Certain businesses have unique needs that come into play when they start using QuickBooks to run their business and contracting is one of them. In this episode of MissionBusinessPodcast.com Bernard Roesch shares specific ways that a contracting business can use QuickBooks.
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If you don’t stay on top of your accounting and bookkeeping, it can cause problems for your business. In this episode of MissionBusinessPodcast.com Bernard Roesch shares a process you can use to stay on top of accounting in your business.
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In this episode of the Mission Business Podcast, we talk about specific metrics a business should track to gauge its overall profitability and health. While every business is unique and will have different metrics, there are foundation level metrics that apply to any business. In this episode, we share those metrics and how to use them.
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We’ve transcribed the audio into text and formatted it for easy reading below. Please excuse any typos or odd wording, as this transcript is taken directly from the spoken word within the audio above.
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Interviewer: Welcome to the Mission Business Podcast. What we’re going to talk about with Bernard today is specific metrics that you should be tracking in your business to gauge the overall health of the business.
Interviewer: Obviously every business is unique and there are going to be different numbers tracked in different businesses, but there are foundation level metrics that apply to any business. Before we get into specific metrics that you should be tracking, Bernard, can you share with us the overall importance of why a business needs to be tracking metrics?
Bernard: It’s important to track metrics because as a business owner you may be very much embroiled in the day-to-day business and you may have some preconceived notions as to what you should do to achieve a profitable situation with good cash flow.
Interviewer: That’s definitely a good point.
Interviewer: Let’s transition into talking about specific metrics that a business should be tracking. Can you share with us one specific metric that a business should be tracking and what next actions a business owner can actually take using that metric?
Bernard: As I‘ve said, sales is only one metric and everybody is thinking of capturing sales and how much do we sell. But in my opinion what’s more important than sales is the gross profit.
So, the bottom line is really what’s important for the business is to achieve a very healthy gross profit. My favorite metric is really the gross profit as a percentage of sales or gross margin. We want a business to be really taking a look at that and make sure we don’t inadvertently let this metric erode. We want to have healthy gross profit percentages.
Interviewer: How would different businesses go about actually tracking that gross profit percentage? Obviously different businesses have different numbers that impact that percentage. So how do you accommodate for that?
Bernard: Essentially in my world you have two types of businesses. You have businesses that sell goods and businesses that sell services.
If you’re selling goods, you want to have a good inventory system so that;
In case of service businesses, these would be more of project cost type. Say you have a consulting business. It would have a project cost and would require you to record the following information;
Once you have that, you can do a cost analysis and see how some of the products are more profitable than others.
Ideally you want to do more of the more profitable stuff and less of the less profitable stuff.
Interviewer: So apart from gross profit, what’s another metric that you’ve seen business owners make the mistake of not tracking?
Bernard: Obviously, once you’ve focused on gross profit, you’ll want to optimize your gross profit.
What’s the difference between gross profit or the topmost line and the bottom line? – It’s really your overhead expense and the cost of running your business.
These are the costs that are not directly attributable to either;
With the cost of your accounting, your rent, your insurance and all these costs, you really want to have a good command as to what really it is per month. Let’s say it’s $50,000 per month. You really want to have a sense to what this figure is and what this overhead cost or general cost amounts to, as a percentage of your gross profits.
Let’s say your gross profit is $70,000 a month and you find that your overhead is $50,000. So you look at that and you say, “Well, that’s about 75% of my gross profit.” Obviously you want your general expenses to be less than your gross profit so that you can have a healthy bottom line.
Interviewer: That’s definitely helpful. Between tracking gross profit and keeping track of your overhead, it sounds like you’re going to be in good position in your business to know those foundation level numbers in the business.
We’re going to be putting out more episodes and more content on the website about how to actually track these metrics and much more about running your business. Thank you so much for your time in reviewing this today, Bernard.
Bernard: You are very welcome.
You can contact us today to book a free consultation. We can do a comparative analysis of your business’s expenses and cash flow to work out the profitability percentage.
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