Anne Van Delst, CPA, CA, Partner
Congratulations! Your sales are the highest they’ve ever been, your company has won numerous contracts through the competitive bidding process, and the future has never seemed so promising. You feel as though you have finally found the key to successful bidding and believe this year will bring a record profit. So, despite the recent success, why do your financial statements show only a small increase in the bottom line? Let’s review a few key fundamentals in evaluating how your business is being run.
Leaving Too Much on the Table
The way many businesses operate is changing. Technology has made its way into all aspects of our lives and information is available to assist business owners in their operations like never before. Not only has technology become a valuable tool in preparing bids and quotes in order to secure that next contract, it also plays a key role in evaluating the actual profit margin achieved on a job. Once you have secured the contract, it is important to track all related job costs in order to be able to compare your actual results to the original bid. Did you achieve the margins that you expected when you bid? If not, have you looked into why? Monitoring actual results will allow you to continually fine-tune your bidding process to ensure you’re achieving the expected margins on your jobs.
Monitoring Overhead Costs
Does your company monitor spending on overhead or administrative costs? These are costs not directly associated with a particular job or contract but assist with the company’s day-to-day operations. Establishing an annual budget for overhead costs will help to determine what profit is required from your jobs to cover the operational or administration costs. For example, have you determined how much you want to spend on advertising and promotion? Establishing proper procedures and policies to monitor your company’s indirect costs will have a direct impact on the bottom line.
Evaluating Your Labour Needs
Do you have the right number of employees with the skills necessary to get a job done properly? Finding a key employee at the right time can be a challenge; promoting from within may be the answer. Time and experience can help business owners learn an employee’s strengths and weaknesses, allowing each employee to be assigned tasks in which they will shine. It will also help determine if additional staff is required and for which tasks.
Making the Most of Your Management Team
It is important to have an effective management team in place to help manage the business. This means ensuring the right people are in the right roles. Does your team have the skills necessary to ensure you get the information needed to properly analyze your bids against the actual costs on a timely basis? Your management team should be evaluated for their skills set, as well as their capacity to take on the additional tasks.
Listening to Key Employees
Developing good relationships with loyal, long-term employees can be beneficial to your company. Once engaged, they generally put the company’s best interests first. Consider offering incentives as appreciation and allowing them to share in the corporate profits when they play a key role in the company’s operations. Treat them with respect and show them they are valued and that their opinions matter; they can often provide a unique view on what is happening in the field. They can also tell you how new employees are doing and if they should be kept past their probationary period.
The True Cost of Hiring New Staff
Many people think only of gross pay when they consider hiring an additional employee. The true cost of an employee goes beyond the wages paid to them; it includes the employer portion of Canada Pension Plan (CPP), employment insurance (EI) and any additional workers compensation and health taxes paid on gross earnings. Employees also have a vacation entitlement that is, at minimum, equivalent to 4% of their annual income or two weeks per year. If the employee belongs to a union, there may be additional costs associated with welfare, union dues and higher vacation entitlements as determined under the active labour agreement. In some cases, it may also be necessary to purchase additional tools and equipment for a new employee to work efficiently.
Something else to consider when hiring a new employee is whether or not the person will fit into the existing corporate culture. Beware of workers who cause unrest among your current employees while trying to demonstrate to you their sense of worth. To minimize surprises going forward, make sure you factor in all the costs and implications when you bring in new staff. Apprenticeship tax credits are also available to employers; contact us to see if you qualify.
Getting Professional Advice
As you grow, surround yourself with advisors you trust; specifically bankers, lawyers, and accountants who know your industry. They will also have the necessary experience, knowledge, and relationships needed to help you succeed. Their expertise can help you make the right decisions when you need to, allowing you to focus your time doing what you do best while your company continues to achieve growth.
Above are some of the key fundamentals in evaluating how your business is being run; each has been discussed in very brief detail and there are many other fundamentals that should be reviewed. Please contact us to discuss the key elements appropriate in evaluating your company’s performance. Investing the time and effort now can help your bottom line in the future.