In my spare time I've been reading financial management books from the public library (dewey decimal 658.15). I've looked at several to try to find some that were easy to understand. If you're a better electrician than businessman (like me) check it out.
Anyway, I needed to figure out overhead and annual billed hours. I haven't kept good job records, so I spent quite a few hours checking contracts, invoices, deposits and receipts to figure it out (I'm keeping job records now).
As luck would have it, I raised my rates a year ago and it was just right for the hours billed this year to draw a good salary and have a small profit. I'm convinced after doing these figures that it's my first profitable year in 20. It's also nice that I can play with the numbers(increase/decrease hours, increase/decrease expenses, increase/decrease rate....to see what effect it will have on the business.
I'm just beginning to understand the financial aspects and I'd encourage all of you to work on your business and figure what you need to charge to have a profitable business.
I agree Dave. A lot of us just fly blind through the year not knowing our true costs and what our profit is. At the end of the year we find out after its too late to do anything about it. P&L statements should be looked at at least monthly. Preferably weekly. You should know all your costs of doing business. Keeping good records is important. If you are using your accounting software properly it should be easy to tell on a daily basis how well you are doing. There is a lot of good information on the internet and alot of it is free. Sites like these www.barebonesbiz.comwww.thesuccessfulcontractor.com and many others.
One of the numbers I worked up right away that's more accurate than my estimated total annual billed hours was...How many hours a week do I have to work, on average (at my current rate), to pay all my bills including my paycheck and benefits? Now I can easily see if I've billed those hours.
The one that I'll avoid for a little longer is...How many hours do I work that I don't invoice for? That's the one that lets you know if you'd do better working for somebody else & I really enjoy working for myself.
I used a financial calculator I found on the web to figure out how much I should be charging per hour. I'm slowly raising my rates to that level. How do you all find the time to enter all the data into the computer to keep your financial records accurate. It's nearly impossible to find the time to sneak down to the basement and read these posts!
My financial records are my checkbook, Pat. I just enter my checks in and can create reports with the software (Quicken). I'm now tracking my billed hours on a calendar so I can easily check if I'm at my weekly average, monthly average, etc.
It's obviously easier to work on the business when I'm working a 20 hour week than a 60 hour week. If my rate is set right, I don't need to be concerned about finances in a 60 hour week. I can do the paperwork later when it slows down.