Listen to your numbers: they tell the real story

Business ownership is hard. Grueling hours, financial risk, and constant unknowns are all part of an entrepreneur’s life. Most business owners are working harder and harder to grow their revenue, yet they’re yielding fairly minimal profits.

Would you rather run an $11 million dollar that generates $350,000 in profit or an $8 million dollar business that generates $750,000?

Another way to ask this—Why work harder to make less money?

With entrepreneurship more accessible than ever, many entrepreneurs may lack a foundation in finances, which makes it challenging to understand key financial metrics that could help them avoid the scenario I mentioned earlier.

I’ve worked with hundreds of business owners throughout my career in accounting, and here’s just one example of a company facing a harsh reality, and managing to turn its financial story around.

Why work harder to make less money?

Shauna Huntington

A construction company I worked with was doing well, growing every year, hiring more team members, serving more customers and increasing revenue. But its profit was declining. Sales staff were signing new projects regardless of margin, administrative staff weren’t capturing the right data to produce relevant financial reporting, ownership and management struggled to interpret the financial data they had, preventing them from making informed decisions that would have had a positive impact on the bottom line.

Something had to change.

Key financial issues

Here’s the core issue: the company’s focus on revenue growth without understanding financial metrics led to poor profitability.

While the company was experiencing steady revenue growth, its profitability was declining. This was a clear sign something was fundamentally wrong. Leadership assumed that increasing sales would naturally lead to higher profits, but the numbers told a different story. Without a firm grasp on key financial metrics, the business was unknowingly making decisions that hurt its bottom line.

Read on as I break down some of these key metrics.

Margins

Project margins represent the difference between the revenue a project generates and the direct costs required to complete it, such as materials, labor, and equipment. In this case, margins were too low to cover overhead costs, meaning that even as revenue grew, the business struggled to turn a profit.

Each additional dollar earned failed to generate enough margin to cover operating costs—at the end of the day increasing revenue simply did not benefit the company.

If you're facing this challenge, here are a few strategies to tackle it directly:

• Reassess pricing structures to ensure each job covered both direct and overhead costs.
• Eliminate low-margin projects that consistently underperformed.
• Implement a margin review process, analyzing past projects to identify trends and adjust pricing or expenses accordingly.

Job costing

A construction company, or really any business with direct costs tied to each project or customer, should be tracking expenses through job-costing to assess profitability. Job-costing allows a company to track the direct costs associated with producing revenue, and it provides clarity on whether a project or customer is profitable or not.

Since this particular company was not job-costing, management had no way of knowing which jobs were profitable and which jobs were losing money. They knew they had to fix their margins, but they didn’t know how to fix them because they had no insight into what the margins were on each job, different types of jobs, or different types of customers.

If you think you’re dealing with this issue, here are a few ways you can course-correct:

To course-correct, management should have started by implementing a structured job-costing system to track direct costs per project. This could involve:

• Set up a job-costing framework: Use accounting software or project management tools to categorize and allocate costs (materials, labor, equipment) to each project.
• Train staff on cost tracking: Educate the sales, administrative, and operations teams on accurately recording expenses and pricing projects based on true costs.
• Review historical data: Analyze past projects to identify trends, pinpoint unprofitable job types, and adjust pricing or cost control strategies accordingly.
• Establish regular financial reviews: Schedule monthly or quarterly financial check-ins to assess project margins and adjust pricing or operations based on real-time data.

Lack of understanding

The harsh truth is this: ownership and management didn’t understand what the financials were telling them.

Each month, they looked at the profit and loss statement—but they didn’t realize it was inaccurate.

And, they didn’t even realize it wasn’t accurate, because they had no understanding of the balance sheet and how to use it to verify accuracy. They didn’t look at key metrics like trends and margins, or even understand what they should be looking at to tell them how they were doing.

They thought that consistently increasing revenue meant they were doing well. The reality was they were a growing business that was producing less and less profit each year.

Here are some practical solutions for entrepreneurs who may likewise feel confused, overwhelmed or lack financial understanding:

• Learn the Basics of Financial Statements
  • Start with profit and loss, balance sheet, and cash flow statements—each tells a different part of your financial story. You can even take a small business finance course—many free options exist through SCORE, SBA, or online platforms like Coursera.
• Use Accounting Software with Built-in Insights
  • Platforms like QuickBooks, Xero, or FreshBooks generate reports automatically and can flag inconsistencies. Set up automated reports to review key metrics monthly (e.g., gross profit, net profit, and cash flow trends).
• Get Professional Guidance
  • Hire a bookkeeper or fractional CFO for a few hours per month to review your numbers. Meet with an accountant quarterly to check for errors and gain insights.
• Make Data-Driven Decisions
  • Instead of just looking at revenue, track gross margin, net profit, and cash flow—these reveal the real financial health of your business. Compare month-over-month and year-over-year trends to spot issues early.
• Develop a Habit of Financial Review
  • Schedule a monthly financial check-in (even just 30 minutes) to assess profitability and cash flow. Use a dashboard or KPI tracker to simplify financial data and keep numbers top of mind.

By taking small, proactive steps, entrepreneurs can gain confidence in their numbers, make smarter business decisions, and avoid financial blind spots that lead to profit loss.

How the construction company fixed their financial woes

The first step to fixing the company’s financial pain was to implement job-costing. With the primary issue being gross margin, management knew they couldn’t fix anything until they had some insight into what was causing their margin issue.

Implementing job-costing is no small feat. Job-costing requires increased tracking, additional tools, and participation from more than just your accounting team. With job-costing, every cost associated with producing a project is assigned to that project or customer – materials, labor costs, equipment and tools. Every cost should be assigned, for example, labor cost is not just the hourly wage or salary paid to a team member. Labor costs include benefits, taxes, workers comp, retirement match, paid time off and any other costs associated with that team member. While it is a big undertaking for any business, the insights and data job-costing provides are invaluable!

Revenue means nothing if profit isn’t growing.

Shauna Huntington

After six to 12 months of job-costing, management was able to determine a couple of key problems that were causing the margin issue. First, two of the four salespeople on the team were producing consistently lower margins than the others. This highlighted the fact that these two salespeople were struggling to price jobs appropriately to generate the necessary margin. Through coaching and training, the company was able to elevate one salesperson to the level needed for consistently hitting the margins required, while the other salesperson was not willing to adjust to meet the requirements and is no longer with the company.

The realization that they had a sales team issue was not the only outcome of job-costing implementation. The company also realized that they had certain types of projects that were consistently underperforming. These projects were in a specific industry and type of work that was regularly generating lower margins. Further research determined that the specialized labor needed for this type of work was too costly for the price that could be set for these jobs. After much consideration and evaluation of more than 6 months of project margins, management decided to discontinue that type of work.

In addition to implementing job-costing and fixing margins, the company also focused on what the numbers were telling them and used that data to drive business decisions. Management learned how to read financial statements, including not just their profit and loss statements, but job profitability reports and the balance sheet. They received timely and accurate financial reports every month. They analyzed those reports to glean insights into what was happening in the business, using that data to make meaningful decisions that moved the business forward.

By listening to the numbers and understanding the true story they were telling, over just 18 months, the company doubled its annual profit, even as it cut 45% of its jobs and reduced revenue by $3.5 million.

What are your numbers telling you? More importantly, are you listening? Consider whether you can cut expenses, adjust pricing to improve margins, or implement job-costing to increase profitability.

My hope is that I’ve inspired you to review your financial statements today and make one change that will have a positive impact on your bottom line.