Nine Financial Mistakes Consistently Being Made by Trade & Construction Businesses

Want to be in that top 10%? Then check out the following common financial mistakes and look to fix them quickly. In less than 90-days you can fix most financial errors and become financially well organised. Even businesses that have been around for 10, 20 and 30 plus years still make some of the following mistakes.

Mistake #1 – Not Charging Enough

It is unwise to charge too much; however, it is equally unwise to charge too little. There are two aspects to this mistake. Firstly, knowing what you should be charging to ensure that you are making a profit on every job, and secondly, charging what you really are worth. Plenty of businesses that we start working with are undercharging their services simply because they are not aware of the actual running costs of their business and what is required to cover these costs and make a profit.

Mistake #2 – No Allowance for Overhead Costs When Charging Out

When you charge out your labour do you include the overhead cost of managing that one hour of labour? Plenty of trade businesses undercharge, thinking that all they need to do is cover the cost of the hourly rate that they are paying the person plus a margin on top. This does not consider the actual cost of managing this person in the business which can be surprisingly high.

Mistake #3 – Not Measuring Gross Profit

Gross Profit (GP) is your true (real) income from jobs. If you don’t know your average gross margin, how can you improve it? You need to track every dollar spent on materials, direct labour, subcontractors, waste, and delivery. Then, measure what’s left. That number pays your overheads and creates actual profit. Ignore it, and you’ll never know why you are not making any profit at all. How much does your businesses GP need to be? More that it is right now is the simple answer. Start measuring GP to be able to start managing it!

Mistake #4 – No Cash Reserves

It is not a matter of if, it’s a matter of when, you will need some cash reserves to get through either a slump in sales or perhaps a climatic situation such as wet weather, when work cannot be completed and you still must maintain the business overheads. Gradually building up some cash reserves overtime from today onwards will ensure you have a buffer for such situations. Start off by getting at least 3-4 weeks’ worth of operating expenses built up in cash reserves. Gradually build this to 2-3 months’ worth.

Mistake #5 – No Cash Flow Forecast

How do you know if you are winning in your business? For many trade businesses owners if they have money in the bank then they are happy. Yet, this does not tell them what the forecast income is going to be. Aim to make visible what the next 3-months of cashflow looks like. This allows you to deal with challenges proactively rather than last minute.