Anxiety affects our whole being. It affects how we feel, how we behave and has very real physical symptoms. It can be exhausting and debilitating. Mild anxiety is vague and unsettling. Contractors with lower total sales volumes might be suffering already from what I call mild financial anxiety. Then, as the number of dollars going through the business increases, say above $4-500K, a contractor can suffer from severe financial anxiety, which for some business owners can be extremely debilitating. Not only can it be personally debilitating, it can also have devastating effects on the health of the business.
Below is a partial list of causes of financial anxiety for construction business owners. I see these causes all the time when I work with contractors to eliminate them. If you already have financial anxiety consider how many of these describe you and your business. If you plan to grow your business make note of these causes. You might want to address them before you grow.
Causes of financial anxiety
- Not knowing the true costs of being in business as your business grows and being surprised about the costs when the bills come in.
- Not knowing in advance if you will have enough money to pay your bills and or meet payroll when they become due.
- Not knowing how much of the money in your checking account is profit and how much is unearned income for work not yet completed.
- Not knowing which project types are making money and which are not.
- Not knowing how much workers compensation insurance will actually cost you until you get audited.
- Not knowing if you made or lost money all year until your accountant does your taxes.
- Guessing at what to charge for labor rates.
- Guessing at what markup you should use.
- Wondering whether you will be selling or buying a job when negotiating price with a prospect.
- Fill in your own anxiety trigger(s) here: _______________________________________
What contractors can do to eliminate the anxiety
All of the causes listed above can be solved by creating a true financial system for your business. With a properly designed construction business financial system, and an accounting software program like QuickBooks to support it, your business can have the ability to:
- Predict overhead and direct costs
- Predetermine your mark-up and labor rates
- Track actual expenses against budgeted using the same format as when they were determined
- Make apples to apples estimated to actual job cost comparisons
- Track revenue and gross profit margins by cost categories (IE: materials, labor, subs, equipment...)
- Predict and track actual Workers Compensation exposure
- Potentially reduce workers comp costs if your state and or insurance provider allows you to use multiple classifications for the same employee
- Track accounts receivable and accounts payable to know in advance if receivables will cover payables
- Tell you if you are ahead or behind your customer(s) regarding money collected versus work performed
- Track revenue and earned gross profits by profit centers (IE: residential vs. commercial, remodeling vs. new construction...)
- Compare produced margins for project types your company performs (IE: kitchens, baths, roofs, decks, handyman...)
- Fill in your desired function here
Get the help you need to do it right!
Just as most home owners shouldn't design and construct their own home, most contractors shouldn't attempt to design and construct their own financial system. Without the proper knowledge and experience to do so you could be putting your business and your own personal health through unneeded anxiety.
If you see yourself in what I have described here, get the help you need to improve your business financial system and your health. Find an expert to help you. The cost to do so may be far less expensive than the health care bills if you don't.
Shawn McCadden founded, operated, and sold a successful design/build company. A co-founder of the Residential Design/Build Institute, he speaks at industry events and consults with remodelers about owner issues, management, lead paint regulations and other industry issues. ShawnMcCadden.com email@example.com