Don’t Make the Mistake of Only Focusing on Sales Numbers

RCS Influencer Trent Cotney says that understanding the basics of the economics of your business is critical for success. 

Editor’s note: The following consists of a conversation between RCS COO Karen Edwards and Trent Cotney. You can listen to the podcast or read the transcript below.  

Karen Edwards: Okay. Hello, everyone. This is Karen Edwards with RoofersCoffeeShop, and I am here with Trent Cotney. Trent, welcome. 

Trent Cotney: Karen, it's always a pleasure to be here. 

Karen Edwards: Hey, so we're going to talk about starting the year off right. Our January topic is about understanding your numbers. And I know a lot of contractors are great skilled craftsmen, they're very good at what they do, but they don't always have the business education or experience to go along with that skill. So talk to me a little bit about how important understanding the numbers are for a contractor. 

Trent Cotney: Sure, and this is any business. It doesn't matter if you're in construction or consulting or whatever you're doing. Understanding the basics of the economics of your business is critical, especially as we get into a new year now. There's some benefit in starting out now and making sure that you've got solid practices. 

So a few things that I always do in the businesses that I'm looking at, one is you got to check the reporting, right? You always look at your profit and loss, you look at your balance sheet, you understand how money is flowing in and flowing out, right? 

And probably, if I had to say what is the biggest mistake that roofing contractors make is that there's a singular focus on top line. Everyone is focused on sales. Sales are great. You got to have sales, right? You got to have business coming in. But if you're doing $10 million and your take home is zero, then who cares, right? I would rather have a top line of a million and take home 500,000 than have a top line of 10 million and take home nothing. 

So the difference there, the delta between gross sales and net sales is all your operational expenses, everything from payroll to your out-of-pocket cost, to insurance, to things like that. And unfortunately, a lot of times it can be legal or risk mitigation. If you end up with OSHA fines or you've got employment-related issues, or God forbid you're in a lawsuit, that's money that's coming off your top line and ultimately is going to affect your net. 

So I think if I had to kind of give some recommendations for contractors is get your hands dirty, get in there, take a look at QuickBooks, start asking questions. Look, I'm not that great at math, I'll be honest with you, I usually have to count on my fingers, but I had to learn it, right? I was forced to understand it. And yeah, I use [inaudible 00:02:58] and CPAs and everything else to make sure everything's right, but if you don't have a basic understanding of how your business runs and how you either make money or lose money, you're not going to be around for long. So make sure you are focusing on that as we enter into the new year. 

Karen Edwards: Now, I know a lot of contractors, you mentioned QuickBooks, a lot of people have love-hate relationship with QuickBooks, but they do have a lot of built-in reports that can pretty quickly provide a snapshot of what's going on in a business, as long as you're keeping it up to date. 

Trent Cotney: Yeah. And so here's a couple of other tips that I know, just talking for contractors, is bad data in, bad data out. 

So oftentimes, you'll have a bookkeeper or somebody in your office that's plugging in information into QuickBooks. If it's not coded right, if it's not categorized right, it's not going to reflect right, and you don't want to wait till the end of the year to figure all this out. 

So what I recommend is if you don't have, you can have your bookkeeper or have whoever entering that data, but have an external CPA or accountant go over your books once a month, reconcile the accounts, make sure that everything is where it's supposed to be in QuickBooks so you've got accurate information. 

Karen, accurate data will help you predict the future. It really does. It doesn't matter whether it's analytics from marketing and sales, or it's understanding how you are making money and losing money on a day-to-day basis. 

So having that stuff at your fingertips is absolutely critical. Just make sure that you are surrounding yourself with people smarter than you, which is one of the things I've always advocated, and have those tools that you need in order to be able to process that information. 

Karen Edwards: Excellent insight. Thank you, Trent, so much for sharing, and hopefully everybody out there is going to take action and make it a resolution for 2023 to really understand their numbers for success. 

Trent Cotney: Absolutely. 

Karen Edwards: Thanks, Trent, as always. 

Trent Cotney: Thank you. 

Karen Edwards: We'll talk to you soon. 

Trent Cotney: See you. 

Karen Edwards: Bye. 

Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and NRCA General Counsel. See his full bio here.