Accounting trigger points in your business

Hind sight is always twenty-twenty and if we could have seen these tough economic times coming, we all would have done things differently. I’ll pick on building contractors for a moment.

In May of 2006 I remember a contractor complaining that they couldn’t find any painters or landscapers to finish up a spec house they were building for a Parade of Homes tour. Within the same conversation they also complained that they had to sell their current home and move into the spec house because there were no buyers. Should this have triggered them to stop building at that point?

In the fall of 2007 we were called into examine the accounting records for a builder in Madison Wisconsin. For the first time in years, they were struggling to make payroll. Should this have been the trigger point for them to stop building?

In the summer of 2008 I was troubleshooting a QuickBooks file for a Raleigh builder of high-end homes. At the time, he was practically begging for any kind of home repairs, lawn mowing, anything. Was it time to get out yet?

When you’re caught up in the middle of it all, it can be extremely difficult to see the writing on the wall. What you should be doing, is setting up trigger points, ideally leading indicators, to alert you to significant shifts within your industry. These will of course be different for every business. Maybe it’s a significant increase in outstanding receivables. Similarly it could be a squeezing of your working capital requirements. Often, it’s external like in the case of home builders with their pool of buyers drying up. Interestingly enough it’s sometimes as subtle as finding that everyone is buying into an industry because of the easy money everyone seems to be making (think: briefcase contractors). If people are running in, you should probably be running out.

What kind of trigger points do you use in your business? Have they worked well or have they misled you?


Posted in: Blog

Leave a Comment (0) ↓

Leave a Comment