Are you busy?
Being a general contractor can be overwhelming at times. But you don’t want to be so busy that you lose sight of your business and how well you are doing, right?
If I could only tell you about three numbers to help you with that, what would they be?
Here you go:
As a contractor, you want to know how each of your projects is doing and how well your business is doing in total. Your revenue is your contract/quote price to your customer(s) plus/minus all of your change orders.
You have your own method for determining how much you want to charge for a project. It could be labor hours plus materials, per square foot, fixed price, or add up the total of your subcontractor payments plus a profit/markup.
You have two kinds of expenses running your contracting business; direct costs and indirect costs.
Your direct costs are expenses that are known to be related to a particular project; you wouldn’t have that expense if you didn’t have that project. Examples are materials used on the job, labor on that job, trash removal from that job site…
Indirect costs are expenses are not related specifically to a project. These are like the rent for your office, utilities for your office, gas for your truck…
So what is your gross profit/margin?
It’s your revenue less your direct costs. Your left with the profit/margin on your project. This is usually expressed both as a dollar amount and as a percent of revenue.
This number comes when you subtract your “indirect costs” from your Gross Profit/Margin. In other words, this is a summary of all your projects and the overhead to run your business to give you your overall profitability.
All three of these numbers are important and you don’t want to look at just one of these without the other two as filters.
For example, if you look at just your revenue number, you may think your business is doing great because your revenue is up over last year or your budget. But if your direct costs are out of control, you may have individual projects where you are actually losing money.
Or, you look at all your projects and you're making money on all of them. Great, right?
Well, what if your overhead costs from running your contracting business are unusually high this year? If so, all of the profits from your projects will be wiped out by your overhead.
A good income statement for your business can disclose all three of these numbers for you and show individual projects and in total.
If you don’t currently have such a report or would like help with the bookkeeping of your contracting business, please contact me and we can discuss your needs.
Here at Consultant Bookkeeper LLC, I have experience working with general contractors. That is a real benefit to you, as that frees you up from having to train someone how your business works.