Thursday 12 October 2017

Year-End Series #2 – Where Did Your Top Line Go?

Posted by at 8:00 AM in

For contractors who want to grow their restoration business understanding financial statements is key. There important and valuable information to be obtained through several simple comparisons. The two key numbers that every restoration business owner understands is gross revenue and net profit. The top line and the bottom line. How much did you make, and how much did you keep? At the end of the year you pour over the Income Statement and those two numbers, one at the very top and the other at the very bottom are the focus of your attention. Most numbers in between these two are a blur. So, let’s get right to it.

How do you assess your business growth performance using these two numbers? Start by comparing this year’s gross revenue with last year’s revenue. Here, let’s make it easy … fill in the blanks: (2016 gross revenue-2017 gross revenue) = (difference in value) / (2016 gross revenue) = percentage of change. For example - $545,000 - $600,000 = $55,000 / $600,000 = .09166 or 9.16% increase year over year. That would be a healthy annual revenue increase. What is it for your company? How much did you grow or decline during this past year? If this year’s number is larger than last year’s you likely feel good about the outcome.

An even better barometer of business growth is to look at the past three years as a single unit of time to determine your trajectory of growth. Trends are a better predictor of the future than a single year’s comparison. Complete the simple calculation above for three years (2015 – 2017) and divide by 3 for the average. How does that look to you? Are you looking good, or is there a problem? How can you grow faster than your current trajectory?

Here are a couple of examples to consider: My company achieved a decadal average annual growth rate of nearly 50%. We lived with constant change. We doubled every 1.4 years. The management team grew, new positions were added, new sources of revenue were secured. Innovation, adaptability and changed were constants. Another company I know finished 2013 with $345,000 in gross revenue and closed out 2016 with approximately $600,000 of revenue. When the 3 annual growth rates were calculated we found that this company grew at a 3-year average annual growth rate of 22% doubling the business every 3.4 years. Knowing this helped the owner better anticipate personnel, equipment, and marketing requirements over the next several years to sustain or increase revenue growth. Another company has been in steady decline since 2013 when $600,000 was earned. That company closed out 2016 with approximately $400,000 of revenue. This represents a three-year average annual decline of 14%. 2016 produced $345,000 in gross revenue.

A company in decline tends to accelerate the decline year over year and that is true with this company having declined from 4% to 14% to 19% over the three-year stretch. If something is not done quickly the company may not survive another year. These calculations are important to do since there is no seminar or no restoration book that will instruct you to do them. Take this moment to better understand your numbers and your business. Now that you have a clearer picture of your growth trajectory what will you do to improve it?

Reference: 6 Month Coaching Plan – The Revenue Generator – The Ultimate Revenue Booster for Your Business Sales Growth