This week I hosted a mini seminar for a software developer who has produced a simple, cost effective and smart costing and project management program for builders.  I am always on the lookout for tools like this to help my clients make their business more efficient and this program was no exception.  The developer was an ex builder who had been in the game for years, had built some 450 houses and shared the same frustrations as most builders in his earlier years around the time it takes to cost a project and the complexity of managing multiple projects, without loosing your mind, your shirt, or both.

At the start he asked two questions of the builders present which I related to very closely in what I do with builders myself.  I thought it worth repeating them here and suggest you consider them carefully.  The audience was builders, but the questions equally apply to ANY business owner.  If you don’t know the answers to them for your company, I suggest you find out, before it is too late and you risk going out of business.


Question 1.  How much does it cost to run your business?

Do you know this?  This is effectively the overheads that are necessary to be in business and must be covered to keep your head above water.  In an ideal world this would include an allowance for a management salary for you as the owner/manager of your business, to compensate you for the risk and time you put in.


Question 2.  How much sales revenue do you need to generate in order to cover your overheads?

In order to answer this you need to know the gross margin (profit) percentage that your business generates.  Unfortunately you are unlikely to find this figure ACCURATELY expressed on the accounts that your accountant provides, even if it says so.  Most accountants don’t provide your annual accounts in a format that is useful to manage your business, so you need to calculate the REAL gross profit percentage separately.  I can help you do this, so contact me to discuss how to do it.  Once you have this figure you divide your overhead $ by the gross profit %, and this will give your the BREAK EVEN sales figure.  Break even means you are covering your costs, but making no net profit.


I thought these 2 questions cut to the heart of the profit question for most business owners, especially in the trades.  Knowing a few key numbers like this gives you the ability to change a few strategies in the company and monitor the effects on profit, cash flow (and blood pressure as an aside).  You don’t need a degree in accounting to manage the financial side of your business, but you do need to take the time to understand a key key concepts and then put a regular monitoring system in place.  More profit is the key to future freedom and allows you to hire people, invest in better gear, reduce debt and grow a private asset base for your retirement.  Talk to me to find out more.


Andy Burrows   The Trades Coach