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Construction business benefits from understanding the numbers

peterhetherington_img1-1
Published by:
Peter Hetherington
Published on:
June 08, 2016
Modoras Accounting (QLD) Pty Ltd ABN 81 601 145 215

Mike owns and operates a construction business specializing in commercial properties. The business has been running for more than 20 years and has grown gradually over the years, with revenue now into eight figures. Unfortunately, profit margins are very slim and last year, Mike’s business barely broke even and he was unable to draw his usual dividend at the year end.

Mike’s accountant proposed a half-day session focused on the key numbers in the business. Together, they put together a plan to increase revenue by 50% over the next three years without increasing the cost base significantly. The starting point for that plan was to unearth inefficiencies in the business’ processes to cut significant time off the average build, enabling Mike and his team to do more with less. As the plan was implemented, profitability increased along with revenue.

Mike’s accountant also got him focused on his receivables. It transpired that on average, it was taking customers 90 days to pay despite agreed terms of 45 days. By crunching the numbers, it became apparent that even a reduction to 60 days with no increase in revenue would improve the cash position significantly, allowing Mike to take his wife on that Europe trip he had promised her for the past 10 years.

Experienced small-business owners will probably agree on one business maxim: We manage what we measure. You should understand which numbers or ratios are critical in your business and industry and manage, monitor and adjust your business plans and models around them. Lastly, don’t just look at your numbers to determine what needs fixing. Use them to pinpoint what’s working well in your business and do more of that.

All in all, a great outcome from a simple planning meeting. If you are frustrated with your revenue, profitability or cash flow, contact us today and we’ll be in touch to discuss how we can help.

IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (QLD) Pty. Ltd. ABN 81 601 145 215. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (QLD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (QLD) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (QLD) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (QLD) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.

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