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Roofing invoice example for Administration

we're going to call this one roof accounting for dummies because we're roofers we're not accountants but now we own businesses so we need to learn our numbers and ever since I started making video content people have been reaching out especially young guys that are new in business and the common theme between all of them is that they don't know their numbers they don't track their numbers they don't even really look at it and it doesn't surprise me because I was the same way I was no different it wasn't until I had been in business for probably like 2 and 1/2 years and I realized like I feel like I'm doing all these roofs I feel like I'm doing a lot of work and I I don't feel like I'm making that much money so then that caused me to dive into QuickBooks and dive into all my little processes as far as bookkeeping to learn my numbers and I feel like now in year six I've come a long way so here we go profit and loss statement every business has a profit and loss statement I'm going to draw in a pie chart so it's easy to understand uh and this will be specific to Roofing but construction and then really just as a whole every business has a p&l statement the ratios just might look look a little different so first you have your sales Everyone likes to talk about sales uh cuz we kind of talk about sales and like how big is your business how much how much do you do in a year are you a $1 million business are you a 10 million are you a $30 million business that's sales so that's going to account for 100% of your profit and loss statement so this giant circle is 100% And that's your sales number so if you do 10 million a year in sales this circle represents 100% of your sales $10 million in Roofing we have cost of goods sold we call it so I'm going to write that here so it's easy to understand cost of goods sold or cogs is the acronym for it so this category is going to represent any expenses that you incur as a uh as an effort to complete one individual job so this is going to be your material your labor dumpster permits sales commission any expense that you incur as a result of taking care of that one individual project for that one individual customer on average we can say maybe this is 70% of your sales number so you started out with $10 million in sales but $7 million went to taking care of those individual jobs and then you're left with 30% and this we call gross profit but unfortunately we don't get to keep this 30% what's left gross profit that's not all our money because we have overhead so overhead is going to take more out of your gross profit and leave you with less so we'll call this one overhead overhead is going to be any expenses your business has whether you do any jobs that month or not so you could not do a single job next month and you would still have to pay your overhead expenses so this is going to be things like rent Insurance payroll and payroll for non- roofing employees so office supervisors things like that marketing you've got all sorts of things in this category all your office supplies um dues and subscriptions any like online services you use any expenses that have nothing to do with taking care of an individual roofing project is going to put you in here so let's just say your overhead is 15% so now we started out with 100% of your sales number then to take care of your individual jobs we lost 70% of that number which left us with 30% gross profit then our overhead which was another 15% leaves us with 15% of net profit and obviously we're in business we want to make as much money as possible and it's very simple on how to do this there's not that many ways to make more money in your business we can lower our cost of good sold we can lower our overhead and we can increase sales but we have to make sure when we're increasing sales we're keeping our percentages our ratios the same while sales increase so that now 15% of a higher sales number is more money in your pocket one of the best ways to make more money in your business more profit is to lower your cost of goods sold so I'll show you what happens right now our cost of goods sold is 70% and then after overhead we're left with 15% net profit but let's just say we were to be able to lower our cost of good sold by 5% that extra 5% changing this to 65 would change this to 20% and now all of this would be net profit so if we able to lower our cost of goods sold we keep more money at the end of the year how do you do that there's a few ways you can do that first would be material cost so in my business the material cost category of cost of goods sold is by far the largest category and some ways we're able to save on our material cost is one pay suppliers early so most suppliers will give you a discount if you pay your invoices early obviously it takes some financial responsibility to be able to do this and manage cash flow but if you're able to do this we save 2% so there's 2% savings on paying our invoices early another thing you can do is buy and bulk so you can order bulk deliveries to your warehouse and store them and this will save you big money obviously you can't deliver an M and bulk every color of shingles every color of metal roofing so you're not going to be able to do this with every item that you buy uh but underlayments for example uh accessories for example so with our underlayments we actually Sav 21% by buying a truck at a time so that's 32 pallets of our underlayment we're able to save 21% now I obviously I'm not going to save 21% on my total cost of good sold by doing this uh but adds up so between paying early and buying what we can in bulk we're able to save a lot of money and bring our material cost down uh you can shop for different products that are maybe cheaper maybe you're overpaying for a certain manufacturer and there's another manufacturer over here that makes a similar product similar quality and it's just cheaper a lot of times newer products will come out and be cheaper where the old established products are a little more expensive so if you're able to catch uh a newer product a lot of times they get uh release at a cheaper price and eventually the price will climb up and kind of match where everybody else is at but the newer products are usually cheaper you can negotiate with vendors so maybe you can shop around the different suppliers get quotes for things that you already buy with your current supplier uh maybe you have a good relationship with your current supplier so just show them be like hey these