Tips on Increasing Profits in your Trades or Construction Business: Part 2

In the first part of this series, the attention on increasing profits was directed towards increasing revenue. What are some other ways to increase profits for your trades or construction business? Here are our next few tips:

Tip #5: Reduce direct costs.

Reducing your direct costs will increase what is referred to as your “gross profit margin.” Your gross profit margin indicates how profitable it is to deliver each job. By increasing your gross profit margin, by default your overall profit is going to improve.

Direct costs are the labor and materials you use to create your product or service.

Reviewing your Income Statement and understanding these thoroughly will help you in determining any costs that can be cut or reevaluated.

Tip #6: Reduce your overhead.

After reviewing your direct costs, the next category of expenses will be your overhead. These are your administrative costs it takes to run a business.

Many business owners have overhead costs they don’t need or use - but pay for them monthly! Reviewing your overhead from time to time helps you to spot these unnecessary expenses and reduce them.

When reviewing your overhead, ask yourself these questions: Is this expense necessary? Is it helpful to the customer journey? What am I using it for? The answers to these questions will help to determine whether you need to keep the costs or cut them out.

Tip #7: Prepare a budget regularly and stick to it as much as possible.

When running a business, it can be hard to fully predict everything coming up. However, the more you budget and prepare for the future, the better you will be at predicting costs.

And the more you plan, the more you will prepared.

Tightly controlling your expenses is the best way to make sure they don’t get out of control. Although it takes time, it will be well worth any effort you put into it.

At the end of the day, how much money you take home as the business owner is likely the reason you started your own business. It’s great to control your own destiny, and you should be well compensated for the hard work you put into the business.

Here’s a tip to get started. Review your financial reports for the last couple of months, and list out your expenses, line by line. Payroll, rent, insurance, etc.

How much is that cost per month? Once you know that, you’ll know roughly how many sales you’ll need to make to cover them. From there, you can work out your sales targets to exceed that “break-even” point and start to make some real profits.

Once you know your expenses, prepare a plan or budget for the current month. Review it weekly to make sure you’re staying on track - if you need to adjust it, no problem. Just make sure you stay on top of it! You’ll get better at it over time.

Tip #8: Stay away from credit or loans when possible.

There are different schools of thought when it comes to debt and loans. In our experience, we recommend staying away from credit cards or loans as much as possible. Why is that?

When you are paying for something with your hard-earned cash, it can help to re-evaluate purchasing decisions before pulling the trigger. Sometimes, even just taking that extra moment or two to think about it can help you to make better decisions.

Additionally, if you can’t afford something now, it can be hard to pay for it later.

Generally speaking, we recommend moving at the speed of cash. Of course, it’s your business - so you get to make the ultimate decision. But paying cash as much as possible will help to lower risk and also prevent you from potentially shooting yourself in the foot later down the line when you’re unable to keep up the payments on certain loans or credit.

If you would like help reviewing your numbers or finding out more about our services, schedule a free consultation: Click here to schedule your free consultation