Imagine this scenario: It’s the 15th of the month. You’ve just received the previous month’s financial statements and sit down at your desk to review the results. While flipping through the pages, the numbers seem off — profits are three points below your expectations.
As CFO, you pass the results on to the company owner and, after a quick review, he remarks, “Costs should not be this high! What happened to labor last month? I thought we billed that project already!”
Your reaction is to tighten things up. So, you send off messages to accounting to hopefully speed up the billing process. You call the foremen and tell them to reduce labor costs.You put actions in place to correct the situation. Sound familiar yet?
There are three key things you should consider at that point:
- Historical numbers, by definition, look back and only allow you to do one thing: react.
- Financial measurements aren’t the whole picture, and provide only limited insight into business operations.
- While many contractors behave this way, ask yourself, “What do the others do?”