guys over here offering me this for this price like can you match it and a lot of times they will as long as you're not a pain in the ass about it so that's how you can save on your material cost which again is in my business the largest cost of good sold category labor I put no action here I've never been willing to pay the guys less for the work that they do because Roofing is hard and I want guys that are with me long term uh so I've never been willing to cut my labor costs uh in an effort to make more money the one thing I will say is if you're using all guys in your payroll maybe if you look at using subcontractors uh you'll be able to save a little money on your payroll expenses workers comp things like that uh but I've never been willing to lower my labor cost to try to make more money three this is a big one uh and I know a lot of roofers struggle with this I have it as fixed estimating if you're a roofer and you charge per square so I have per square versus line item I don't think you should do that uh I don't charge per square I actually get mad at people when they ask me how much I charge for a certain roof per square because every roof's different a lot of roofs have different details to them no roof is the same so charging this big blanket number per square for a certain roof to me is silly especially with today's technology so we have in our CRM uh smart estimate templates where all somebody has to do is pull out the Eagle View enter the eagle view data into a system choose what roof we're quoting answer a couple questions and it spits out a line item estimate for that job how much nails are we going to need how much under layment how many shingles what's the labor cost what's the permit cost what's the dumpster cost and then we're adding a profit mark margin to our cost uh and it's to the penny so that's how we estimate and I feel like if a lot of roofers switch to estimating that way they would realize that they're not charging enough money uh because I see competitor quotes all the time and I don't understand how people are running businesses charging what they're charging customer p&l reports so at the end of every job you should be going in QuickBooks and running a p&l report for that individual job to figure out if your estimating systems are working cuz you may estimate made a job to make 35% gross profit but then if you go back and look at the jobs p&l report you may find that you made 22% gross profit well that's a problem so then you have to uh after reviewing the customer pnls if there's errors you have to go back to your estimating systems and find out where are the errors what's priced wrong what are we missing and correct those errors and after doing that long enough your estimating systems will be dialed in to where if you say you're going to make 30% on the job you're going to make 30% on the job or maybe you're even going to make more than you thought you were going to make because you built little cushions into your estimating um after doing this you're probably going to notice that you need to raise your prices because most roofers don't charge enough money for their services and that's why most roofers have a hard time paying uh a lot of roofers are ripping off sales guys a lot of roofers aren't paying Crews a lot of roofers don't have extra money to invest in their business on things like marketing equipment office employees to actually grow the business because they're not making enough money per job so if you dial all this stuff in you're probably going to find you need to raise your prices a problem you might run into when you raise your prices is you need to justify it you can't be the most expensive quote if you don't have a professional image a great reputation great communication a great service you can't justify the higher number so you're not going to get any jobs once you raise your prices and now you're going going to be out of work so if you are going to raise your prices you need to be able to justify it even if you can justify it you're still probably going to see a drop in your closing percentage which you may be able to handle you may not uh but that's probably going to happen even if you are you know your image is the best your reputation is the best customers love you you got great referrals great reviews you're still probably going to see a drop in closing percentage CU some people are very concerned with the price of their roof uh but that's okay cuz if your closing percentage works with keeping the schedule full and works in your business then it's okay if your closing percentage isn't the best in your area that doesn't matter uh some other things you might run into is how's your marketing do you have enough leads to be able to throw some of those leads to the side because you're not going to get the lowc cost roofs uh which may increase your marketing spend which then goes into a little bit of a raised overhead to lower cost of good sold so it's it's like a game you play we're always playing with with the ratios overhead net profit gross profit another way you can make more money in your business is by lowering your overhead expenses in this example our overhead percentage was 15% what if we're able to shave let's just say 2% and I know 2% doesn't sound like a lot but it it actually is a lot 2% is a big deal making 15% net profit versus 17% net profit is a big deal it's a lot of money at the end of the year so so if we're able to shave 2% off of our overhead we're going to steal it and now that 2% comes to net profit and now you have more money so how do you decrease your overhead expenses the two biggest categories in my overhead expenses are payroll and marketing similar to the cost of good sold example I don't like trying to cut costs on payroll I track my pay payroll percentage at all times so that I know where it's at and I know if it's decreasing or increasing um the way your payroll expense decreases is just by increasing Topline sales with the same number of employees and now the sales number is higher your payroll expense is the same so the percentage of your payroll expense actually goes down so if you track your payroll expense while you're growing in sales you'll start to see it drop and then you know that you know I can maintain up here so I have room to hire more employees so let's hire more employees and grow the business so I don't really try to cut cost in payroll although I track my payroll expense constantly marketing marketing is a huge overhead expense in my business we're always in between three and 4% of our sales