What is a good profit margin for an electrical business?

It depends on what kind of electrical business, which is why the numbers you find online contradict each other. You'll see everything from 2% to 20% net cited as "average." Residential service work carries much higher gross margins than commercial bid work, so a blended number hides more than it reveals. Split your P&L by service line first; then a weak number tells you where to look instead of just making you nervous.

Why does my P&L show a profit but my bank account is empty?

Because profit is recorded when work is earned and cash arrives when someone pays, and growth eats cash in between. Trucks, inventory, payroll, and marketing all get paid before the revenue they generate comes home. In residential service the gap should be small, since customers pay same-day. If it isn't, look at receivables discipline, inventory creep, and debt payments, which never appear on the P&L.

How much cash should my electrical business keep in reserve?

Enough to answer the 20% question: if revenue dropped 20% tomorrow, could you cover payroll and fixed overhead long enough to fix the problem? Most coaches want to see a few months of operating expenses, not a few weeks. If your honest answer is "we'd be on the line of credit in three weeks," reserves are your first project, before the next truck and before the next marketing campaign.

Is being booked out a sign my business is healthy?

No. Booked out means demand, not health. Plenty of shops are booked solid at prices that lose money, with overtime and callbacks quietly eating the margin. Health is whether the work you're booked for produces cash after every cost is paid, and whether the company would still stand if the phone slowed down for a quarter.

Is Your Electrical Business Financially Healthy?

Revenue won't tell you. A shop can have trucks rolling, phones ringing, techs on overtime, and revenue climbing, and still be one bad month from missing payroll. Financial health lives in five places most owners rarely look: the balance sheet, the quality of the revenue, the cash, the ratios, and what happens when the business takes a punch.

One of the biggest mistakes we see electrical business owners make is assuming revenue equals financial health. It doesn't. Some companies actually get more fragile as they grow, because every additional truck, employee, and marketing campaign puts more pressure on a financial model that was never healthy to begin with.

Here are the five checks, in order.

1. Start with the balance sheet, not the P&L

Most owners spend all their time staring at the P&L. The balance sheet is where survival lives. It tells you whether the business has the muscle to absorb a problem: cash on hand, receivables, inventory, credit card balances, vehicle and equipment debt, the line of credit, and what's due in the next ninety days.

Then ask one question. If revenue dropped 20% tomorrow, how long could you keep the doors open?

That answer says more about your company than your annual revenue does. A $5M shop with no cash and a pile of truck debt is weaker than a disciplined $2M shop with real reserves and controlled overhead. Revenue is impressive. Liquidity keeps the doors open.

2. Look at the quality of your revenue

Not all revenue is good revenue. A company can grow sales while destroying profit, and it happens quietly: marketing spend creeps up, discounting increases, overtime explodes, callbacks rise, and techs sell work that barely carries margin. Then everybody celebrates because revenue grew 18%.

Congratulations. You got busier. That doesn't mean you got better.

The question isn't "are we growing?" It's "are we growing profitably?" Those are two very different businesses. Watch gross margin, labor and material percentages, average ticket, service-agreement penetration, callback rate, and revenue per technician. If revenue is up but gross margin is down, you didn't grow. You bought volume with your own profit.

3. Follow the cash

Profit on a financial statement does not mean there's cash in the bank. Ask any owner who has ever said: "My accountant says we made money. So where the hell is it?"

Cash gets eaten alive by growth. More trucks, more inventory, more people, more advertising, more receivables. That's why you need to know your operating cash flow: how much cash the operation actually generates after the bills get paid, not what the P&L says you earned.

The warnings are specific. If you need the line of credit to make payroll, the business is warning you. If credit cards are financing normal operating expenses, the business is warning you. If you're waiting on next week's deposits to cover this week's obligations, the business is screaming at you. In residential service you have an advantage most contractors don't: the customer pays the day the work is done. If cash is still tight in a same-day-payment business, the leak is in your pricing, your overhead, or your discipline, not your payment terms.

4. Stop reading numbers in isolation

One number rarely tells the story. You need ratios, trends, and relationships between numbers.

Revenue per technician is a good example. At coached electrical shops, the median producing tech generates $409K per year. Your own number only means something next to that benchmark and next to your own last six months. The same goes for close rate. The coached-shop median is 65.7%, and a "great revenue month" at a weak close rate usually means you overspent on leads to paper over a conversion problem.

Context is the whole game. A 52% gross margin looks fine until you realize it was 57% six months ago. A $900 average ticket looks great until you notice your cost to acquire the customer doubled. A record revenue month looks incredible until you discover you lost money producing it. Compare month over month and year over year, or you're not managing, you're reminiscing.

5. Stress-test the company

This is the check almost nobody runs. Ask yourself, on paper, with real numbers:

What happens if revenue drops 20%?
What happens if my top tech quits?
What happens if Google leads get 30% more expensive?
What happens if the fleet needs $80,000 in repairs this year?
What happens if the economy slows and panel upgrades get postponed?

A financially strong business can absorb a punch. That doesn't mean nothing hurts. It means one bad month doesn't put the company in cardiac arrest. Too many owners build businesses designed for perfect conditions. Perfect weather, perfect employees, perfect demand. That isn't a business model. That's a prayer.

What we recommend

Run the five checks in order, once a month, on a schedule you don't skip. Balance sheet first, because survival beats performance. Then revenue quality, then cash, then the ratio board, then one stress-test question per month with real numbers behind it.

And understand the point underneath all five: your goal is not to build a bigger company. It's to build a stronger one. A company doing $8M can be a disaster. A company doing $3M can be a machine. The difference is discipline: margins, cash, controlled debt, and an owner who actually understands what the numbers are saying. Every business eventually gets tested. The ones that survive built financial strength before they needed it.

If you don't know where your business stands right now, that's the first problem to solve. The free scale-readiness assessment is a short place to start. No account required, and it shows you which part of the foundation needs attention first.

How do I know if my electrical business is financially healthy?