Why Am I Not Making Any Money - Part 4
by Kevin Lister In my first three articles of this four-part series, I shared with you the first nine of my top 12 profit drainers. In this month's article, I would like to share with you numbers ten, eleven and twelve. And, as a bonus, I have included a 13th profit drainer you should consider. If you would like to read my three previous articles, you can view them on our Web site, www.paradigmstrategies.com. |
Once you have trimmed the fat, I suggest that you create a budget for the upcoming year. By regularly monitoring expenses against your budget, you will prevent over-spending.
12. Declining Cash Flow
In business, cash flow is king. Yes, sales and profitability as very important, but no matter how much you sell, if you aren't collecting at a faster rate than you are spending, you will surely put yourself out of business. I have seen many good quality contractors close shop due to this issue. So, how do you prevent this? Here are a few suggestions:
One, take a look at your client contract. Your payment schedule should be spaced out evenly with more money collected at the front-end of the contract than the back-end. If this isn't the case, then you will need to modify it. Two, you should be collecting money at the start of and not the completion of a segment of a project. If you are not, I suggest changing this in your agreement as well. Also, you should bill as well as collect promptly, and collect in person whenever possible.
Three, when it comes to paying bills, pay them in thirty days, unless an early payment discount is offered. Also, if your payroll is disbursed weekly, consider paying it bi-weekly. This will save both time and money.13. (Bonus) Inflated Owner's Salary
I have included this additional profit drainer to my top twelve list because I see it so many times. Owners often blame the company for not having enough money to support themselves when in fact the business actually is providing for them very well. The issue really is that the owner is taking too much out of the company.
The rule of thumb is that the owner should take no more than 10% of sales as a salary, or five to ten thousand dollars more than their highest paid field employee. The maximum salary should be $125,000 to $150,000 - the average trades CEO salary.
If your company is struggling with profitability and, as the owner, you are taking more than suggested, you may want to look at ways to cut back on your living expenses.
I hope you enjoyed this four-part article, "Why Am I Not Making Any Money?" Hopefully, you have gleaned a few good ideas and thus put steps in place to improve your organization's health. If your business is struggling and you are not sure how to resolve this, please feel free to give me a call at 508-480-0010 or send me an email at the email address listed below. I can help.
If you have a business-related question that you would like me to answer in one of my upcoming articles, please feel free to contact me at info@paradigmstrategies.com. Also, if you would like to read any of my previously written Contractor Power newsletter articles, you can view them at our Web site www.paradigmstrategies.com. About the Author
Kevin Lister, founder and president of Paradigm Strategies, the business advising firm to the trades, is a leader in the field of business performance improvement. He possesses nearly 20 years experience in business management and consulting, effectively operating his own ventures and assisting others with realizing business success.
With an entrepreneurial spirit and CEO's point of view, Kevin brings hands-on expertise to helping building contractors, sub-contractors, and suppliers. Kevin has deep knowledge and understanding of the trades, based on 14 years in the construction industry, a family history of owning trades businesses, and a genuine interest and enjoyment in helping blue collar enterprises.
Kevin possesses a Masters of Business Administration (MBA) from Olin Graduate School of Business at Babson College and a Bachelor of Science in marketing from Bentley College. He teaches management and marketing for the University of Phoenix Online.
Kevin is a member of several professional and business organizations, including the Institute of Management Consultants (IMC), the Associated Subcontractors of Massachusetts (ASM), the Builders' Association of Greater Boston (BAGB) and the Boston Chapter of the National Association of the Remodeling Industry (NARI). |