numbers so you know we did over $10 million last year so that means I spent about 400,000 in marketing last year so if three or 4% is my marketing category how can I save on marketing I've always wanted to grow grow my business aggressively and we have been able to do that so I'm not necessarily going to look to cut my marketing expense I'm comfortable in between the three and 4% range but I am going to make sure that my marketing expense is working to make sure my marketing is working to make sure every dollar I spend on marketing is getting put to good use and not being thrown in the trash so don't throw your marketing dollars in the trash you have to track everything you have to track how much you're spending on a hole and then you have to track what you're spending on the individual marketing effort to find out if it's useful or maybe you can take that money from this marketing channel and move it over here to something that's working a little better Ras this is return on ad spend so this is where we track every single dollar of money that's put towards marketing and we divide our sales number by our marketing spend to figure out how much sales do we get from every $1 of marketing spend and then once you know I spend $1 to get $40 in sales well how much profit do I make off that $40 in sales so if your gross profit is 30% you take 30% of 40 and now you know that's what you make profit for every $1 you spend on Advertising customer acquisition verse average gross profit so for this calculation you need to know how much does it cost to acquire One customer and all this is is your total marketing to spend divided by the number of customers you acquired in that period and now you know what it cost to obtain one customer customer acquisition cost then you need to know your average ticket how much is the average job you sell and then you need to know your gross profit percentage so say it's 30% gross profit you would take your average ticket whatever that is take 30% of it and now you have your average gross profit if your average gross profit number is way higher than your customer acquisition cost you're in good shape it means you're spending a little bit to acquire customer and you're making a a lot off of that customer you're in good shape closing percentage the closing percentage is important because if you track the number of leads you get in a month say and then you take uh your closing percentage percentage of that lead of the leads in that month now you know how many leads do you need in a month to fill the schedule for that month so knowing your closing percentage will let you know if you need more leads or you have enough leads and you're comfortable long-term verse leads today so this is a big one uh I invest a lot in long-term marketing efforts so these are marketing efforts that aren't necessarily going to bring me leads tomorrow but they're going to help me grow my business long term but because they're not bringing me leads tomorrow they're going to make my customer acquisition cost higher they're going to make my return on ad spend higher because I'm not bringing jobs and contracts and leads into the office today but I'm spending money on long-term eyeballs people seeing my business people knowing who we are people remembering me so because they're not bringing me results today they're going to make my marketing metrics higher uh and I'm okay with that because in the long term they'll bring these numbers down because now more people in my area know who I am not everybody in my area needs a roof right now but because more people know who I am down the road it'll take less marketing dollars to reach those people because they already know me so I understand that my long-term marketing efforts are going to actually make my uh short-term marketing metrics tracking look worse but I'm okay with that because I trust uh that more people in my market knowing who I am on a long-term basis will grow the business long term um so we've got a couple other categories payroll and marketing are the biggest ones in my business payroll is around 5% it obviously always fluctuates and marketing is around 3 to four and if my overhead is 15 obviously that makes up the bulk of the overhead but there's all sorts of other categories you've got gas uh you've got dues and subscriptions utilities rent computer and internet a lot of those expenses are what they are so I just have be mindful be mindful make sure you're not signed up for things that you don't use make sure you're not overpaying for shop your insurance every once in a while but a lot of these expenses kind of are what they are and you're not going to move the needle much uh By like trying to nickel and dime on every little expense but you should be mindful to make sure you're not wasting money the number one way to lower your overhead is increase sales because if you can increase the Topline sales at your same overhead cost well the sales number being higher at the same number the same amount of expenses is going to bring your expense percentage lower and you're going to keep more money if the whole circle gets bigger because you have more sales but your cost of goods sold stays at 65% and your overhead stays at 133% well then that's going to leave you more in net profit because the number you're taking those percentages from is bigger so grow growing your sales without increasing expenses is a great way to make more money and I would say it's the best way if you're trying to grow a business because you don't want really want to be cutting marketing and cutting payroll too much because you're probably always trying to hire employees you're probably trying to give employees raises you're probably trying to spend more and more on marketing so more people get to know your business more people see you so I don't really try to cut these per se I just try to make sure that they're effective and that my uh percent ratios are growing in a linear fashion with sales um and inevitably there's always times in my business where the sales number is growing and I haven't hired more people I haven't spent more in marketing and I'm I'm netting more money in that period but then I see the Gap and I see that I have room to make moves here with hiring and make moves here with increasing marketing Spin and it just works so I try to increase sales ahead of my overhead percentage growing okay in conclusion here is a real profit and loss statement like it'll show up in QuickBooks obviously not real it's very simple for me to just write it on the paper but this is essentially