Know your numbers to build a stronger contracting business

By Jesse Sanchez.

Accurate financials, disciplined cash flow management and better job tracking can help contractors make more informed decisions as their businesses grow.

For contractors trying to grow a profitable business, increasing revenue is only part of the equation. Hurley Fox, owner of Fox & Partners, says understanding margins, cash flow and the true cost of completing each project is critical to determining whether that growth is actually strengthening the company. During this episode of From the Ground Up™, Hurley joined host Karol Weyman of OutdoorCoffeeShop™ to discuss common financial challenges contractors face and the systems that can help business owners make better decisions. Fox & Partners provides outsourced accounting,
controller and chief financial officer (CFO) services for small businesses across the country.

One of the most common financial missteps Hurley sees is a failure to fully understand gross margin. Tracking the labor and materials associated with individual jobs gives contractors greater visibility into their pricing and the resources required to grow. Hurley emphasized the importance of knowing those costs, sharing, “If you don't understand your gross margin, you won't understand how to price correctly. Or if you were to grow, how much else would you need to spend? Or how much cash do you need to keep on you?”

Cash flow requires similar attention because income on a financial statement does not necessarily represent the cash a contractor has available. Customer payment timing, debt, owner distributions and tax obligations can all affect how money moves through the business. Hurley said, highlighting the distinction, “Income does not equal cash flow in it for a lot of reasons.”

Seasonality can make that planning even more important. Contractors may experience months of strong profitability followed by slower periods, making it necessary to understand how much cash the business needs to maintain operations. Hurley suggested considering different services or customer segments that could generate work during slower periods while also setting aside cash when business is strong.

Technology can support those efforts through time tracking, expense management and project management tools, but adding more software does not automatically create greater efficiency. Contractors should instead focus on systems their teams will consistently use and make sure employees understand how to get the most value from them. Hurley cautioned against constantly searching for another platform, sharing, “The best software is the software that works for you and your team.”

Ultimately, reliable financial information gives contractors a clearer picture of where money is being made, where costs are increasing and whether changes to the business are producing results. By consistently monitoring project costs, margins and cash flow, owners can make decisions based on what their numbers are actually telling them.

Listen to the podcast or Watch the conversation to learn more about how understanding gross margins, cash flow and project costs can help contractors build financially stronger businesses!