Series: The Numbers Behind Your Business — Part 1 of 15
Carlos has run a remodeling company in Hialeah for eight years. Kitchens, bathrooms, whole-home remodels. He has ten employees and two crews working at once, never runs short of work, and his phone doesn't stop ringing. Ask him how business is going and he'll answer without hesitating: "Good, thank God. There's always money in the account."
And that's true. When Carlos opens his banking app, he sees $80,000. To him, that number is proof that everything is on track.
But here's the uncomfortable question: how much of that money is actually his?
Money in the bank is not the same as profit
This is one of the most common mistakes business owners make, and it's completely understandable. Your bank balance is the only number you see every day. But it doesn't tell you how much you earned. It only tells you how much is in the account right now.
Here's what Carlos isn't seeing:
$25,000 is a client's deposit for a $75,000 remodel that starts next month. That work hasn't been done yet. The money will go to materials and labor, and if the project is canceled, he may have to give it back.
$8,000 is payroll taxes for his ten employees that Carlos has to deposit with the IRS. That money was never his.
$15,000 is on the business credit card, spent on materials for the jobs he finished this month. It's already been spent, even if it hasn't left the account yet.
$12,000 is owed to the electrician and plumber he subcontracted, due in ten days.
Take those four things out, and the $80,000 becomes roughly $20,000. Just a quarter. And that's before the income tax and self-employment tax Carlos will owe on this year's profit. Since his LLC doesn't withhold anything for him, that bill arrives all at once in April.
Carlos wasn't in trouble. But he was about to sign a five-year lease on a warehouse based on a number that was four times reality.
Billing a lot is not the same as earning a lot
There's another question Carlos can't answer: which jobs actually make him money?
He feels that whole-home remodels are his best business because they're his biggest contracts. But a full remodel ties up an entire crew for weeks. There are delays waiting on cabinets, surprises behind the walls, and changes the client asks for halfway through that often never get billed. The small jobs, like redoing a bathroom or replacing a home's windows, which wrap up in a few days, may earn him more for every hour worked.
The answer? Carlos doesn't know. And without knowing, he can't tell which jobs to take, how much to charge, or which clients to go after.
The five-minute test
Try this with your own business. If your books are up to date, you should be able to answer these three questions in under five minutes:
How much did I make last month? Not how much I billed, but how much was left after paying everything.
Which type of job or service earns me the most?
How much do I owe in taxes right now?
If any of these made you hesitate, don't worry: you're not alone. Most small business owners can't answer them. But think about what that means: you're running your business without knowing exactly where it's headed.
Accounting is your business's dashboard
Imagine driving your truck down the highway with no speedometer, no fuel gauge, and none of the warning lights that tell you when something's wrong. You might reach your destination. But you could also run out of gas halfway there, or get a ticket without knowing why.
That's what accounting does. It isn't just an IRS requirement or a pile of paperwork someone has to fill out. It's your business's dashboard: it tells you how fast you're going, how much fuel you have left, and when it's time to pull over and check something.
Many business owners see accounting as just another expense. But a good dashboard doesn't cost you money. It saves you from expensive mistakes.
So what now?
You don't need to become an accountant to take control of your numbers. You just need to understand the basics and have someone help you keep them in order.
In this series, we'll walk through how accounting works, step by step and without the jargon. And we'll follow Carlos as he discovers what his numbers have been trying to tell him.
Next in the series: Do you keep your Home Depot receipts in the glove box, a drawer, or a bag? We'll talk about the hidden cost of the "shoebox," and why not keeping your books current may be costing you more than you think.
Want to know how much your business is really making? At Gosnor, we help business owners understand and organize their numbers. Book a free consultation.
Lee este artículo en español: ¿Sabes realmente si tu negocio está ganando dinero?
