How Changes in Your P & L Put Money in Your Pocket
As a business owner you know that continuous learning is the way to become truly expert in your field. One way to improve your cleaning service business is by understanding and impacting the profit and loss part of your company’s financial statements. Here are some Changes in Your Profit & Loss Statement for Cleaning Business Owners to make that will put money in their pocket.
For those of you who know me, or have been following my work for awhile, you probably know that I spent 5 years working in the financial services field as a stockbroker in Beverly Hills when I was younger. Because of that and some accounting courses I took in college, I’m VERY good and quite comfortable with the money, margins, and the ‘numbers’ part of running a business.
For years, I thought I wasn’t good at math, and you may think the same thing about yourself- but I’m going to explain this stuff to you in a way that will make it easy for you to understand and apply to your own company, OK? I promise; this stuff is easy, fun and very motivating!!!!!
Changes in Your Profit & Loss Statement for Cleaning Business Owners
Let’s say that Total Revenues equaled $500,000.00
suppose “wages” were $165,000.00 33%
and “materials” cost $ 15,000.00 3%
That means that the Cost of Sales = $180,000.00 which is wages plus materials
If you then take Total Revenues $500,000.00
And subtract the Cost of Sales $180,000.00 36%
That leaves Gross Profit of $320,000.00 or 64%
In this example, you had revenues of $500,000.00 with labor at $165,000.00 (33%) and supplies ($15, 000.00) at 3%. So, you have a gross profit of $320,000.00 and a percentage at 64%.
We’re not done yet with Changes in Your Profit & Loss Statement for Cleaning Business Owners…..
This is a pretty good number, but you’re a long ways from being finished. You still have to take into account your general and administrative expenses (G&A), plus your overhead before you can get to the real number that matters the most: net income. Some companies calculate G&A separately from overhead, and some companies lump them together. Whichever way you choose to do it is fine. Many companies that contract with the federal government have them separated as that’s how some contracts need to be calculated. Whichever way works best for you is fine.
Now, let’s look at how Changes in Your Profit & Loss Statement for Cleaning Business Owners can impact and improve your cleaning business’ profitability:
So, gross profit is $320,000.00
Let’s say your G&A is $107,000.00 21%
And that overhead (w/out your salary) is $ 28,000.00 5.6%
You pay yourself $ 95,000.00 19%
5.6% + 19% = 24.6%
That leaves your net income at $ 90,000.00 or 18.4%
Which is a very respectable number….. Now, here’s what interesting: Say you want to increase the dollar amount of your net income. Now that you understand how to read your P&L, you can also begin to understand how your activities can affect it.
In order to grow your net income number you could do one or a combination of different things as Changes in Your Profit & Loss Statement for Cleaning Business Owners:
- You could increase total revenues and keep all the other things the same
- You could keep revenues the same but increase your net income through reductions of cost of goods (labor, subs, or supplies),
- You could have the same amount of revenues but decrease either G&A or overhead, or both.
- You could keep revenue steady and decrease all three of the other components.
- You could increase revenues and reduce expenses and/or cost of goods.
All of these will improve your cleaning business’s performance on paper, ad in your pocket!
Expenses in your chart of accounts
What’s even more interesting to note is that some of the things that were listed as expenses in your chart of accounts are not going to increase when you increase your revenues. Here’s a sample list:
*Advertising (radio, print, internet or display ads, lists, mailing campaigns, etc.)
*Auto expenses (registration, licensing, repairs, gasoline)
*Bank charges: monthly service fee, merchant service fees, etc.
*Dues and subscriptions: member ships, magazines
*Pre-employment costs (background and drug testing, advertising, etc.)
*Equipment rentals; truck, scrubber, buffer, pressure washer, etc.
*Fringe benefits (payroll taxes, workers comp. and health insurance, pension plan, etc.
*Insurance (liability, contents, employee dishonesty, etc.)
*Payroll costs (service fees)
*Postage and Delivery; Fed ex, stamps, courier, etc.
*Printing (business cards, stationary, etc.)
*Professional Development; classes, coach, seminars, books
*Professional Fees: attorney, accountant, consultant, etc.
*Repairs (equipment, computers, building, etc.)
*Telephone (office number, fax, cell phones)
*Travel and Entertainment
Now, however, you’ll notice that I placed a * in front of some of the expense items. These are the expenses that are not likely to increase (or if so by a minute amount) when you increase your revenues. This is where you have a big opportunity to improve your cleaning business profit margins…..
Let’s take a look at the numbers that can make Changes in Your Profit & Loss Statement for Cleaning Business Owners:
Let’s say that Total Revenues equaled $550,000.00 an increase of 10%
suppose “wages” were $181.500.00 (same percentage of 33%)
and “materials” cost $ 16,500.00 3%
That means that the Cost of Sales = $198,000.00 which is wages plus materials
If you then take Total Revenues $550,000.00
And subtract the Cost of Sales $198,000.00
That leaves Gross Profit of $352,000.00 or 64%
So, gross profit is $352,000.00
Say your G&A increased to a larger number $110,000.00 20% but a smaller %
overhead at same % (w/out your salary) $ 31,000.00 5.6%
You pay yourself $ 95,000.00 17.3%
5.6% + 17.3% = 22.9%
That leaves your net income at $ 116,000.00 or 21.1%
So, with revenues of $500K you have a salary of $95K and a net income of $90,000 and a profit margin of 18% But with a 10% increase in your revenues, to $550K and the same salary, you have a net income of $116,000 and a profit margin of 21.1%. Both your net profit and your margin increased at a rate greater than the 10% by which you increased your revenues, in part because many of your fixed expenses stayed the same. Your profits increased to 52% on the additional $50,000 in additional revenues!
You will have an additional $26,000.00 in your bank account without doing anything to reduce your expenses. Now, imagine if you increase your revenues AND you decreased your expenses (by even 5%).
So, gross profit is $352,000.00
G&A was reduced by 5% to $104.500.00 19%
overhead also cut by 5 % (w/out your salary) $ 29,450.00 5.3%
You pay yourself $ 95,000.00 17.3%
5.3% + 17.3% = 22.6%
That leaves your net income at $ 123,050.00 or 22.3%
Now you have an extra $7050. 00 to put into your bank account. AND, here’s the nice thing about reducing expenses. When you do so, all of that savings goes straight to your bottom line! So, while you keep $26,000 of the extra $50,000 in revenues (52%), you keep 100% (all $7050.) that you saved when you cut overhead, general and administrative expenses. Those are real savings that go straight back into your bank account, so that truly is “money in the bank”!
Do you see now, how fun reading a profit and loss statement can be? And, it’s easy to improve your cleaning business’s financial performance once you understand how it affects your bank balance and your wallet.
If you’d like help implementing systems and processes into your business so you can increase income (without working ANY harder), then you’ll want to download my Cleaning Business ‘Operations’ Accelerator Kit so you can take your company from “mess” to “SUCCESS”!
Another article you may be interested in “Profit and Loss Statement Explained for Cleaning Business Owners Wishing to Understand the BOTTOM LINE”