Solar energy is fast becoming a popular option for many Australian consumers and businesses. In fact, over three million solar panel systems have already been installed across the country. Solar businesses, therefore, have a lot of work, as demand is skyrocketing in places like Queensland and New South Wales. However, this doesn’t necessarily mean you’re assured long-term success.
To grow your solar business, you must have a firm grasp of your company’s finances to steer it in the right direction. Below are three of the most critical financial measures you must monitor to drive your business forward.
Revenue growth measures the increase (or decrease) in earnings over a certain period of time, which is important for gauging your company’s performance. Analysing revenue growth enables you to understand which internal processes and services are driving your business forward.
To figure out revenue growth, you’ll need an updated income statement. This is an invaluable reporting tool for tracking sales revenue over monthly, quarterly, and yearly periods. From the reports, you can calculate revenue growth by subtracting the most recent time period’s revenue from the previous period. Then, divide the result by the same previous period to get revenue growth as a percentage.
If your company is currently facing negative growth, there may be underlying issues affecting performance — like targeting the wrong demographics. For all you know, the market for residential solar installations is saturated and you’re completely neglecting niche commercial markets. If there’s only one source for revenue growth, diversifying your client portfolio can be a great way to boost revenue. Even when you have positive revenue growth, it’s prudent to identify your biggest revenue streams and capitalise on them. This could mean aggressively marketing your top services to more receptive communities.
Net profit margin
Profit margins demonstrate how effectively your company generates revenue while controlling its costs. Although aiming for high sales revenue is essential, it’s pointless if you can’t reduce costs to turn a profit.
With profit and loss reports, you can identify where your costs are coming from. These reports show you the materials, equipment, and labour costs associated with providing your services. They also break down the variable and fixed expenses involved in running your solar business. All these insights allow you to formulate better business strategies. For instance, you may find that optimising job schedules and improving team communication can minimise delays and cost overruns. Alternatively, profit and loss reports may reveal that adjusting your service prices to industry standards can increase profit margins.
A positive cash flow indicates that more money is coming in than going out, which is key to growing your business. The problem is many solar companies fall short of this because they overextend their cash reserves. Some businesses may be stretching their budgets thin, managing several active projects, while others fail to rein in spending during seasonal cash shortages. Whatever the issue may be, poor cash management severely hinders your company’s growth potential.
Cash flow statements are crucial for helping you make more informed decisions. These statements let you assess your cash balance, so you can determine whether you have the capital for major investments or projects. A detailed statement may even reveal practices slowing down your cash flow, such as inefficient customer invoicing and late supplier payments.
What’s more, keeping a record of cash flow statements gives you the data necessary to forecast future revenue and expense trends. The insights from these forecasts allow you to anticipate seasonal windfalls and deficiencies, so you can manage cash wisely. For example, if you expect higher demand for solar installation services between December and February, you may need to hire more subcontractors during that period. Additionally, you can reduce spending in the winter months to save your cash for bigger investments and projects later in the year.
Monitoring revenue growth, profit margins, and cash flow is key to your solar company’s long-term success. Fortunately, WorkBuddy makes this process much easier for business owners. WorkBuddy seamlessly integrates with accounting platforms like Xero, QuickBooks, and MYOB Online to process financial data all in one place. When users file invoices and expenses in WorkBuddy, the data is automatically fed into your accounting database so financial statements are always up to date. This allows you to more efficiently evaluate your company’s performance and find new opportunities for growth.
If you want to learn more about how WorkBuddy can help grow your solar business, book a demo today.