Creating Timely P&L Statements

When I ask contractors how many receive profit-loss statements within 15 days of the previous month’s business, fewer than 10{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} raise their hands. A few more hands go up when I ask who receives quarterly statements. The vast majority of PHC contractors take a look at their business numbers merely once a year. That’s when they have their accountant prepare a statement leading up to tax filing.

This means business is a guessing game for most of you. You don’t know what’s going on until it’s too late.

When an airplane flies long distances it has to make numerous mid-course corrections in its route. If it followed the same heading from beginning to end, a mistake of even a fraction of one degree would make it go many miles off course. A plane headed for Paris, France, might be looking for the airport over Spain or England!

Same with your business. Producing frequent P & L statements enables you to make mid-course corrections. For example, suppose you were losing $100 on a certain type of job, and you did on average one a month. After a year’s time it would end up costing you $1,200 in losses. With a monthly P & L, you could adjust your pricing or take other action to cut your losses to $100 or $200.

Now multiply that losing job by several others you may be pricing below cost. It’s not hard to see how quickly it adds up to thousands of dollars in losses over a year’s time. Your plane is about to run out of fuel midway over the Pacific Ocean!

DIY Accounting: A lot of you might be thinking, “I can’t afford to pay my accountant to produce a P & L statement every month.” You don’t have to. If you tend to detailed and consistent job costing you can develop your own P & L statements in-house rather than use the expensive services of a CPA.

The Job Cost attached gives all the information you need to produce the information needed. At the end of the month take the bottom portion for all jobs and all technicians, add them together, and you have an informative P & L.

Not only that, it provides you with a way to compare the performance of your individual service techs. I’m referring to the boxed data that shows sale per job and sale per hour. These are two important statistics that we track constantly. It tells us which of our service techs may need sales training, or perhaps ought to consider a career change.

It is simply a very good business practice to cost out every job. The same thing happens when a sale gets rung up at a department store or supermarket with those modern sophisticated cash registers. All the clerk does is rub a scanner over an item, and it clicks off the sale price, cost of merchandising, gross margin and other key data – in effect, a P & L statement for every individual item.

Putting It Together: Service work doesn’t lend itself to a simple scanning mechanism, but the principle is the same. Every company needs to track the time spent on billable and non billable tasks with as much precision as possible.

It is not as difficult as it may sound. You can do it even without a computer. Rounding off times to 15-minute segments is sufficient for most purposes. It is infinitely better than the guessing games most people play in our industry.

A key to putting all this together, is to keep track of your dollar-per-hour overhead (DPHO). I showed how to calculate this in my article “Calculating Dollar per Hour Overhead” that ran December 21st. Without DPHO you cannot derive accurate job costs, and without accurate job costs you cannot put together an intelligent P & L statement – or a profitable selling price.

All statements should be structured to show “gross profit” and “net profit.” The difference between them is overhead. Overhead for a successful money making company in the service business generally runs around 45{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} of sales. This means your gross profit percentage must be at least that high to avoid losing money. A gross profit percentage of 60{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} would leave you with a healthy 15{938cd9e8dae860e800efc538277d4f7684e6f6981618ba70d1c34357a53c2e1f} in net profit percentage. Consider shooting for such figures.

Once again I wish to reiterate my belief that the biggest problems in our industry are the number of contractors who are “flying blind” with regard to the business of contracting. They may be terrific mechanics and good people, but they are destroying themselves and dragging the rest of us down with them by failing to grasp the basics of simple business math.

Even worse, many don’t even try. Don’t be one of them. Start crunching those numbers. The business you save will be your own.

Keeping Track of Job Costs

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