You’re probably sitting around thinking “Now that the year’s over what would Judith do with all this information?” Today’s your lucky day because I’ve been thinking the very same thing: after tidying up your Balance Sheet here are useful analysis you can do with year-end information.
But FIRST, make sure your Balance Sheet accounts are 100% accurate: all the way from checking to equity.
- No unexplained open checks or deposits older than 30 days. – same with credit cards;
- AR aging only showing client invoices you will collect;
- Same with AP – only invoices you intend to pay;
- Payroll liabilities tied into 4th Quarter PR tax reports;
- Workers comp and general liability balances are reasonable;
- and Retained Earnings accounts tied out to the 2015 tax return.
Only then you can dig into the Profit/Loss statement, because when the Balance Sheet is accurate the Profit/Loss is correct TO THE PENNY (even though there might be some mis-postings).
So now that you’re on the P&L Statement, you’ll want to:
- Compare the gross margin on the Profit/Loss statement (less WIP) to that from the Job Cost Reports – they should be within 2% (plus or minus);
- Compare the Gross Margin Percent on the Profit/Loss statement (including WIP) to that on the WIP Final GP% – again they should be within 2%, plus or minus;
Now for a really useful analysis: compare your estimated labor rate to that shown in your job cost reports. This will probably take some digging. From Quickbooks, Job Profitability Summary which is used to compare the GP%, Customize/Filter/Transaction Type should equal Paycheck and then double click on any large dollar job.
Here you’ll be taken into the detail of the numbers. Be sure to Customize Columns and add “Source Name” and “Qty” so you can see the employee and the number of hours.
Choose one paycheck and add up all the costs, divide by the number of hours shown on the first line and VOILA! You’ll have calculated the average labor cost actually hitting the job.
If this is different by more than 2% (again + or -) then you’ll have to do some more work! Download the Labor Burden Calculator from the RemodelersUniversity.com member’s resource library to determine how much field-employees really cost and compare that number to the estimated labor rate and the actual you’ve just figured.
And some other great tools in Calculator section of RemodelersUniversity.com is the Growth Sustainability Calculator as well as the Critical Ratios Tool. Now that your numbers are clean and pretty USE THEM to make 2017 one of your BEST YEARS EVER!
Happy New Year – be safe, work hard and enjoy yourself!