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Nine Numbers Construction Business Owners Need to Know

05/15/24

Are you in business to make a profit? If so, how much profit do you make? Like most business owners, you probably don’t even know. Why?  Because you are probably not focusing on what really counts: your numbers. You spend time bidding, ordering materials, scheduling crews, and hoping the bottom line works out. Plus, you don’t like to be bothered with numbers and pass them off to a bookkeeper (or spouse) to manage and worry about.

It seems as if business owners hope hard work will eventually make them some money. But the odds of hitting a jackpot, winning the lottery, or inheriting a fortune to make money are better than running their businesses the way they do. It takes focus on nine necessary numbers to keep you headed in the right direction. The following is a list of numbers you must know, track, and review on an ongoing weekly and monthly basis, even if you hate numbers:

1. Know your profit numbers

Are you hitting your profit goals or do you even know what your target is for the year? In a survey of over 2,500 contractors, it was discovered that less than 40 percent had specific written net profit targets. Every year, sit down with your management team and decide how much gross and net profit you want to make in actual dollars, not percentages. To determine the specific profit number you want to hit, look at your equity and projected overhead for the year. Then, look at the risk you take to operate your business and decide how much profit you want to make based on the return you want to make.

2. Know your equity numbers

Equity or net worth is the actual value of your company or the sum of your total assets minus your total liabilities. It is found on the bottom of your balance sheet or financial statement. Every business owner’s top priority is to grow the net worth of their company. If your company doesn’t grow in equity, it can’t go out and do more work, increase bonding capacity, or grow. Do you know what your company is worth?

3. Know your overhead numbers

Making a profit starts with knowing how much money you need to make to cover your indirect fixed cost of doing business or overhead. Only 30 percent of contractors actually know what their annual overhead costs are to keep their company running. At the beginning of every year, calculate the amount of annual overhead expenses you anticipate spending to operate your company. Then, track it every month to make sure your actual expenses do not exceed your budget.

4. Know your sales numbers

Only 23 percent of construction company owners know or track their monthly and annual sales revenue goals. Do you? Track your sales numbers monthly to make sure you are on target to hit your annual sales, overhead, and profit goals. Unfortunately, only the top contractors set specific overhead, profit, and sales targets for the year and then track their progress. As a result, only the top contractors can make necessary adjustments to their estimating and bidding strategy, customer selection, project management, and field operations as the need arises.

5. Know your job cost numbers

Before you can bid on a job, you need to know exactly what it will cost to build. In addition, not knowing accurate labor and equipment costs creates inaccurate bids. Sit down with your accounting manager to get an accurate cost for every employee and piece of equipment you own. For labor, include all taxes, insurance, worker’s compensation, health insurance, vacation, union dues, overtime, small tools, training, pension, profit sharing, and any other benefits you provide. For equipment, include the purchase cost, finance and interest, payments, insurance, maintenance, tires, gas, and repairs. Next you must have an accounting system and software to track your actual job costs by cost code or work task. From these printouts, you can verify the numbers to use for estimating new projects. If you don’t know what it costs to build, it’s next to impossible to make money.

6. Know your contract numbers

Top construction business owners know their contract numbers, including completed and current jobs in progress. This will show how well you did on past jobs and how well you are doing on current jobs. You should have a report listing all completed and current projects including: Job Name, Start Date, Project Manager, Superintendent, Foreman, Contract Amount, Estimated Final Cost, Bid Markup, Actual Final Markup, Variance, Costs-to-Date, Percent Complete, Profit-to-Date, Amount Earned-to- Date, Amount Billed, Estimated Cost to Complete, and Contract Balance.

7. Know your receivable numbers

You can’t make money unless you collect what you are owed. Doing work is fun, but putting money in the bank is better. No one wants to call deadbeat customers and ask for money. Stay focused on collecting what is owed by getting an updated weekly accounts receivable aging report to review showing all of your outstanding invoices and due dates.

8. Know your liability numbers

To keep your eye on the ball, you have to know your outstanding liabilities and debt. Create a report listing out all of your debts, liabilities, and balloon or one- time payments due in the near future. Don’t forget to include your: Line of Credit, Other Credit Loans, Equipment Loans, Future Tax Payments, or Real Estate Loans.

9. Know your cash numbers

Cash is king and the life-blood of your business. Iin order to make good decisions, you need to have a report of your cash position every week. Include the following: Bank Deposits, Cash in Bank Accounts, Weekly Payroll Cost, Weekly Equipment Cost, Weekly Overhead Costs, and Investments.

Doing great work doesn’t really matter unless you make it your priority to always make a profit. Don’t delegate or ignore the most important part of your business. Follow these nine necessary numbers and stay on track toward becoming one of the top contractors in your market. Every week, take at least one hour to review these financial figures with your key management team and accounting manager. This small amount of time every week will give you a much better return on your investment than taking the time to visit a jobsite and second guessing your foreman on what they already know.

Business - Commercial Construction Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.