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The new year means another 12 months officially in the books for your field service company. Congratulations! While remaining in business for another year is a version of success, there is more to making it in business than making money. (Seriously!) In this article, we'll look at the different ways you can evaluate your success and spot the areas of your business that could use improvement. You have to gather your books for taxes anyway, so why not give your business a checkup at the same time?
Do Your Books
No matter how large or small your company, you need to do your books to pay taxes and remain in compliance with local and federal laws. You might have a shoebox full of receipts, a well-organized QuickBooks system, or something in between. Whether you hire a bookkeeper or enter in everything yourself, take the time to balance everything and figure out where you stand. If you work as a sole proprietor, you can sometimes get in the habit of pocketing your profits and paying bills as they come in. However, if you run your business that way, you risk running it into the ground. For those of you with larger companies and payroll, you probably have some system in place to make sure your people, suppliers, and utilities all get paid. That’s great, but it’s not the same as a year-end evaluation.
Year-End Evaluations
Time to total everything up and see where you stand! “Your business is a living breathing thing,” says Robert Herjavec of Shark Tank, “its measure of value is how much cash it can produce.” Ideally, you should have a Balance Sheet to illustrate how well your business was doing when the calendar ran out. This snapshot will list out any assets your company has as well as any liabilities or equity. Think of it as your net worth as a company. You will also need an Income Statement, which weighs the money you’ve brought in versus the money you have going out. Finally, and maybe most importantly, you will need a Cash Flow Statement. This financial document looks at the cash your company has actually received and where it all went. You can use it to see how much cashflow you generated since the beginning of the year.
Analyze the numbers.
Anyone can look at total revenue, but how should you absorb these numbers? What does healthy growth look like? These are important questions. Obviously, if you are operating in the black, that’s a good thing, but it’s not the end of the story. Let’s start with the basics. First, look at whether you have fulfilled all of your obligations. Did you pay your taxes? What about your payroll and the taxes that resulted from those wages? Do you have unpaid bills? A long-term payment plan can be a smart idea, but delaying payment on a utility because money is tight is the opposite of success. Your income should be sufficient to cover all of your expenses, including your own salary, and then some. You should have enough cash flow to cover your short-term obligations. Second, how do your numbers compare to last year’s figures? Did they increase at all? If not, you may have a problem. With factors like inflation, earning the same amount (aka “treading water”) is the same thing as drowning. Today’s dollars are worth less than yesterday’s income. You need to see your earnings increase by a small amount year over year at a minimum to balance that out.
Where do you want to be in five years?
Finally, look to the future and evaluate your preparations for what comes next. For example, how much money did you reinvest in your company? If your books look good compared to the last fiscal year, but you haven’t bought any new equipment, paid for advertising, or invested in additional job training, you are fooling yourself. Part of staying in business and being successful is planning for tomorrow. It’s true in any business but it is extra important in the home service industries. From HVAC to plumbing, your business is wherever your customers are. You need to make sure that you look the part (in a good way), your vehicle looks professional, your equipment remains in good condition, and your logo/signage doesn't need replacement. Also, consider how you want your business to evolve over the next few years. You might need to start putting a plan in place today to get where you want to go.
Conclusion
Remember, running a successful business means more than just watching revenue. In order for your company to exist next year, you need to post a profit while also reinvesting in your business, accounting for inflation, and tucking away some business profits for a rainy day.
