Managing your finances is one of the most important parts of a contractor business. It doesn’t matter how many jobs you’re landing, if the finances are not well managed, things can go downhill fast and you may end up losing more money than you’re making.
This is directly linked to your pricing, which shouldn’t be seen as just a way to land jobs, but also as a way to filter jobs.
These tips and strategies should help you keep your finances in a healthy state, while making it easier to pursue fair pricing and investing in your business.
Set a long-term strategy
It’s worth having a meeting with your partners or taking the time yourself, as often as you find useful, to align your long-term goals and projects. At least once a year is a given, but you can also have one every six or three months, depending on how fast things are going.
The idea behind this “roundup” is to decide with your employees or business partners what’s working, what isn’t, and what your business should focus on for the future. For example, many contractors will find that certain jobs are too costly and time consuming for the profit they make, so you may decide to drop that specific job for the time being.
Similarly, you may find that you’re landing dozens of small jobs per week, but they are not super profitable. Since your problem isn’t turning a lead into a job, a possible solution would be to increase your price a bit to filter out some jobs – meaning you’ll get the same amount of money or more, but for less hassle.
Aligning your long-term strategy will allow you to adjust your pricing according to your current job inflow and objectives.
Calculate your overheads
This is specific to beginners in the business, but it should be something you always have a grasp on. Having these written down in a way that’s easy to update makes it super easy to see where your money is going – and where it could be going.
Here are some of the things you should account for:
- Rent for office or workspace (along with utility bills)
- Company vehicle (fuel, maintenance, insurance, etc.)
- Uniform and protective gear (glasses, gloves, etc.)
- Marketing material (business cards, advertising)
- Office supplies (custom or not)
- Online marketing (website cost, Facebook paid ads, etc.)
- Bank charges (most business accounts have period fees)
- Software costs
- Hardware costs (company cell phone, computer)
Minimize taxable income
This one is pretty self-explanatory. Paying your taxes is important, but you don’t need to pay more than you have to. Make some research or talk to an accountant to figure out how to minimize taxable income and save yourself a lot of money every year.
A practical example would be to purchase a company vehicle – an investment in your business that can be deducted from taxes.
Price of resources
Contractors tend to find a provider they agree with and stick to them, but when running a business you have to keep an eye out for better opportunities – after all, whatever you spend on resources is money you’re not keeping for yourself.
Always stay on the lookout for providers with better prices. Your resources are necessary to run the business and you absolutely need them, which can lead some providers to raise their prices (since you have no choice but to seek them out). If you find better rates, it’s always worth investigating.
Competitor rates
Naturally, competitor rates are highly influential when it comes to the contractor business, since in most cases, homeowners seek prices from several contractors before commiting to one.
The lowest price is always a cheap way to get some attention, but it can also indirectly serve as a red flag to homeowners. A quote that seems too good to be true probably is, and usually means the contractor is cutting corners or offering low quality service.
There are other more effective ways to differentiate yourself from the competition. Compare competitor rates to have an idea of your price range, but simply shooting for below the market price will be detrimental to your business!
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