Three months ago, Hank was ready to pull his hair out. He scanned through financial documents trying to figure out why the business wasn't making enough profit. He'd hired another technician, so that would've brought in more revenue…at least he thought.
"I don't understand what's going on," he said. "I've implemented systems that have helped me see my business's finances more clearly, so why am I not making enough revenue?"
Perhaps you've been in this situation, or you know a business owner who has. It's easy to think that, now that the right systems are in place, everything will magically fix itself. However, many business owners don't realize this truth right away: Clarity doesn't change the revenue; it changes the decisions. The decisions change everything else.
What Changes After the Diagnostic: Seeing Your Business Clearly for the First Time
Once Hank implemented three systems—a cashflow forecast, a job-level margin review, and a monthly financial conversation—he was finally able to take a breath. The cashflow forecast allowed him to see how certain decisions would impact the company over the next quarter, which allowed him to make decisions proactively instead of reactively.
The job-level margin review showed clearly where and why margins fell short of the desired target. From increased material costs to paying labor overtime, Hank can now clearly see where the margin shortages happen and can make decisions on how to mitigate these issues in the future.
The monthly financial conversation provides Hank with a way to hear another perspective on how his business is doing financially. Hank and his CFO spend this time discussing Hank's goals for the business and the steps he needs to take to get there. Hank also uses this time to bounce thoughts and ideas off the CFO.
Your Pricing Floor Is Like Your Refrigerant Charge: Get It Wrong and Everything Underperforms
When jobs and other things are underpriced, there's still a price to pay. For example, when jobs are underpriced, the business suffers a significant loss of revenue. When the cost of labor is low, technicians may underperform due to low morale because they're underpaid.
After doing some careful calculations, Hank knows the cost of his least expensive job. This informs him that he can't go any lower than that in order to meet profit and margin targets.
Adding Capacity: The Fully-Loaded Cost of a Tech vs. the BTUs You Need to Justify the Unit
Hank realized that he'd hired a technician out of desperation rather than strategic planning. After looking through the company's financial documents, he realized that if he'd taken the time to forecast how adding an extra technician would affect the company's finances, he would've found that revenue slowed down after a month as they entered the slow season.
Fixing the Reading, Not the Symptom: Why Clarity (Not Improvement) Kills the Anxiety
Let's return to Hank's predicament from three months ago and look at where he is today. Hank no longer feels crippling anxiety. Since he's implemented these processes, he can think more clearly, and it's easier for him to see how his company is doing financially. He no longer feels as stressed out and anxious as he did before, he's sleeping better, and he actually enjoys the work. He has hope and ambition for his company's future.
Call to Action
Block 30 minutes this week for a financial review. Look at three numbers only: current cash position, last month's net margin, and the biggest upcoming expense. Make one decision based on what you see.
If you need additional assistance, book a complimentary consultation with Joseph.
Disclaimer: The information in this post is intended for general guidance purposes. For advice specific to your business finances or taxes, consult a licensed accountant or financial advisor.
