Mar 03 2025 6 mins 1
In our time with business owners, a lot of the headache has less to do with finding the products and services. The innovation usually comes pretty easy for entrepreneurs. But the reality of finding and filling these financial drains in the business is what really can cause the challenge.
Hey, it's Scott Beebe with Business On Purpose, and a heads-up—I’ve got a brand-new book coming out. It's going to be hitting Amazon here in the next few weeks at the time of this recording. And it's specific to contractors. While we work with many different industries of business owners, just over 80% of our clientele are in the contractor space or they support the contractor space. So I've got a brand-new book called The Chaos-Free Contractor that you’ll want to be on the lookout for. One of the things I talk about is this idea of finding and filling financial drains in the business.
See, money management for contractors involves understanding three key perspectives: the past, the present, and the future. I wanted to explore each of these to help you better manage your finances regardless of your industry. The past perspective of money is like looking at a snapshot frozen in time. It's represented by balance sheets and profit and loss statements (P&Ls). While these documents provide valuable information, they are static and don’t offer much flexibility in decision-making. Of course, the IRS is particularly interested in these historical records as they form the basis for tax calculations.
Your present financial situation is reflected in your actual cash accounts. We like to say we live in the real world of cash. This is where the concept of subdivided bank accounts comes into play. By separating your money into different homes or categories, you gain a much clearer picture of where each dollar should go. The tactic is similar to the one outlined in Mike Michalowicz's book Profit First. It allows you to allocate funds for specific purposes. When you divide your money into separate entities or accounts, you're actually giving each dollar a job and a home. This method provides a practical way to manage your finances and ensures that you're always aware of how much money is available for different aspects of your business, whether it be generosity, reinvestment, capital expense, or operating expense.
While accountants and the IRS focus on past financial data, you, the business owner, need to operate primarily in the present, dealing with cash on hand. Although accrual accounting has its merits, most contractors and business owners benefit from making decisions based on the cash that's actually available—not only today but also what they can assume will be available in the next week or month, not just what the financial statements indicate from the past. To stay on top of your finances, it’s good practice to review your bank accounts every single week. This regular check-in allows you to make real-time decisions based on your current situation. By focusing on cash flow and using subdivided bank accounts, you can better manage your money and make informed decisions about the overall operation of your business.
The final piece of the puzzle—after looking at the past and present—is the future. This is where a simple tool called budgeting comes in. Start by reviewing the chart of accounts on your P&L statement, which lists the categories where you allocate expenses. Analyze your spending patterns over the last two, three, or four years and use that information to project upcoming expenses for the next year. While it doesn’t need to be an exact science, making your best estimate will help guide your decisions moving forward. As you monitor your spending, compare it against your budget—your plan for what you intend to spend.
Pairing a simple budget with a basic project start sheet (or job start sheet) can provide unparalleled clarity for your business, regardless of size. This project start sheet or customer start sheet is simply a list of projects set alongside future months. If you're in a project-based business, you can begin plugging in anticipated billings based on your schedule of values for each project. If you’re a product-based business, you can start projecting sales volume over the next week, month, or quarter. This practice, combined with your overall cash management strategy, can significantly improve your financial control.
Perfection in financials is an unrealistic goal, but money is always in motion. Much like a river that never stops flowing, your job is not to halt the flow but instead to channel it. Effective money management—whether you're a contractor, a product-based business owner, or even running an ice cream shop—is about balancing the different perspectives of past, present, and future. While past financial data is necessary for tax purposes and long-term planning, your day-to-day decisions should be guided by your present cash situation. By doing so, you’ll be better equipped to handle the monetary aspects of your business and make decisions that support your success.
If you need help with this, go to mybusinessonpurpose.com/ask. You can hop on a 15- to 20-minute call with one of our professional coaches, and they can walk you through these concepts in more detail. One thing we do ask: Make sure that you're the primary owner, have three or more employees (between 3 and 100 employees), and are generating $1 million or more in revenue if you’re a contractor, or $500,000 or more if you’re a service-based business. If that sounds like you, visit mybusinessonpurpose.com/ask—we’d love to answer your questions!
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