What is a Successful Company

Transcription

1 Welcome 15 Things All Successful Companies Have in Common! We have trained over 14,000 contractors, from coast-to-coast, how to run profitable companies! Bill Kinnard, Vice President What is a Successful Company Covers ALL the real costs of doing business, from a cash flow standpoint including: a) Paying the owner a regular and reasonable salary b) Retirement plan for the owner/employees Meets, and hopefully exceeds, the customers expectations

2 What is a Successful Company Source: Remodeling Magazine, October 2006 What is a Successful Company Covers ALL the real costs of doing business, from a cash flow standpoint including: a) Paying the owner a regular and reasonable salary b) Retirement plan for the owner/employees Meets, and hopefully exceeds, the customers expectations Generates a 3% to 7% pre-tax net profit.

3 Five Basic Areas Financial Marketing Customer Base Continuing Education Customer Service #1 Know What Labor Rate MUST Be Charged In Each Department to: Cover all the REAL costs of doing business (from a cash flow perspective) and. Generates a significant pre-tax net profit

4 An Accurate Labor Rate Is The Basic Building Block For Profitability Number one failure of most companies today is failure to re-calculate profitable labor rates on a REGULAR BASIS An Accurate Labor Rate Is The Basic Building Block For Profitability Company started by basically charging what the rest of the market charged: A. Little overhead, significant gross profit. B. Company grows, rate stays the same, profitability SHRINKS!

5 How To Calculate Accurate Hourly Rates 1. Determine the REAL costs of doing business in each department. a) Overhead costs b) Cost of non-billable time c) Full amount of loan payment d) Equipment replacement costs. Typical Non-Billable Time Vacation - Holiday - Sick 80 hours --- Two weeks vacation (3.8%) 72 hours --- Nine (9) paid holidays (3.5%) 40 hours --- Five (5) sick days (1.9%) = 192 hours / 2080 hour year = 9.2 % Non-Billable time If this seems high to you be glad you are not doing business in Trinidad!

6 Model Employee Assume the Model employee has a minimum of only one hour a day that is non-billable: = 1 hour / day x 47 working weeks = 235 hours per year (11.3%) Model Employee Model employee s non-billable time: 3.8% Vacation 3.5% Holidays 1.9% Sick Pay 11.3% One hour a day 20.5% Non-Billable Time

7 Industry Norms For Non-Billable Time Non-Billable Time Is Expensive! Type Employee % Non-billable Service Tech 40% - 55% Installation crew 20% - 35% Equipment Replacement vs. Depreciation ABC Contractor Depreciation deals with what a piece of equipment cost several years ago Equipment replacement deals with what it will cost to replace it several years from today (and builds the costs into today s pricing)

8 Loan Payment Differences If you have a $500 loan payment and $100 is interest: Accounting only shows the $100 interest on the Income Statement. Cash Flow shows all $500 as flowing out of the company. How To Calculate Accurate Hourly Rates 2. Determine the amount of GROSS PROFIT you make when selling materials or parts in that department.

9 How To Calculate Accurate Hourly Rates 3. Calculate billable labor hours (total field labor hours less non-billable hours). 4. Calculate your breakeven rate: = REAL cost of doing business less gross profit on material sales divided by billable hours = ($125,000 - $30,000)/2000 hours = $47.50/hour How To Calculate Accurate Hourly Rates 5. Add profit to the hourly rate: Assume you want a 15% pre-tax net profit = $ /.85 = $ / hour Our Labor Pricing software program to model your company is part of the Conference Special

10 #1 Knowing Your Hourly Rate By Department 1. Have no idea what hourly rate needs to be -- 0 points 2. Know your hourly rate: a) Re-calculated within 3 years points b) Re-calculated within 2 years points c) Re-calculated within 1 year points d) Calculate more than once a year points #2 Develop a Month-by-Month, Departmentby-Department Cash Flow Budget and Track the Results Monthly Why Develop A Cash Flow Budget? 1. Forces you to look at the company, in detail, maybe for the very first time 2. Provides accountability 3. Provides information upon which to base economic decisions 4. Helps you PLAN the growth of the company 5. Basis for tracking the profitability of the company.

