It wasn’t until I was already a year into my roofing company. I had finished a handful of roofing projects and I started to notice that nearly every roofing project was not as profitable as I thought it would be. I was barely making enough money to survive, let alone pay for my bills, my housing, my office, my fuel, my materials, and other expenses. The problem was I didn’t know my numbers. I knew roofing, and I knew how to manage a roofing project, but I didn’t know how to analyze my numbers.
Before anything else, it’s a great idea to have some type of accounting software. There are several choices, QuickBooks is a very popular one. I use QuickBooks Contractor Edition and it may be a good idea to start with it or something very similar. Make sure you have a familiarity with the accounting software you choose. You will definitely want to have a bookkeeper and a CPA, as you grow, but it’s on you in the beginning. Eventually, you will want to have someone in charge of the finances who is competent and trustworthy.
Total sales (revenue), is the total amount of income generated by your roofing company. It is the top line on your roofing company’s income statement. Costs of Goods Sold (COGS) are the direct costs directly tied to the goods or projects that have been sold. They are usually made up of direct labor and material cost on a roofing project. Gross Profit (GP) is the profit your roofing company has produced on each roofing project before considering the fixed costs. It is calculated by subtracting the COGS from the total revenue. Fixed Costs (FC) are the total of all the remaining costs of doing business—otherwise known as overhead. Net Profit (NP), otherwise known as the bottom line, is calculated by subtracting the total fixed costs from the gross profit.
Disclaimer: I am a roofing entrepreneur, not an accountant or a bookkeeper; they are much smarter than I am. I have learned about accounting and finances the hard way. Consult your accountant for the correct recording and reporting methods for your business.