If you own a small business, you can get caught up in the day to operations and not have the time to think or even sit down and calculate if your business is even profitable. I don’t mean that the bills are paid each month and that everything is paid on time without issues. At the end of the day, month and year did you make any money? Was there anything left to save and invest for the future or to spend on improving the business operations?
I focus here mainly on the Pool Service Business, but you can apply this to any small business. If you’re not making money on your business, it isn’t a business, it is a hobby. So how can you tell if your business is turning a profit? That can get a little tricky, but I think if you look at it in a clear fashion before taxes and deductions you can see if there is any money going towards profits. If all you are doing is paying your bills each month you may not be making any money and may be “just spinning your wheels.”
The first thing you should do is to make sure your business expenses and personal expenses are within reason. For example, you are not leasing a truck for $1,000 a month for Pool Service. Or you are not spending $1,500 a month on eating out at restaurants. Later when you are making huge profits this may become a new normal, but for now I am talking reasonable business and personal expenses. So, once you have nailed that down we can move on to seeing if there is a profit in your business.
Take your monthly Gross receipts and then start subtracting your monthly expenses. For example, if you make $6,000 a month from your service accounts and you spend $2,000 a month on chemicals and supplies, licenses, fees etc., your Gross Net profit before taxes would be $4,000 a month (You can’t deduct fuel costs). That would be $48,000 a year. So, when you file your taxes this would be your net income minus the deduction for mileage or vehicle expenses – depending on which deduction you take. Let’s say you drive 16,000 miles that year for business and take the mileage deduction of .53.5 cents that would be $8,560 – if you have no other business deductions your Self-Employment income for that year would by about $39,000. If you are in the 12% tax bracket you would pay about $4,700 in Federal Income Taxes on your Self Employment Income. So, your net profit for that year is around $34,000 or $2,800 a month. So, with a gross income of $6,000 you will net about half that money each year.
After you pay your household bills with the $2,800, what is left over in the bank? If it is less than $500 you are probably not making a profit. You can do several things at this point to start making a real profit. You can go out and get more service accounts, raise your rates or fine tune the way you do business. For example, if you are doing an installation of a pump and you are charging $200 for labor but the job takes you 3 hours and you do this type of job once a week, you might be better served to refer the work out and use that time to service more pools. By building up more service accounts and doing less time-consuming installs you will increase your monthly gross more quickly.
Or you can add services like Green to Clean or Acid Washes which bring in good money and can also add new service accounts. Adding two Green to Clean and one Acid Wash each month can bring in an extra $1,000 raising your gross income to $7,000 a month. Or if you connect with a Home Warranty Company and they refer you multiple new equipment installs each month you can boost your gross income up even more. There is a “Tipping Point” with repairs – don’t do enough of them and it is a waste of time and effort. But if you do enough of them each week to make it worth your time, you will make more money doing repairs verses regular pool cleaning.
You can also bring your total cost of chemicals and supplies down each month by giving your customers less free items and charging for more chemicals. The standard practice in my area is to give the customer free chlorine and acid but charge for all other chemicals and services. If you are cleaning the salt cells for free, start charging $35 per cleaning. Giving customers free pump lid O-rings or other free items, start charging for everything. You are not nickel and diming your customers if you charge for everything. A lot of times these small, $5 here and $10 there are causing you not to make a profit. So instead of $2,000 a month is costs you bring it down to $1,500 (25%), bringing your gross net to $4,500 a month. That extra $500 goes a long way if you also add on other sources of income out there. Using the same starting scenario of $6,000 a month gross and we raise that to $8,000 a month and keep the cost at 25%, that would be $2,000 in cost making your gross net $6,000 a month. Now I think at this rate you will be making a decent profit every month.
This was achieved by raising your service rates increasing the number of service accounts, adding or subtracting certain services and cutting your overall cost of operations. You can make a profit in business, you just need to fine tune your operations and check each month if there is something you can do to maximize your profits. If you never sit down and calculate if you are making money or not in your business, this could be a real problem for you. You might be better off working for someone and taking home a regular paycheck.
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