In this episode, Ruth breaks down some of the main things an A/C contractor needs to consider when looking at their numbers and some of the major leaks that can lead to unprofitability.

Profit and loss (P&L) statements are critical for determining the profitability of your business. You can use it to find money "leaks" in your business model. When making P&L statements, ensure that the revenue AND costs for a given product are in the same month for best accuracy.

Most small businesses don't look at their profit and loss statements at least monthly, which is the best practice for keeping track of money via a P&L statement. Most businesses also don't separate overhead from cost of goods sold. Overhead costs don't DIRECTLY contribute to the business's revenue. Examples of overhead include rent, electricity bills, and office staff paychecks. Some other common profit drains include marketing and insurance expenses. However, perhaps the largest potential money drain is a lack of employee productivity. A vast majority of small business employees "steal" from their employers by using work time for personal activities.

You also want to run your business on an accrual basis than a cash basis. You can keep better track of your expenses and income automatically, not ONLY when you pay your expenses or when money comes in through the door. QuickBooks makes this an easy process.

You know that your business is profitable if your P&L statements end up with a positive number. On top of that, you can determine your net profit per hour. Take your net profit and divide it by billable hours (no vacation time, office staff wages, etc.).

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