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10 Causes of Construction Business Owner Financial Anxiety

 

10 Causes of Construction Business Owner Financial Anxiety and What to Do About Them

Causes of Financial Anxiety for contractors

 

Anxiety affects our whole being.  It affects how we feel, how we behave and has very real physical symptoms.   It can be exhausting and debilitating.  Mild anxiety is vague and unsettling.   Contractors with lower total sales volumes might be suffering already from what I call mild financial anxiety.   Then, as the number of dollars going through the business increases, say above $4-500K, a contractor can suffer from severe financial anxiety, which for some business owners can be extremely debilitating.  Not only can it be personally debilitating, it can also have devastating effects on the health of the business.

 

Below is a partial list of causes of financial anxiety for construction business owners.   I see these causes all the time when I work with contractors to eliminate them.  If you already have financial anxiety consider how many of these describe you and your business.   If you plan to grow your business make note of these causes.   You might want to address them before you grow.

 

Causes of financial anxiety

  1. Contractor anxietyNot knowing the true costs of being in business as your business grows and being surprised about the costs when the bills come in.
  2. Not knowing in advance if you will have enough money to pay your bills and or meet payroll when they become due.
  3. Not knowing how much of the money in your checking account is profit and how much is unearned income for work not yet completed.
  4. Not knowing which project types are making money and which are not.
  5. Not knowing how much workers compensation insurance will actually cost you until you get audited.
  6. Not knowing if you made or lost money all year until your accountant does your taxes.
  7. Guessing at what to charge for labor rates.
  8. Guessing at what markup you should use.
  9. Wondering whether you will be selling or buying a job when negotiating price with a prospect.
  10. Fill in your own anxiety trigger(s) here: _______________________________________

 

What contractors can do to eliminate the anxiety

Contractor Financial System

 

 

All of the causes listed above can be solved by creating a true financial system for your business.   With a properly designed construction business financial system, and an accounting software program like QuickBooks to support it, your business can have the ability to:

 

  1. Predict overhead and direct costs
  2. Predetermine your mark-up and labor rates
  3. Track actual expenses against budgeted using the same format as when they were determined
  4. Make apples to apples estimated to actual job cost comparisons
  5. Track revenue and gross profit margins by cost categories (IE: materials, labor, subs, equipment...)
  6. Predict and track actual Workers Compensation exposure
  7. Potentially reduce workers comp costs if your state and or insurance provider allows you to use multiple classifications for the same employee
  8. Track accounts receivable and accounts payable to know in advance if receivables will cover payables
  9. Tell you if you are ahead or behind your customer(s) regarding money collected versus work performed
  10. Track revenue and earned gross profits by profit centers (IE: residential vs. commercial, remodeling vs. new construction...)
  11. Compare produced margins for project types your company performs (IE: kitchens, baths, roofs, decks, handyman...)
  12. Fill in your desired function here: _____________________________________________

 

Get the help you need to do it right!

Financial System for contractors

Just as most home owners shouldn’t design and construct their own home, most contractors shouldn’t attempt to design and construct their own financial system.   Without the proper knowledge and experience to do so you could be putting your business and your own personal health through unneeded anxiety.

If you see yourself in what I have described here, get the help you need to improve your business financial system and your health.   Find an expert to help you.  The cost to do so may be far less expensive than the health care bills if you don’t.

Let me know if you want my help.

 

 

 

Comments

Shawn: GREAT post; much of the financial anxiety suffered by construction business owners can be alleviated by THEIR better understanding of their financials. It always scares me when a business owner says "my bookkeeper handles all that, I've not got time to pay attention to those reports." That puts the owner in a potentially dangerous position of being held hostage by an employee with greater knowledge. As OWNER one of the primary responsibilities is to understand exactly where the money comes from and where it goes. 
Thanks for so clearly pointing out the ways to minimize financial anxiety!
Posted @ Monday, July 07, 2014 11:51 AM by Judith Miller
Thanks Shawn!  
 
Hi Judith!
Posted @ Monday, July 07, 2014 6:24 PM by Greg Antonioli
This should be printed and hung on the wall at your work station
Posted @ Wednesday, July 09, 2014 5:45 PM by Ray Ogburn
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