This Podcast Is Episode Number 524, And It's About How To Increase Your Construction Business Profit In Three Months Sales and profit are two very different things – as a construction business owner, you can find yourself without the cash to pay bills despite making sales you knew were profitable. You may also be startled to discover that solid cash flows from sales deliver little profit.   A cash flow forecast tracks cash flowing in and out of your business. The timing of these flows enables you to identify cash-rich and cash-lean periods. This helps make the right decisions, such as buying assets or preparing for cash shortfalls.   Cash flow is essential to the survival of your business – arguably more so than profit in the short term. Profit may be necessary for the longer term, but cash is needed to pay bills and operating costs quickly.   For example, if you're a plumber with reasonable cash reserves, you can survive until your business becomes profitable. However, if your business runs out of cash, you'll need to find a solution quickly to avoid going bankrupt.   Profit is the money left in your business after all your expenses have been paid. An income statement (also referred to as a profit and loss report) reveals what profit your construction company made last month or last quarter. Your profit's detailed in two figures, namely: Gross profit is what's left from sales after deducting the costs of goods sold or services provided. Net profit is left from gross profit after operating expenses (your business overheads) are deducted. Note that net profit isn't the final 'bottom line' profit until all taxes have been paid. Gaining more significant profits depends on accomplishing all the little things better – rather than making one huge change. You'll need to focus on every detail to reduce expenses and increase your sales turnover over the next 90 days. Decreasing your costs For most small businesses, reducing costs is the easiest way to increase profitability. Reducing direct costs can dramatically increase your sales profit while eliminating unnecessary business overheads. Challenging your direct costs Identify the steps you can take to minimize your direct costs, such as: Negotiating lower prices with your suppliers. Reviewing processes and systems to minimize waste. Implementing additional security to reduce the chance of theft. For example, you may have had one material supplier over the last five years. It might be time to challenge your supplier on their wholesale prices while introducing yourself to others who might do a better deal. Some of your business costs, such as insurance, power, and the Internet, could be put out to tender. The value of effective systems Practical systems help you minimize errors – and save time and money. The time invested in creating designs is usually minimal compared to solving a problem from scratch. Where appropriate, turn decisions into policies to avoid making the same decision again – or sort out the same issues repetitively. Learn from mistakes and problem areas, and if systems go wrong, fix them. It's a wise idea to review your procedures periodically to see where improvements can be made. For example, if your software firm decides to place all its information on a central server to ensure staff can access it at any time, hours of productivity can be saved each week. Stay focused on profitability Focusing staff awareness on profitability can have a dramatic impact. Even if cash flow is your top priority, it shouldn't be at the expense of profitability. Monitor your actual costs against your budgets and your sales against your forecasts. Measure staff performance Monitor and measure staff performance and productivity. Be sure to reward productive staff members by linking pay rates to effectiveness. It's important to praise and thank the staff when it's been earned. Aim to provide a clear career path so your team can grow, and they don't see...