11 ABC Sample Company Gross Sales JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Less Cost of sales Net Profit/ Loss Cum. Profit/ Loss #2 Cash Flow Budgeting 1. Do not have a budget points 2. Create an annual budget points 3. Create an annual budget and its month-by-month Create an annual budget, month-by-month AND department-by-department points 75 points 5. All of #4 PLUS you track your budget monthly points

12 #3 Business Plan In Place Need to have a BUSINESS PLAN in place If you don t know where you are going, any road will get you there BUT You will never know when you arrived! A Business Plan Will: Set the direction of your company (where you are going). It will spell out how you are going to get there. It will detail the cost of meeting your goals: a) Labor b) Equipment needs c) Cash flow needs d) Required funding A written business plan is an excellent document to take to your banker if funding is required.

13 Business Plan Outline 1. Executive Summary: a) History of your company b) General market conditions c) Status of competition d) Company goals 2. Financial Plan: a) History of company from a financial standpoint b) Current financial statements c) Capital expenditure forecast (what equipment will be needed and when) d) Month-by-month cash flow budget for the next two years e) Cash flow projections for the next five years Business Plan Outline (continued) 3. Marketing Plan a) How you will market your company (radio, TV, yellow pages, etc.) b) Show the cost of each and the expected results c) What will be done when and by whom? d) What is the cost of the plan, your budget? 4. Production Needs: a) Labor needs b) Material forecast including inventory c) Assets - what equipment will be needed? 5. Organizational Plan: a) Organizational chart b) Training - salaried and technical

14 #3 Business Plan 1. No business plan points 2. Written business plan for the coming year points 3. Written business plan for the next two years --35 points 4. Written business plan for the next five years --50 points Give yourself 50 BONUS POINTS if you share your business plan with your banker at least once a year. #4 Marketing Plan How are you going to get the word out about your company?

15 Suggestions: 1. Track where your leads and/or sales are coming from (find out what s working). 2. Have a continuous and overlapping plan. It will help minimize slow times. 3. Unless you are a large company and can devote someone full time to marketing, have an outside firm: a) Design and print literature b) Do the physical mailings for you. Consistency Is Important When the customer is ready to buy it s who they REMEMBER that counts! Why didn t your happy customers of the past call you again? Sixty percent (60%) could not remember who you were! Do you know what your two best leave behind physical marketing tools are?

16 #4 Marketing Plan 1. No marketing is done outside of yellow pages points 2. Have an informal plan in place (not written)-- 25 points 3. A formal, written, plan is in place and it s part of your annual budget points #5 Accurately Measures The Performance Of Each Individual Service Technician Basic Key Performance Indicators to Track: Under-Billing Set daily goals and measure against those goals, by tech Track sales leads generated by age of equipment (KPI: 12% of all calls and 33% on old equipment) Maintenance Performance: a) Actual time vs. predetermined wrench time b) Additional repairs and/or add-on sales (KPI: $40.00 per hour)

17 #5 Accurately Measures The Performance Of Each Individual Service Technician Basic Key Performance Indicators to Track: Maintenance agreement sales (KPI: 42% of those that don t already have a M/A) Number of non-billable hours and the source #5 Accurately Measures The Performance Of Each Individual Service Technician Basic Key Performance Indicators to Track: Number of non-billable hours and the source Number of callbacks per tech, filtered (KPI: 2.75%) First time completion ratio (KPI: 95%) Average revenue generated per hour (who is most and least productive tech)

18 #5 Accurately Measures The Performance Of Each Individual Service Technician 1. Do not measure at all points 2. Measure at least 5-10 KPI points 3. Measure at least 5-10 KPI and tie it into a bonus system for your techs points #6 Majority Of Customers On An Annual Maintenance Agreement Program Maintenance Agreements are literally the foundation stone for profitable growth in the 21 st century! Maintenance Agreements are the feeder system for everything else you do! Consistent service work Creates replacement sales Creates add-on sales M/A

