Many contractors who start their own companies realize that while they might be experts at installing roof systems, they aren’t experts at running a business. Before Aaron Santas, the owner of Guardian Roofing and Windows in Tacoma, Wash., partnered in the formation of his own company, he worked as a branch manager for a major construction materials distributor.
His background in distribution and supply exposed Santas to a lot of contractors, and he found out that the successful ones had something in common. “Successful contractors watch their numbers, and they know them intimately,” he said.
Business training is essential, asserted Santas, who shared his financial statements and pricing formulas with attendees in a session titled “Business Training, Balance Sheets and Gross Profit.”
Many contractors were never trained to read financial statements and compile a budget - and the result can be catastrophic for a company. “Not knowing the numbers is like going through the wilderness without a map,” he said. “You might make it, but you’ll have some hardship along the way.”
“What’s killing business is people don’t know how to price their jobs properly,” he said.
The key to budgeting is to understand the financials and use them to set expectations, said Santas. Those who ignore the numbers because they find them stressful aren’t doing themselves any good. “You can’t expect to lose weight without looking at the scale,” he said. Continuing with the weight loss analogy, he noted if the goal is to hit a certain number, looking at the scale might initially be painful. But it should also be motivational and help you determine what works and what doesn’t.
Santas used his own company’s budgeting process as an example. “We started our business in 2005,” he remembered. “We saw the impending recession, and we knew everything would come to a screeching halt.” Despite the tough economy, Santas on his co-owners knew they would have to set aside more money for marketing, raise prices, improve their value propositions and improve service.
They used their detailed financial reports and profit and loss statements to determine what they could survive on and set the budget for the coming year. “Your P & L can be used to plan where you are going,” he said.
Santas noted his company sets aside 7 percent of its budget for marketing. “Living by the Yellow Pages and referrals - you’re not going to live by that, you’re going to die by that,” he said.
The key is to business success is to understand the numbers and make decisions accordingly. “Making emotional decisions with your money leads to what? Failures,” he said. “That’s why they call it a good business decision.”