What are you doing with your financial reports?
Do the reports you get at the end of the month tell you why your margins are down? Probably not. Do they tell you why you had a strong net profit but less cash in your checking account than you started with? Also probably not.
If this is the case, what you have isn't really a financial report — it's just another PDF.
Likely there is nothing wrong with the document. The numbers are right, the reports are accurate, and it showed up on time. But a report earns its keep by changing something you do, and many times these reports are quickly opened, skimmed, and filed.
This can cause problems
Sometimes you will have a good month that doesn't feel like one. Net profit is up but the checking account is lower than it was 30 days ago. Nobody made a mistake, and both of those numbers are accurate.
The money went somewhere, though. Some of it went into receivables, because a profitable job you finished in March is an invoice sitting at 45 days. Some went into materials you bought for a job you haven't billed yet. And then some went out as principal on the equipment loan. Maybe some went out as an estimated tax payment, and then a few owner draws.
None of that shows up on your P&L.
Maybe you ask yourself at the end of the month: how can I have such a good month on paper but hardly enough cash to cover payroll? Your report says one thing and your gut says another. What will you make decisions on?
Margins work the same way. If all your work lands in one income line and all your costs land in general "materials" and "labor" accounts, then a bad month tells you that margin dropped but it stops there. You can't see which job, which customer, or which crew, so there's nothing to go take action on.
The problems continue
The next estimate gets priced off the same lack of clarity. The customer who's quietly costing you money signs up for another job. Your project supervisor doesn't get that well-deserved raise because the checking account is tight. But you never find out for certain whether you are tight on cash from growth or from a job that lost money.
You end up making real decisions based on a feel, while the documents that could have answered the question sit in a folder.
Three things that make the difference
Compare every month against something. A single month by itself is a guessing game. Put it next to last month and next to the same month last year, and the numbers start talking to you. Your work might be seasonal, so a slow February next to January might not be helpful, while a slow February next to last February is worth your time.
Get your costs down to the job level. Split your cost of goods into labor, materials, subs, and equipment, and code each one to the job it belongs to. It takes some setup and some discipline from whoever enters the bills, and after a couple of months "margins are down" turns into "we need to stop offering this service."
End the review with one decision, not a list. Do one thing differently based on what you just read. Increase a price, make a phone call on an overdue invoice, or change the terms on the next estimate. Write it down where you'll see it next month, and then check whether it worked.
Keep in mind
You might not need more reporting. Most owners don't want or need more reports. They just need to know the answers to three questions: are sales improving, what costs are rising, and are these jobs actually making money.
So next month read your reports, but also use them.
Prosynergy Bookkeeping works with small businesses across the US. If you want a straight answer on what your last few months of reports are actually telling you, we're glad to look.
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