You might be thinking that reporting is a tool that is used in large companies only, however small businesses can benefit just as much as them! The main benefit of reporting is insight, an insight that you never would have had before. It may seem a bit daunting at first, with new names and numbers however with the right team you will be able to increase the performance of your business, noticing improvements month by month.
Now the true power of KPI's (Key performance indicators) come into place when you have something to compare it to. This can be previous years figures, flexed figures and so on. By placing current accurate statistics next to other meaningful statistics allows for our understanding to become relevant to the situation at hand. For example if I brought together our Sales for this quarter and compared them to a company like Apple, the outcome of the report becomes completely irrelevant and pointless, now when I compare them to our predicted figures, I am able to determine our performance in comparison to the prediction. This can tell me useful information like if we exceeded, met or fell short of our predicted figures. We can then move forward onto determining what was the cause for the variation.
Why do we recommend reporting?
The insights from reporting are invaluable, even with basic reporting seeing your gross profit and net (operational) profit, for example, you will be able to see how much profit percentage you are making on your jobs from your gross profit and how much your overheads are affecting your overall profit by seeing your net profit. If your net profit is around the 5% mark in the construction industry, this is quite risky and long term survival can be very hard.
A good net profit percentage is around 10-15%, anything more you are doing very well.
If you are just running a construction business, focused on the work and basing your business performance based of your bank account then this is where things can start to go wrong especially as you are growing!
Running a business from your bank account is probably more common than you would think as many business owners see this as the most important number in the business which in some cases might be true but there will be some many opportunities or even warning signs you will be missing by ignoring everything else.
The first tip we can give you is to get onto an accounting software as quick as possible, anything like Xero, Quickbooks, Sage, FreeAgent etc - this gives you instantly a strong foundation to move forward.
The second tip is receiving high quality and reliable reporting.... the only way you can do this is through good bookkeeping believe it or not! This is the biggest area where business owners will try and cut corners, to give you an idea on price, for a business around the £1 million turnover range will be looking to spend £300 - £450 a month on bookkeeping depending on amount the amount of transactions etc
The benefits you will receive from high quality bookkeeping will also extend further than the reporting, you now have some in your business learning the day to day transactions.
This really comes down to how often you need to be updated and how quickly your business changes. Management accounts rely dependently on good bookkeeping and sometimes bookkeeping can be limited by how quickly the transactions/receipts pass through the business.
Every construction business should be receiving daily bookkeeping in order to have accurate and up to date information. If you are still having your bookkeeping done once a month or worse once a quarter then you seriously need to consider changing accountants.
If you are generally asking this question then your current accounts are under serving you. This should be a basic offering from your accountants, at Saint Financial Group we offer free quarterly management accounts to give business owners an understanding off their performance and areas where they can be improving. On top of this, you receive a free business development manager to go through these reports once a quarter with you!
This article was written for Construction Insider by Saint Financial Group, a multidisciplinary group based in the UK that helps construction businesses develop and grow. SaintFG offers a range of quality solutions in supporting businesses.
Saint provides the luxury of free business consultancy for of our clients, call now for your free consultation with a friendly business advisor to discuss your burning questions and put that energy back into your business!
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