Every business owner needs to keep the financial aspects of their company top of mind. Afterall, if revenues drastically decline this year will your company be able to survive? Adversely, if business is booming it’s important to know your profit margin to help determine the short-term and long-term fiscal goals of your company. As Orlando construction attorneys, we know that a company’s sustainability and success must align with their financial status. If you need assistance with the bidding process or negotiating a contract, speak with an Orlando construction attorney today.
In this four-part article, we are educating you on many of the most relevant financial issues that contractors need to evaluate for their business. In the first section, we focused on how to analyze spending patterns and mitigate expenses that are hurting your business. In this section, we will discuss how to analyze your company’s profit margin to ensure that you are reaching your benchmark milestones.
Know Your Profit Margin
As Benjamin Franklin once said, “Beware of little expenses. A small leak will sink a great ship.” Closely scrutinizing your spending habits is the primary task of a business owner. Afterall, you must ensure you are not “in the red” to have the capability to advance in your field of work. It’s also important to create obtainable benchmark goals for your profit margin as well. In fact, most contractors are so busy focused on their day-to-day performance requirements that they overlook their own profit margin. Further, they may not even have a system in place for determining this measurable data.
Stagnant Profits In Construction
In a highly competitive market, the average construction company is only netting between a two to eight percent profit margin annually. Understanding that most business owners experience stagnant profitably in the industry, contractors need to closely analyze their overhead and evaluate this number against their own annual net worth. Determining your profit margin and keeping track of your results can help set benchmarks annually.
Calculating Your Overhead Costs
As we will discuss in more detail in sections three and four, although it may be challenging to forecast your company’s total expenses over the next year, it’s critical that you break down labor, equipment, and material costs as best you can. For example, when estimating annual labor costs, it’s important to look beyond just the salary of every employee. Other costs that factor into labor including investing in training programs, health benefits, overtime wages, paid time off, insurance, workers compensation, and taxes as well.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.