19 Why Would YOU Want To Start A Maintenance Agreement Department? 1. Consistent cash flow 2. Work is pre-scheduled (reducing non-billable time) 3. Nearly guarantees service work during the year 4. Eventual equipment replacement work 5. Improved job security 6. Happier customers 7. If tech learns to sell S/A they can sell other things as well 8. Ability to increase the size of you customer 9. Increases the selling price of the company #6 Majority Of Customers On An Annual Maintenance Agreement Program 1. Do not have a M/A program points 2. 1% to 10% on program points 3. 11% to 25% on program points 4. 26% to 50% on program points 5. Over 50% on program points

20 #7 Network With Other Companies & Other Trades Networking Is A Relatively New But Very Powerful Concept Networking With Contractors Why are we called independent contractors? Create a mixed group from across the country and meet on a regular basis (2-4 times a year) Share ideas and mutual problems Become best friends, call often!

21 Networking With Other Trades Set up a small mixed trade group in your city, town and/or area to: Share leads Recommend each other Handout each others literature (company brochures, coupons, etc.) Do Direct Mail and Home Shows together and split the cost If your customer likes you and trusts you they will also trust your recommendations of other trades! #7 Network With Other Contractors & Trades 1. If you occasionally meet with other contractors to share ideas and/or problems points 2. If you meet with other contractors on a regular basis points 3. If you network with other contractors and other trades points

22 #8 Formal Collections Policy If you can t get paid, why sell the job to begin with? If we don t specify the payment terms, our customer will! What Does It Cost The Company When Payments Are Late? Your Shrinking Credit Dollar (based on the time value of money) 30 days past due $ days past due days past due days past due Six months past due One year past due Two years past due Three years past due Five years past due Source: U.S. Dept. of Commerce

23 #8 Formal Collections Policy 1. Have a written policy Formal Collections Policy 2. Stated time for invoicing to take place. Immediately if at all possible or at least within 24 hours 3. When payment is past due a second notice should be immediately sent out requesting payment within ten days. 4. If payment is not made in 10 days then call the customer and find out why and get a commitment of when payment will be made (office person, not the owner) #8 Formal Collections Policy 5. Follow with a second call if payment is not received as promised. (owner or manager should call) 6. Begin use of an attorney or collections agency. Tip Use a fax reminder for commercial customers!

24 #8 Formal Collections Policy 1. No formal written policy points 2. Have a formal collections policy points #9 Create A Definite Plan for Controlled Growth If you don t control growth.it will control you (and often put you out of business!) Three (3) periods of growth that can put a company out of business! Owner moves from the field into the office Gross sales reach roughly $1,000,000 per year Growing in excess of 15% a year Goes back to creating annual budgets, by department, to project your month-by-month cash flow needs!

25 #9 - Creates Definite Plans for Controlled Growth 1. No growth plan points 2. Have specific growth target you shot for each year points 3. Have a specific plan and it s part of a formal business plan points #10 Send Out A Company Newsletter 2-4 Times A Year A Newsletter Will: Keep your name in front of your customer (potential ones as well, if you include them in your mailings). Inform your customers of new products and/or services that are available (can t buy what they don t know about!).

26 #10 Send Out A Company Newsletter 2-4 Times A Year A Newsletter Will: Make them feel part of the company, it builds relationships. Most manufacturers will co-op the cost & help with content! #10 Send Out A Company Newsletter 2-4 Times A Year E-Newsletters Easy Great Follow-up Low cost way to stay in touch with your customers and provide value added services

27 #10 Send Out A Company Newsletter 2-4 times A Year 1. Do not have a newsletter points 2. Send out newsletter two or more times a year Send out newsletter two or more times a year to your customer base AND potential customers points 40 points #11 Organized Continuing Education Program Your Program Should Include: Weekly technical training for technicians. Monthly in house training on things like customer service, safety, etc.. Owner/supervisor attend business training seminars at least quarterly.

