Spending money is obviously a necessary part of building any successful trade business, especially when it comes to investing in critical overheads that are needed to enhance the company and grow…
Which might be things like vehicles, marketing, software and tech, bookkeeping, rent, phone bills, accounting, insurances, business coaching, office wages, office supplies and so on…
The problem is, however, if you’re not careful, these overhead costs can quickly begin to stack up and become a serious cash drain on your business…
Which not only limits and potentially removes your profitability, but also puts a lot of pressure on you as the business owner, to actually lock in more sales revenue and keep the juggernaut of a business going!
I call this… ‘death by a thousand cuts’.
When you aren’t actively staying on top of your costs (which can be easily done when you’re flat out trying to worry about everything else going on around you in the day-to-day operations), the unmonitored pile of expenses can begin to stack and slowly, and quietly, suffocate your business…
So, no matter where you’re at in your business journey, whether that’s just starting out or with a team of 40, the goal should always be to grow profitably, grow at a steady rate that is controllable, and only invest in necessary overheads that are actually needed.
Because while this may seem obvious, it is VERY common for me when diving into the bookkeeping of new clients, to discover that their overheads are sitting around or OVER 50% of their entire business...
Making it FAR TOO HARD to get points on the board and earn the money they should be.
Unnecessary overheads that should have never been there in the first place!
So, make sure that you’re keeping your overheads as lean as possible without hindering growth, profitability, and productivity of your business.
This is the goal.
Here at Trade Business Accountants, we like to call this carrying a light pack. Picture this…
There are two backpacks at the base of a 14,000ft mountain. One weighs 90kgs with a bunch of unnecessary stuff in it for the climb, and the other has only what is needed, weighing 9kgs.
Which backpack would you rather?
The lighter pack with only what’s actually needed right?
The same goes for your business!
The backpack you carry determines a big portion of the outcome.
So, you shouldn’t be carrying anything in your pack that isn’t essential for the climb!
When you have too heavy of any overhead, your breakeven point goes up, which means it will be harder and harder to cover the cost of doing business and actually make the profit you want to be making!
And when you start sacrificing profit for growth… you start heading down a dark and slippery slope…
Because you don’t plan to grow into profitability… that isn’t how it works!
You need to be profitable, RIGHT NOW.
When you have too heavy of any overhead, it becomes significantly more difficult to operate and keep your business alive and healthy… it’s like trying to swim with an anchor tied to your ankle!
You want to be lean, mean, cost effective and efficient. NOT be carrying around unneeded or unnecessary costs.
And you would be SHOCKED at how much you can accomplish with less.
Because you’re forced to maximise and leverage what’s around you – you get more creative and most importantly… you get more innovative!
And for some reading this, this might mean sacrificing certain ‘luxuries’ until you can actually afford to have them.
I’ve seen this time and time again… the more money you earn…
THE MORE YOU SPEND!
Once a business does start to make a little bit of profit, it can be really easy for the owner to begin taking their foot off the gas, and start making silly financial decisions…
“Okay well now I need an office, now I need to get a new car, now I need to start piling the overheads on and on and on…”
With the excitement of profits, you want to go ‘big’ all of a sudden.
You want to have all these Utes and vans on the road, a big office, and all of this fancy ‘stuff’… right?
But you have to ask yourself… is it needed?
Do I really need what I’m buying right now…
Or is it simply, a nice to have?
And before you freak out, I want to again stress the fact that…
I’m not saying you don’t need overheads… of course you need overheads, and yes, when you’re growing a business… you need to actually INCREASE your overheads…
That’s not what I’m talking about.
What I’m talking about is making sure that you have the right overheads, and that you’re not destroying your profit margin through unnecessary purchases.
Because the reality is, you can actually grow your business and STILL be profitable.
So, when was the last time you reviewed what’s in your pack?
When was the last time you reviewed the overheads in your trade business?
Do you know what your overhead percentage is?
Or whether the RIGHT overhead recovery rate is being used in your labour rates?
If not, I encourage you to get in touch with our team here at Trade Business Accountants, because we’d love to help!
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