For those who want to increase profits in their business (who doesn’t) you may feel like the only answer is adding more man power and taking on more work. It’s true you will increase revenue by taking on more work, and generally when you add more manpower you are able to go after more work and even larger projects. But does this increase profits? Not necessarily. If you are not ready to manage the increased volume of work and deal with the daily tasks of managing employees, it is likely you will not see an increased profit margin. In fact, you could actually see your profits decrease if your jobs are poorly managed!
So let’s look at 3 simple key items you can focus on to increase your profit margin without changing your daily business life.
1. Decrease Expenses – Look around you, are you paying for “things” you do not need or use? Is your shop or office lease negotiable? Can you lower the rate? Do you need an office or can you work from a home office? Have you checked your insurance company to be sure they are not over charging you? Is your shop full of material left over from jobs? Can this be used on existing jobs? Simply taking the time to look at what you are paying for and how much you are paying can save you hundreds, if not thousands of dollars every month.
2. Decrease your Debt – Now that you have reduced your expenses, take a look at your debt load. Some debt is okay from a tax and cash flow management stand point. However, the richest and most profitable business owners will tell you to pay that debt off! Vehicle payments, equipment payments and line of credit payments all begin to add up. Sure your bank gave you a killer interest rate and you’re using their money for nearly free, but you are also paying a large monthly payment for use of that “cheap” money. Reducing your debt can instantly free up thousands of dollars every month. This means that you no longer need to land a job or two to pay your bank notes. The money from those jobs goes straight into your pocket, and with the increase in cash flow, you can turn that cash towards adding manpower or software to help manage your business.
3. Increase Efficiency – This is, in my opinion, the biggest killer of profit a contractor will face. Material overrun, missed items on estimates, missed changes that could have been billed, manpower traveling to the supply house and gas station. So how do you manages these inefficiencies? First, make a quick list of your inefficiencies. Then rate them from easiest to fix to hardest to fix. Then begin fixing them! Looking at these issues from ease of correction, rather than the total cost aspect, gives you a greater chance of getting these issues corrected. If you have several small issues that will take little effort to change, get them changed and you instantly increase your profits. This gives you breathing room to go after the bigger, more complicated issues.