28 #11 Organized Continuing Education Program Your Program Should Include: Subscribe to audio or video training series. ECCN University Trade magazines. #11 Organized Continuing Education Program 1. Hold weekly technical training sessions points 2. Hold weekly technical training PLUS monthly in house training points 3. Technical training, monthly in house AND owner, supervisor attend quarterly business training points

29 #12 Regular Use Of Customer Response Cards Highest Benefit To Dollar Invested Ratio Of Anything You Do: Cost: $150 for 1500 Custom Printed Card + Stamp The Company Gets: 1. Feedback on the quality of work in the field. 2. Positive comments for referral lists. 3. Referrals for additional sales. How Did We Do? We Care! Excellent Good Fair Poor Timely Manner Card of Layout Service... Overall Quality of Work... Value for Work Done... Technician s Neatness/Cleanliness... Courtesy of Technician... Courtesy of Office Personnel... Where did you hear about us? Would you call our company again? Yes No General Comments: (Problems/Praises) We want to know: Referrals - Please list names and phone numbers of neighbors, friends and relatives that may be interested in our services.

30 #12 Regular Use Of Customer Response Cards 1. Do not use response cards points 2. Send cards out on a at least 50% of the jobs you do Use cards on over 75% of the jobs done points 50 points #13 Line Of Credit Set Up With The Bank A line of credit has one purpose which is Short term borrowing against receivables! It only takes one customer going bankrupt or one large job that was going to pay in 30 days that will now take 120 days to PUT THE COMPANY OUT OF BUSINESS!

31 #13 Line Of Credit Set Up With The Bank How Much? Approximately 5% to 7% of gross sales. $500,000 sales = $25,000 to $35,000. One million in sales = $50,000 to $75,000. #13 Line Of Credit Set Up With The Bank 1. No line of credit set up points 2. Company has a line of credit set up with the bank points

32 #14 Formal & Active Customer Service Training Program What Is A Happy Customer Worth To The Company Over The Next 14 Years? Assume: Customer A has an annual Maintenance Agreement with your company at a cost of $150/year. Once a year Customer A needs a service call which runs $200 including parts and labor. Every seven (7) years Customer A has a major repair that cost $1,500 Customer A is a HAPPY customer and refers you to others. Let s assume this happy customer produces one new customer every 2 years, with the same buying history. Dollar Value Of One HAPPY Customer Over The Next 14 Years Customer Service Service Major Total Agree. Call Repair Value A $2,100 $ 2,800 $ 3,000 $ 7,900 B 1,800 2,400 3,000 7,200 C 1,500 2,000 3,000 6,500 D 1,200 1,600 3,000 5,800 E 900 1,200-2,100 F ,400 G $31,600 Think Twice Before You Loose A Customer Over A $85.00 Service call!

33 Customer Service Program Should Include: Happy calls after job is done. 100% money back guarantee, no fussing. Thank you card and/or gift after any major installation/repair job. Christmas Cards (Valentine?). Continuous Customer Service Training of all employees. #14 Formal & Active Customer Service Program 1. Happy calls points % money back guarantee points 3. Thank you card or gift after installation points 4. Christmas (or other) cards points 5. Continuous Customer Service training points

34 #15 A Few More Things Get a deposit on every install job (10 Points) Provide vacations and holidays for their employees (10 points) Have an Employee Handbook (10 points) Job cost every job (10 points) Total Your Points. How Did You Do? (There are a possible 1000 points) <100 Don t bother to go home, you re out of business! Need improvement Average. Doing some things right, keep working Good. A little more effort will put you in great shape Excellent! over 801 SEE ME AFTER CLASS, you can help with the next presentation!!!

35 Basic Business Boot Camp Three days of intense business training guaranteed to increase your profit! Thank You We have trained over 14,000 contractors, from coast-to-coast, how to run profitable companies! Bill Kinnard, Vice President Make the Decision to be Profitable!