You put in your all. You’re busy. You’re having fun. By all appearances you’re a success. You’re making noise and there’s lots happening, but are you really making money?
One thing that I’ve seen across the board, from attorneys to graphic/web designers to architects, to consultants, to contractors and so on, is that the wheels may be turning, they’re putting in long hours, making things happen, but too often small business profitability is suffering. They’re not making the money they think they are, or believe they should be, and can’t pinpoint why.
If you’re a reseller or manufacture a product, the numbers are somewhat easier to track. But if you provide services, it’s a bit more tricky because you’re not just dealing with hard numbers, you’re dealing with time. And as we all know, time can be somewhat elusive. But with a little effort up front, you can determine if you’re pricing your services appropriately, as well as know if any time you can bill for is not getting invoiced, or just falling through the cracks some other way.
If you’re working hard, but not making the money you feel you should be, here are some things you can do to get on the right track:
- Keep a good, up to date set of books.
- Analyze your financial reports on a regular basis (monthly or at least quarterly).
- Keep track of how much time you estimate a particular job or task will take AND how much time it actually takes.
- Maintain a daily time tracking sheet for yourself and have any employees do the same. Make sure to capture all the time spent at work, categorizing what time is spent on what projects as well as any time spent on sales, marketing, administrative tasks, lunch and personal time. For any business that does hourly billing, as well as any business that quotes a project fee, it is essential to make sure that the time you estimate it will take to complete a project represents what actually goes into it. If not, adjust your pricing the next time.
- If you have more than one source of income, track revenue, time spent and expenses by type of project or matter. So for instance, if you’re a lawyer and do real estate closings as well as leases, track them separately. If you’re a contractor, track income, labor and expenses by the job as well as in total. Most bookkeeping softwares provide easy ways to do this.
- Know your competition, the companies that compete for the same clients and jobs that you do and offer the same quality and value. What do they charge? How are they positioned in the marketplace? What makes them unique?
- Know yourself: How are you positioned? What makes you different and better equipped to solve your clients problems?
If you’d like to be more profitable in your business, take a look at my Small Business Profitability program.
