How to Overcome a lack of Profit in your Electrical Business
How to overcome a lack of profit in your electrical business
I am sure that, like me, you started your own business to make a good life for you and your family. But sometimes the route to success is not as easy as it first appears! You work long hours, determined to make your business profitable, but at the end of the month you have precious little money left to pay yourself a decent wage for all that time and work. Not only that, you are exhausted, with no time to spend with your family. In this blog, I will outline a few simple steps you can take to overcome a lack of profit in your electrical business and to make sure you pay yourself a decent wage.
The basics
There are a few things that all business owners can do to make sure they are using their time both efficiently and effectively. A good exercise to show how you spend your time is to monitor what you do each day. This will show you how much time you spend doing electrical jobs for clients, and how much time you spend on other things like admin, chasing payments, collecting supplies, putting together quotes, etc. It will enable you to make decisions about:
· Deskilling jobs with tools and gadgets
· Deskilling jobs with apps and software
· Simplify admin procedures and/or whether to hire a virtual assistant to help with admin
· Removing tasks that drain your time for little reward
My freeFLOWING guide contains lots of tips to ensure your business is successful. Based on my own experiences, the FLOWING Guide outlines some basic steps you can take to steer clear of common mistakes and obstacles ensuring you overcome a lack of profit in your electrical business. But read on for more explanation…
Master your personal cashflow
When first starting out, you may have to accept that you will not earn much money, because profits will be ploughed back into the business. Personal situations can vary – married, or not; spouse working, or not; with children, or not; mortgage or rented accommodation? The amount needed to survive will therefore differ depending on your personal circumstances.
So, how do you know how much you should pay yourself? This is not a trick question! It is amazing how many electricians don’t know how much money they need to make to cover their own personal essentials. In order to set prices, you first need to know how much money you have to earn to survive. Go through your bank statements and put together a simple spreadsheet for your personal cashflow, entering an amount for every item. This exercise shows you how much you need to earn during each stage of your business to cover your personal needs:
1 Essentials: These are the outgoings you have to cover to keep as roof over your head e.g. Mortgage/rent, council tax, utility bills, insurances, loans/debts, food. This is the amount you need to pay yourself each month just to survive.
2 Nice to haves:Are the treats that you have either regularly or occasionally but are not essentials to survive e.g. Birthday treats, health/dental plans, clothes, restaurant meals, day trips, TV entertainment packages, personal and/or family hobbies. You can add a monthly figure to your essentials total to cover treats when your electrical business is more established.
3 Luxuries:These are the things you are aiming for, the things you dreamt about and promised yourself when you become really successful e.g. luxurious holidays, new car, new home, designer clothes, investments, funding your kids (university, travelling or weddings, for example.) When your business is at its peak of success, you will be able to add another monthly figure for luxuries.
Master the business cashflow in your electrical business
Once you have an overall picture of your personal finances and how your business needs to grow in order to fund the lifestyle you want, you can then go on to do the same thing for your business:
1 Overheads: These are the things you have to pay every month for your business to exist, even if you don’t do any work e.g. office/workshop rental, utilities, insurances, telephone/broadband, vehicle leasing, loan repayments, accounting software subscription, etc.
2 Job Costs: Are the items you need to take on and complete jobs e.g. parts and equipment, consumables, fuel, etc.
3 Scaling costs:Also known as asset costs because once the business can run without you, it becomes an asset. These are the costs for when you can step out of your business (whether for a holiday, time off or more permanently), and the business will still operate as normal. Examples of scaling costs are:
· Networking/training (where you can get lots of work or joint projects)
· Travel and accommodation costs for events
· Additional full time staff and associated costs
· Extra equipment, etc.
· Business coaching/mentoring (because electricians don’t necessarily know how to run a successful business)
· Increased marketing and systems costs
· Building a financial buffer to cover bigger job costs/higher overdue payment costs.
When you have finished mapping out your personal and business cashflow spreadsheets, you will know the basic figure you need to earn every month to cover your personal essentials and the overheads/job costs for your business. Knowing these costs plus studying pricing information from competitors will help you to price your services properly. In my previous blog subjects, I have written aboutdealing with price undercutting in your electrical business andnot getting paid in your electrical business. In these two blogs, I give you lots of tips so you can decide on your price and payment strategies.
Maximise profit in your electrical business
In order to maximise your profit, you need to assess what is going on with your products and services. You may have some services, customers, and locations that make you a good profit, and some that don’t. You need to maximise profit in your electrical business to pay for those ‘nice to haves’ and ‘luxuries’ you have put on your personal cashflow spreadsheet and to enable your business to grow.
In order to maximise profit, you need to know:
· How to simplify procedures to increase efficiency
· How to systemise administration to save time
· Your costs
· Your most profitable services
· How to upsell and/or cross-sell your services
· How to get repeat work
· Your most profitable customers
· Your most profitable work locations
I have given you just a brief outline in this blog of a few techniques and assessments you need to do which will help you to overcome a lack of profit in your electrical business. If you would like to know more, why not sign up for your Business Transformer30 day trial membership for £1? The programme covers everything you need to know to run a successful business and is packed full of techniques and practical examples so you can avoid some of the many pitfalls I encountered when I started my own electrical business.
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