Understanding Construction Financials

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You know how frustrating it is when your financial reports never seem to make any sense?

Back in 1988 when APB’s Cofounder Russ Stephens was running his first business, he thought he was doing pretty well.

He had his bright red Porsche out the front to show everyone just how successful he was…

But that didn’t show the full picture.

Because the business he was in required a tonne of cash, he had to hold a lot of stock and give payment terms to my customers…

Which meant that in order for the business to grow, Russ had to continually leave the profits in the business…

So he did what any owner of a small business did at the time, he ran an overdraft so that he could pull the net profit out of the business and spend it on investments...like a pension scheme, an apartment...and of course a Porsche.

However, everything changed in the summer of 1988. A new bank manager took over at the local branch of the HSBC and he wasn't so impressed with Russ’s business acumen.

Russ remembers the day he came to see him in his warehouse and asked to see the financials…

So he printed out the profit and loss report and the balance sheet for him…

Russ had no idea what he was looking at, he was just pleased with himself because he was able to print out what the bank manager was asking for…

In Russ’s mind he was a computer genius, because he used accounting software. He thought he was so ahead of his time, how could this man be anything other than impressed?

But unfortunately he wasn't impressed at all. Because when he looked at the balance sheet there was just £15,000 of equity to support a business with revenue of over £1,500,000.

The entire business was being propped up by the bank's overdraft…

And they could pull that facility anytime they wanted.

“We're not here to fund your lifestyle,” he told Russ in no uncertain terms.

“I’ll only be offering a facility that is 50% of the retained equity in the business going forward.”

Russ knew he was serious and at any moment he could pull the pin and effectively end my business...So he had to learn quickly.

Once Russ knew what the bank manager was talking about he went to work and produced a detailed plan for the year ahead.

Revenue, cost of sales and every single expense was budgeted for.

The thing is, Russ was no longer in charge of his own business, he was effectively reporting to a manager each month and giving him a full report on what was going on inside the company, and he loved it!

It gave him a level of accountability that he had never experienced before…

And as interest rates rose from 10% to over 17% in the next few months, Russ can honestly say, the bank manager saved his business.

Russ never really liked that bank manager as much as the previous one who used to take him out to chinese restaurants for lunch, but he has probably been the most influential person in Russ’s business career and has helped to shape the way he does business planning, even to this very day.

Right now, we want to help you to steer your building company through the troubled waters ahead.

And you need to start by getting your financials bang up-to-date as of the end of last month.

Before you do anything else, you need a very clear picture of the current financial health of your business. Don’t rely on your accountant, this is something every single builder can, and must do themselves.

Which is why the Association of Professional Builders has mapped out everything for you step-by-step, without any jargon.

Click on the link below to learn more.

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