3 Questions Every Growing Trades Business Owner Should Be Able to Answer Every Day

Running a growing trades business is hard and important work.

You've got crews to manage, jobs to finish, customers to take care of, materials to order, trucks that break at exactly the wrong time, and about 47 people who need something from you before you've finished your first cup of coffee.

Then quarterly tax time rolls around. Or your bank needs updated financials. Or the insurance company asks for information. Suddenly you're digging through reports trying to figure out what the heck they mean.

And everything feels a little...blurry.

You know you're busy. You know you're selling work. You know there's money coming in and a whole lot of money going out.

But what is actually happening financially?

If you're like a lot of trades owners, you'd probably rather go build five houses than spend an afternoon digging through your financial statements trying to figure it out.

I have almost 30 years of accounting experience, and I feel the same way.

Messy financials make me sad.

Because finance shouldn't feel like something you have to survive every quarter. When it's done right, finance can actually be fun. Your numbers should help you understand what's happening in the business you've worked so hard to build.

You don't need a 20-page financial report and 15 explanations to do that.

You need to be able to answer three questions:

1. Are you making money?

2. Do you have money?

3. Where did the money go?

🎥 Prefer to watch? Here's the Weird CPA explaining these three questions in five minutes.

Are You Making Money?

Before you say, “Yeah, of course we're making money,” let's peel the onion a little bit.

• Do you know what you're making on each job right now, while there's still time to do something about it?

• Do you have confidence that the profit you expect to make when the job is finished will actually match what you projected when you sold it?

• Can you quickly see which jobs are going great, which ones need your attention, and what is causing them to get off track?

• Can you look at sales and gross profit by customer? By job? Across every job currently in process?

• And most importantly, can you look at the whole picture and say with confidence: “Yep. I know how we're doing.”

Because that's very different from finding out three weeks after the month closes that gross profit wasn't what you expected.

A growing trades business is constantly moving. Labor changes. Material costs change. Schedules change. Jobs run long. Change orders happen. Sometimes a job that looked fantastic when you sold it slowly starts giving away its profit.

Knowing whether you're making money shouldn't just tell you what happened. It should help you see where you need to pay attention while you can still do something about it.

Do You Have Money?

Looking at your bank balance today isn't enough.

Sorry if I sound like your mom when I say this, but you've gotta balance the checkbook.

And in business, knowing how much money you really have to work with takes more than looking at today's bank balance.

First, you need to understand who owes you money.

How much do you have sitting in accounts receivable? How long does it normally take those receivables to turn into actual cash? Are your customers paying you on time? Are there old invoices sitting out there that everyone assumes will eventually get paid?

Because money someone owes you and money sitting in your bank account are two very different things.

Then you need to understand the other side:

Who do you owe?

You may have materials on the way that haven't been billed yet. Your crew has already worked hours you'll owe them for on the next payroll. Vendor invoices are coming due. Taxes, debt payments, insurance and equipment payments may already have a claim on some of the cash sitting in the bank.

So when you ask, “Do we have money?”, the answer isn't just today's bank balance.

You need to understand three things together:

• Cash in the bank.

• Who owes you.

• Who you owe.

That's a much clearer picture of the money you actually have to work with.

Where Did the Money Go?

This one is my absolute favorite. This is where the rubber meets the road.

You may have heard of a cash flow statement. It's supposed to show you the ins and outs of your cash. And it's an important financial statement.

But have you looked at one lately?

There can be so many lines and accounting adjustments that even with almost 30 years of accounting experience, I sometimes have a hard time looking at one and explaining in a single sentence: “Okay. What actually happened to our cash?”

I prefer to start with a much simpler picture.

How much cash did we actually collect from customers?

Notice I said collected, not billed. If you invoiced a customer but they haven't paid you yet, that money is still sitting in your receivables. It isn't cash yet.

Then, where did the cash you collected go?

How much did you pay for materials and supplies?

That's the cash that actually left your bank. It doesn't necessarily include materials you've already ordered or bills you haven't paid yet. Those are part of the bigger picture we talked about in Question #2.

How much did you pay your hardworking team?

Your crews, your office staff and the people who make the work happen every day.

Then there is everything else.

Interest. Taxes. Your home office. Insurance. Trucks. Software. Equipment. Debt payments. And all those other expenses that don't look enormous individually but can add up to a whole lot of cash.

Start with the cash you collected. Subtract where it went.

What's left?

That's the picture I want to see.

Not because every dollar going out is bad. Your business has to spend money to serve customers, take care of your team and grow.

But if we can clearly see where the money went, we can start asking the much more useful question:

Is that where we want it to go?

The Bottom Line

THE DHF IDEA

Financial clarity isn't knowing more numbers. It's being able to answer better questions.

WHAT YOU NEED TO WATCH FOR
Revenue and gross profit. Cash in the bank. Who owes you. Who you owe. And where the cash you're collecting is actually going.

THE HIDDEN OPPORTUNITY (BURIED TREASURE)
You may already have all the information you need. The opportunity may be making it simple enough to actually use every day.

THE QUESTION YOU MUST ASK YOURSELF RIGHT NOW
“Can I answer these three questions about my business today?”

The Hound's Take

I love numbers. I'm a Weird CPA. It's kind of required.

But more numbers don't automatically create more clarity.

If your financial reporting can't help you understand whether you're making money, whether you have money, and where the money went, I'd start there before adding another report.

Meet the Lead Hound

Howdy Y'all!

I'm Kathy (aka Shepherd), founder of Data Hounds Finance.

I am a CPA by trade, an engineer at heart, and happiest with dirt under my fingernails.

I'm a wife to an amazing husband who is also a trades business owner, a Jesus follower, and the proud caretaker of an ever-growing collection of cats, dogs, chickens, turkeys...and whatever else decides to wander onto our little farm.

For almost 30 years I've helped businesses untangle financial messes by doing one simple thing: fixing the system instead of fixing the same problem over and over.

Life's too short to spend it manually updating spreadsheets or redoing work a computer can finish in five seconds. I'd rather put technology to work so people can spend their time thinking, creating, serving customers, and building better businesses.

Whether I'm pulling weeds in the garden or weeds out of an accounting system, I'm usually asking the same question:

"How can we fix this once, and fix it right?"

Thanks for spending a few minutes with me.

Until next time...keep pulling weeds at the root and don't forget to enjoy the harvest.

Kathy