Transcript
Hey everyone! Leeroy from Level here. And today, I'm going to demonstrate why your profit and loss statement, isn't the best tool to make business decisions from. And in fact, what you should be relying on is your project budget.
What's the single most important decision you need to make as a business owner? What price my jobs at. Without pricing your jobs properly, there is no way you can dream of creating a sustainable business because the number one rule in a construction business is to charge more than it costs to run a project.
I'm going to show you why the profit and loss statement isn't good at determining whether you're pricing jobs properly. Let's imagine you were a remodeler and you've done 2 bathroom remodels and a kitchen remodel this year. You log onto QuickBooks, you download your profit and loss statement. And what you find is you have sales of $57,000.
You have labor costs of $23,000. You have subcontractor costs of $9,000 and you have material costs of $15,000 ultimately resulting in the gross profit of $10,000. Everything looks great, right? Keep doing what you're doing? The reality is if you dive into this information a little further, through your budget, what you'll find is a different story.
On the right side of the board here, what I've shown you is your actual to budget comparison for each of those projects. And what you'll find is that you're actually pricing bathroom remodels incorrectly. This year, you've lost $9,000 because you priced your jobs incorrectly. And when it came to your kitchen remodel, you were spot on with that.
And in fact, that's what saved you from running a loss this year. So what does this information tell you? It tells you, next time I go estimate bathrooms, maybe I should go look into what causing this pricing error and fix that! The reality is you would never get this information unless you're doing post-mortems on your jobs.
And when I say post-mortems, I mean, comparing your actuals to your estimates. So going forward, I urge you to please go and do your budget to actual comparisons. And that way you can go to bed easier, knowing that you're pricing your jobs properly. Thank you very much.