At On Track Business Management we help our clients achieve a better understanding of the complexities of accounting and financial reporting through financial analysis, and teaching them how to read a financial statement. Financial statements and reporting helps enable our clients to make better financial decisions with well-detailed financial analysis.
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Video Series Introduction
Learn the terminology for reading and understanding your company’s financial reports. Companies that take the time to work on their financial statements are more profitable than those who don’t. Financial statements tell a story of your company’s financial health.
In this video…
Hi, I’m Greg for On-Track Business Management. This is the first in a series of videos about reading your company’s financial statements. On-Track’s been consulting with owners of construction companies for 20 years. Most contractors don’t understand what their company financial reports are telling them. The owners who do learn to understand and take the time to work with their financial statements are more profitable than those that don’t. Numbers run businesses. Financial statements tell a very interesting story about your company’s profitability and financial health. Once you know the terminology or the lingo, the statements and concepts are easy to understand. They can validate your gut feeling on how the business is doing financially. You may notice trends, good or bad, and be able to take action on these trends and feel confident in those decisions.
Use the financial information to increase your profit. Some examples might be if your company overhead continues to go up, but revenue and direct expenses stay the same. First, you want to investigate why your overhead’s gone up and see if you can make any changes to reduce your overhead. If you can’t reduce overhead or increase revenue, your profit will be reduced. If your company’s been affected by the downturn in construction and you have a decrease in revenue, it may be possible to decrease your direct expense but not easy. You’ll likely need to decrease overhead or your profit. You might notice an increase in labor or burden cost. Perhaps your workers’ compensation rate has gone up due to an accident or a change in insurance policy. If this happens in the middle of a project that you can’t renegotiate your contract, you might start looking for ways to decrease your direct expenses or job costs. You may be able to decrease overhead rather than profit. Use your updated labor burden when estimating and bidding future jobs. Naturally, it’s best to anticipate an increase in labor costs before bidding the job.
What statements should construction businesses and owners review and how often? Not all companies will need to look at the same reports. You should review statements weekly. You could look at your cash that you have in the bank or job cost summaries. Also monthly, look at your balance sheet, your income statement, your work in process report. Also, quarterly. Quarterly and year-to-date income statements are very important. And annually. Year-to-date income statements comparing this year to last year are extremely important. Compare your monthly budget to actual income statements. In the next video, we’ll talk about choosing the right chart of accounts.
Next Video: Chart of Accounts