A thriving contractor, regardless of his trade, often has a toolbox (and maybe a warehouse) overflowing with equipment. A painter might have ladders, brushes, and paint sprayers. A drywaller might have stilts, mud pans, and knives. A roofer might have nail guns and ladders. Profitable contractors understand that, as crucial as such tools are, they are not the most valuable tool that he should have in his toolbox. Those starting a contracting company would do well to understand that as well.
A ladder, hammer, or volt meter cannot assist a contractor to make the crucial judgements necessary to run a flourishing business. They won?t provide any assistance when he must analyze his numbers. The ability to evaluate specific crucial numbers will ultimately determine the the success of the contractor’s business. Without this ability his expertise at unclogging drains, or hanging wallpaper, or planting shrubs will not translate to a profitable business.
The most obvious figures that a contractor has to be able to evaluate are those on his financial statements. Knowing the difference between gross profit and net profit, concerning indirect costs and direct costs, between accounts payable and accounts receivable is enormously essential to making knowledgeable judgements about his business. Without this understanding he will not grasp what price to charge or even if his business is making money.
There are other, less evident, numbers that a contractor must also comprehend. As an example ,, he should know his expenditure per customer acquisition, the rate at which he closes estimates, his typical sale price, and more if he is to make informed judgements concerning marketing and advertising and sales. He should know the manner in which each of these affects his income statement and balance sheet. If he does not know and comprehend these statistics, he cannot conclude which advertising is valuable and which is a waste of money. His judgements become nothing more than a guess.
He should have the skill to recognize which services are profitable and which are not through costing each job. If he does not recognize this, he might continue providing a service that costs him money. And that can not be healthy for his company.
He must be able to calculate his mark up for materials. He should be able to properly price his services so that he can recover his company expenses and produce a profit. If he does not know this, he is operating his company in the dark.
A carpenter would not cut a board without first measuring the length needed. A plumber would not install a new faucet without first measuring for its correct location. A flooring installer would not order supplies without first measuring the area to be covered. But, these same contractors will frequently order advertising and marketing, make deals, and reach important business judgements without measuring. Too frequently they don?t understand their figures.
he understands that if he tries to execute his projects while not properly measuring he will squander supplies, time, and money. He has to understand that the same is true of each facet of his contracting company-if he does not properly evaluate particular key activities he will misuse his efforts and cash. And the solitary tool that will help him do that is an energetic and inquisitive brain.
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