what it looks like I showed you the pie chart but when you're reviewing it in QuickBooks and you're actually looking at it on a daily basis this is what it's going to look like so when you hear people say Topline sales they call it Topline because it's the Topline of your p&l report so that is 100% of sales right and then the first thing we take out of sales the next category down is cost of good sold or cogs people call it cogs as we explained earlier this is everything it takes to complete a job your material your labor your waste removal your permits your sales commission and then you have the total of that category 70% so 70% comes out of your Topline sales which leaves you with your gross profit number now you have 30% left in your business but we're not done yet out of that 30% now you have your overhead expenses that could takeen out these are all the expenses that have nothing to do with taking care of a roofing job these are expenses that you have to pay no matter what whether you did two jobs that month or 40 jobs that month you still have to pay this expense no matter what so your rent your insurance your payroll your marketing Etc total overhead expense is 15% so now that comes out of what you were left off the jobs to 30% leaving you with 15% net profit in your pocket at the end of the year now so it's simple it's very simple to make money in business you either have to lower your total cost of good sold which will leave you with more gross profit and then your overhead will be taken off of the increased gross profit to leave you with increased net profit so we can lower our cost of goods sold we can lower our overhead expense so if we lower the amount of expenses coming out of our gross profit well obviously the gross profit number will be bigger leaving you with more net profit again and the last way is to increase sales increase sales while maintaining your cost of good sold percentage and your overhead percentage because if these percentages stay the same while the income number raises well the numberers bigger and again you're going to have more net profit so in closing it's very simple to make more money in business but it's not necessarily easy you know if you want to decrease your cost of goods sold percentage by raising your prices well now you're going to run into all sorts of other issues through raising your prices you're going to have to be able to justify the customer so that you still close jobs you're going to have to make sure that you look more professional than other roofers you're going to have to make sure that your Google reviews are on point you're a five-star contractor you're going to have to make sure your communication's good your speed is good the quality of your guys is good clean job sites is good you have to be able to justify raising your prices because if you can't justify raising your prices you're not going to be able to fill your schedule at higher prices uh but you should raise your prices because most contractors aren't charging enough and they can't pay their suppliers they rip off Crews they rip off sales guys they have no money to reinvest in their business so you probably need to raise your prices decreasing overhead expense very simple decrease your overhead but a lot of these expenses are what they are you know we can shop for different being expense because you need to Market your business you need people to see you if you're trying to grow you need more people to see you next month than saw you this month so you're not really going to do that in cutting your marketing expense one thing I will say is we spend a lot of money on marketing but still even though we spend all that money on marketing referrals are still our number one lead Source uh I hear a lot of guys say they should rely on only Word of Mouth word of mouth's the best word of mouth is is the best but it's not enough if you're really trying to grow your business and I'm saying that as a guy who most of my leads come from Word of Mouth even though I spend all this money on marketing because there's still tons and tons and tons of leads that come from my marketing every lead in my business doesn't come from referrals it is the largest category but it's it's not it wouldn't be enough to only rely on Word of Mouth so because it's hard to really decrease your overhead in a in any meaningful sense of if you're trying to grow the business the only way to decrease your overhead percentage is to increase sales is to sell more jobs uh so it's very simple to make more money and to increase your net profit but actually making it happen takes a while and you have to actually be tracking all this stuff and you have to have clean books and you have to look at it daily and if you you know if your books aren't clean if you don't have QuickBooks if you don't know how to use QuickBooks uh it can be a mess so you either need to learn how to do it yourself or you need to hire a professional bookkeeper uh but I wouldn't say that the books are something that you would just want to give to a bookkeeper and never touch it because you the business owner should be looking and knowing your numbers because nobody cares like you do also there's stories of bookkeepers stealing from people and if you're one of those business owners that just gives your bookkeeping away and never looks at it well how are you going to know if someone's stealing from you or not so that's about it we're all business owners we all want to make more money we all want to increase our bottom line and these are the simple road map to do it and I realize that a lot of construction business owners aren't good with their numbers and aren't good with QuickBooks so I'm going to start coming out with a series of videos that is like dialed in two QuickBooks specifically so that you know what it should look like and that so you're able to open QuickBooks and click any customer name and know to the penny how much you made on that job uh because that's kind of where it all starts uh but tracking your numbers are super important and not a lot of contractors do it and that's why not a lot of contractors are able to invest in their business pay on time grow their business um and they're robbing Peter to pay Paul because they're not looking at their numbers the way they should be so follow this channel if you want to know more I'm going to come out with videos like this all the time now um the more young guys I talk to the more I see that people need help and people need education just like I needed education and I learned most of my off of YouTube too