The Case of Dwindling Profits
A contracting company operating in the residential construction trades for over 30 years was normally quite profitable. When gross margins began to fall and the corporation showed a substantial loss in its most recent fiscal year, management was completely surprised by the situation and could not understand how it had happened. They were certain that their project bids would yield profit margins comparable to historical results and that a loss was not possible. Management was concerned that if the trend continued cash flow would become tight and long established cash reserves would dwindle.
Scarrow Yurman & Co pulled apart the numbers and in discussions with the client discovered that many of the revenue and expense processes within the company had very little internal control placed over them. Also, management was not using available financial information on a month by month, or job by job basis to evaluate profitability.
Scarrow Yurman & Co evaluated some of the billing and spending processes in place. We offered suggestions as to how to better ensure all revenue actually earned was billed and ensure costs were better contained and controlled. We also convinced management of the importance of being more closely involved with not only the operations of a company but with the financial reporting routines as well.
The client implemented these suggestions and in the next fiscal year profits returned.