does not always mean you have a more profitable business in the construction trades. Sure, it feels great to say you have a company that does $5 million in sales, but do you have a profitable company? A knowledgeable construction bookkeeper can use Quickbooks to show you where you stand financially.
How a Construction Bookkeeper Can Help Your Construction Business
Let’s say you run the Profit & Loss report and see that you have a company with $1 million in annual sales, with a profit margin of 10%. That’s $100,000 in profit – not bad! So you decide to grow the business to reach $5 million in 5 years. You increase your marketing budget to reach more potential customers, resulting in a fully booked schedule. Time to hire help!
Your new employees will need trucks to drive and tools for the job site. Auto loans mean loan interest expense, and the trucks’ fuel, maintenance, and insurance costs are an additional monthly expense. Because you still work full time in the field, you need to hire an office person to answer phones and create the schedule.
After another year, you need to hire two new employees and buy new trucks and tools for them. The schedule is so busy you can no longer rely on spreadsheets to control it all, so you invest in construction dispatching software to manage the growth. And you hire a dispatcher to make sure all of the jobs are completed. You are now working late to make sure all of the completed jobs are invoiced. Time to outsource a construction bookkeeper to invoice customers, get payments, and pay bills in Quickbooks.
Another year passes. The construction bookkeeper has your business books looking great, so you know you can count on the accuracy of the financial statements. You see that your annual sales are now at $3.5 million. Great news! But your profit margin is down to 5% – $175,000. What happened?
With the addition of the employees, trucks, software, workstations, and other related expenses, your profit margin took a hit. You need to review your jobs to see if you are pricing correctly.
A Construction Bookkeeper Can Help with Job Costing
Job costing is critical to making a profit in construction trades. To make this happen, you will need to assign a customer/job to each item sold, as well as accounting for the labor hours. Don’t forget about the job supply purchases you make in the field at places such as Home Depot. Quickbooks tracks expenses by job to make it easier to review the profitability of each one.
After reviewing your job costing reports, you find that you are quoting jobs inconsistently and for less than necessary to get back to the 10% profit margin you enjoyed as a $1 million company. You use this information to create a pricing sheet to help you and your employees quote jobs at a more profitable rate. You lose some jobs because the customer wanted to pay so little that it would have been unprofitable for you, but that’s the point. If the job is not profitable, you don’t want it. After a few months, you are becoming more profitable and feel in more control of your business.
Having a solid plan and measuring the results is critical to building a valuable construction business, and timely construction business accounting is vital to your success. At Working Numbers, we help business owners in the construction trades with bookkeeping, sales tax, payroll, job costing, and advisory services. We understand the unique challenges you face while working in the field, and we have solutions for you. If your construction or home services business needs help –let the experts at Working Numbers get your books organized.