Look, I get it, accounting is dull as a stick. But ignoring the financial performance of your contracting firm is like drilling blind.
I bet most drilling contractors got into the business one of two ways: either inheriting the business from a dad or uncle, or being so mechanically inclined that it was just a good fit. It could actually be a combination of the two. Whichever path a driller took, for most of them getting an MBA — or any business training, for that matter — wasn't involved. This is not a criticism, just a natural fact.
Knowing that, over the last few months in my editor's column on page 4 in our printed edition, I've put together a kind of Financial Reports 101. These are the reports contractors need to discuss with their accountants:
- The cash flow statement, a summary of how well the lifeblood of a business is flowing.
- The income statement, a readout that answers the question, Is my business making a profit?
- And the balance sheet, which tells a contractor how much his or her business is worth.
Every business owner, no matter how big or small the business, should regularly review these three reports. None of these financial reports show the full picture, but reviewing all three regularly helps owners make informed choices about the present and future of a business.
If your accountant or bookkeeper hasn't shown you these three reports recently, ask. Use the columns in the links above as a starting point for questions. The answers to those questions can help you price your products or services correctly, lower expenses, create a debt pay-down schedule and build a business to be proud of. Getting to know a business' financial picture, and planning accordingly, is the first step in taking an active role in growing that business.
Remember the old business axiom: What gets measured gets managed. These reports give the full measure of a business. I've met a lot of accidental business owners — people who seem to succeed despite themselves. They didn't measure and couldn't manage. Their stumbling limited their business. If I can prevent even one of my readers from being that person, mission accomplished.
What do you think? Do you have financial tips and tricks to share? Have you learned the hard way that financial knowledge is power? Tell me about it. Send me an email.
Stay safe out there, drillers.
