The financial feedback loop is a concept of information provided to make informed decisions. The loop has data as the primary input and this data generates a value or report allowing the interpreter to evaluate. From here the reader determines steps needed to improve or continue the existing process so that the end goal of generating a profit is achieved.
The number one tool for marketing is the handshake and a smile. It costs zero to extend the hand and use a few facial muscles. But the value it generates is priceless. Pretty much all business relationships begin this way. The handshake and smile is the most effective marketing tool available at all levels of business.
As a construction company owner, you need a profit and loss statement that conveys information in a format that will identify how much you are truly making as a profit. The best format is a construction profit and loss statement identifying contract revenues, direct costs, indirect costs and the overhead expenses. This format most closely matches the estimating style of most small construction companies.
At the end of the day, it is about the profit you make with your company. This format will point out where the problem is located and where the best performance occurs. When I look at a P&L, I want to quickly identify issues and concerns and get them addressed. If you use this format along with the project accounting reports I illustrate in other articles, not only will you quickly discover any problems, but you can actually pin point the underlying issues and get them resolved. This will add thousands of dollars to your bottom line. So as you read this article, remember you are trying to improve that bottom line, this format is absolutely the best tool to achieve that goal.
The most effective form of a financial feedback loop in residential construction is phase accounting. Phase accounting is a subset of cost accounting and generates accurate information in the world of new home and residential additions for small contractors building up to 20 houses per year.
