Many Australian trades enterprises are struggling to make a profit in an unpredictable, pandemic-affected economy. Increasing profit margins is a hard game no matter how accomplished you are at your job. You must assess your company’s existing position, learn how to secure the correct jobs, and adopt various cost-cutting strategies. The following are some successful ways of establishing healthy margins in your organization.
Make sure you get to grips with the figures
To get a comprehensive image of your company’s profitability, start by using leading accounting tools like Xero, Quick Books, or MYOB Online. The following are some key financial KPIs to keep an eye on:
- Net income: The difference between your company’s total profits and its costs and taxes.
- Gross profit per project: This metric indicates how profitable individual projects are.
- Gross profit per client: This metric helps you to recognise which types of customers are willing to pay extra for your services.
- Accounts receivable: Total outstanding bills for services provided.
- Accounts payable: The money you owe suppliers, subcontractors, and other vendors.
- Financial objectives: Establish revenue, spending, and profit targets to track your company’s progress.
Make use of the appropriate financial reports
To make productive business decisions, you must first understand where your money comes from, where it is going, and how much you have to spend. As a result, it’s critical to employ the following financial reports:
Income statements demonstrate how lucrative your firm is over the course of a month, quarter, or year. Revenue, costs, gross and net profit are all tracked on income statements. They also assist you in determining which services generate the most revenue and which are likely to cause you to lose money.
Balance sheets show your company’s present financial situation, including assets, liabilities, and equity. You can uncover bad debts and claim substantial tax deductions on assets like automobiles and heavy equipment if you keep a comprehensive record of your balance sheets.
Cash flow statements show how much money comes in and goes out of your business over a certain period of time. You can foresee future cash shortages and surpluses throughout the year by watching your company’s cash flow, allowing you to plan your investments accordingly. To protect your margins, for example, if you predict a revenue shortfall between July and September, you should scale down recruiting and significant equipment purchases.
Don’t be tempted to try and issue the lowest quotations
It’s tempting to undercut the competition’s pricing in order to get more customers in a competitive market. However, this will only result in brutal price wars in which rival trading companies submit increasingly modest offers to gain contracts. If you quote the lowest price, you’ll almost certainly wind up with a low-paying contract that will affect your bottom line. As you try to work with a tight budget in a frantic attempt to safeguard your razor-thin margins, overall project performance will suffer.
Focus on landing higher-margin contracts that are best suited to your company’s expertise to prevent these harmful results. You should avoid projects with minimal entry qualification requirements since you will be competing with many firms, and pricing will become a big concern. Concentrate on projects with higher profit margins, where your company’s unique capabilities, customer base, and track record distinguish you from the competition.
More essential, in order to secure profitable jobs, you need precise and realistic bids. Estimated task length, equipment, and material costs, labor expenses, and even location-specific pricing must all be included in project quotations. They should also account for fair service markups in order to ensure a healthy profit margin. It will be easier to generate these estimations if you create standardised pricing books based on prior work and current market trends. You may also utilize work management software to provide professional and competitive quotations for potential clients right away, ensuring that you’re the first company they think of.
Cut back on wasteful spending.
Cutting expenses anywhere you can in a trades firm may have a huge influence on your profit margins. Here are a few easy strategies that can help you save hundreds of dollars per month:
- Make detailed project schedules so that field personnel don’t work longer than necessary and you don’t have to pay more for overtime.
- Check on your tradie insurance policy the cost of premiums and limits of cover can change over time, make sure you are properly covered and not overpaying.
- Standardize work practices to keep field personnel focused and avoid accidents that might cause project delays.
- To save money on gas and travel, use smart navigation applications.
- Regularly maintain tools and equipment to avoid costly repairs and replacements.
- Keep track of how much material you’ve used, so you know when to get more.
- To prevent costly late penalties, pay equipment and material providers as soon as possible.
Make use of modern technologies
The profitability of your firm may be greatly increased by streamlining back-office activities. Combining job management and accounting software to automate invoicing procedures, for example, relieves your company of time-consuming and error-prone paperwork. Field employees may simply enter project-related charges into the accounting database and produce invoices on the spot with job management software. When key project milestones are accomplished, you may establish automated reminders and offer electronic payment alternatives, ensuring that your firm is paid on time.
Furthermore, by processing work orders and locating the most competent specialists for the project, top job management software may automate dispatching.
The increases in efficiency that come with using these technology solutions have far-reaching soft benefits as well. Professionally handled projects and quick payment procedures will boost your customer experience and lead to more word-of-mouth recommendations.
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