30-SECOND SUMMARY |
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Step-by-step strategy to building a strong financial plan. |
Why failure is inevitable, and key takeaways so you don’t make the same mistakes. |
The true definition of a healthy net profit, and how to get you there. |
Structuring your P&L, and what your accountant can’t tell you. |
The difference between revenue, variable and fixed costs. |
The dangers of being a financial freewheeler in the contracting realm. |
Watch Episode 14 of the Contractor Evolution ShoW
Listen to Episode 14
Read a Summary of Episode 14
Financials: the very word conjures images of bean counters hunched over their desks, mired in numbers and bottom lines.
It’s hardly what you dreamed of doing when you started your business, but the brutal truth is that running your business without budgeting skills is like driving a Ferrari with blinders on: sooner or later, you’ll hit that curve and fly off the road.
Good budgeting skills not only make your decisions as a leader more informed, they enhance your leadership abilities: your strategies and promises will be firmly supported by the numbers.
So, how can you become a whizz at creating a great chart of accounts, balancing the books, and mapping out annual growth?
It’s easier than you think, as long as you don’t mind screwing up the first/second/third time. We’ve all been there; but in the end it becomes second nature. Last year, BTA hit 101% of a very large budget (and that budget was created months before the pandemic hit): that only comes from experience and repetition.
In this episode of Contractor Evolution, Benji and I explain how you can add financial know-how to your tool belt of skills – even if you were lousy at grade 8 math.
Dial in your own chart of accounts
Take the time and effort to do it yourself rather than copy pasting a template from your accountant. Consider the following: How are you categorizing your variable costs? “How are you categorizing your fixed expenses? How are you looking at the software that drives your business? How are you looking at payroll and salaries? All these elements and more need to be thoroughly determined.
Developing your own chart of accounts – and tweaking it occasionally to fit your language – will fit your business and management style, not someone else’s.
Take the time and effort to do it yourself rather than copy pasting a template from your accountant. Consider the following: How are you categorizing your variable costs? “How are you categorizing your fixed expenses? How are you looking at the software that drives your business? How are you looking at payroll and salaries? All these elements and more need to be thoroughly determined.
Study the numbers…….
To get to where you want to be financially, you have to analyze where you’ve already gone. Business owners at the very least should be doing a quarterly financial review with their accountant, financial controller, bookkeeper – examining what they budgeted for a year ago versus the actuals.
…..And learn from the past
I write comments throughout my budget to explain the rationale behind my numbers, because you can be sure that a few months down the line you will question how on earth you arrived at those numbers. That way if certain elements turn out to be way off during a fiscal year, I can review my comments and know how I arrived at that conclusion.
Make your budget poke-proof.
This is especially important when planning growth. My strategy is to imagine that I have to justify every figure to a group of fictional investors. You can be sure that investors would poke holes in my budgeting, and so should you. I have to have very rational logic if, for example, I say we’re going to do $3.2 million in revenue this year, how did I get there?
Be like Michael Jordan
How do you acquire budgeting skills? Basically, it’s all about the reps. It’s a lot like basketball: when Michael Jordan shot his first 100 free throws, he missed…a lot. Yes, you fail at first but you will develop all these skills through repetition and learning from your mistakes.
Failure is inevitable, but with each passing year your financial skills will keep growing, and I promise you by year four or five you’re going to be super dialed.
Plus, you’ll be surprised that number crunching isn’t as hard (or yawn-inducing) as you might think.
We hope you enjoy this episode of Contractor Evolution.
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