Do you know… I mean REALLY know… that the way you’re doing business is going to continue to be profitable as your revenues grow? Most people know that you have to have a positive margin on every unit sold (no, you can’t just “make it up on volume” as one hapless soul once put it). But knowing you should have positive margin on each job is different from knowing whether you really do.

At Directis we work with a number of businesses that are getting by and growing, but don’t use budgets to control their finances. When we get into developing their budget, one of the first tasks is to build the model for predicting revenues and direct costs. It has ceased to surprise me when business owners don’t really know whether they’re making money on any particular job – or which clients are more profitable to serve than others.

So many businesses run their finances by gut or intuition, which is fine when you’re small and it’s just you and a couple of other people, each keeping a very close eye on the piggy bank. As a business grows, though, it’s harder to keep on top of cost control and it becomes really counterproductive for the business owner to try to keep a lockdown on the purse strings.

Good management means predicting what will happen over a quarter or a year, and then monitoring what’s actually happening to make sure things are going according to plan. If results don’t follow the plan, you’ve got an opportunity to know how or why they went off the tracks. You simply cannot do this kind of planning if you’re still letting yourself get away with saying “every job is different.” By the time you’re big enough to have multiple staff, perhaps a few trucks on the road or crews in the shop, you need to put aside treating every job as unique and start looking for what patterns and consistent routines you can get into.

Drilling into a financial model to create a budget, and also put steps in place to reduce financial risks, is in the third module of our new Business Transformer program. Linda-Mary Bluma is working with a few clients (both small business and non-profit) right now on this sort of exercise. If you’re interested in learning more about this, please send us an email, or give us a call. All inquiries are confidential and carry no obligation.