Measuring Up:What to Do if Your Business Is Losing Money
Many years ago, I was attending a convention and the president of one of the largest and most profitable companies in America keynoted a speech welcomingeveryone to the city. He talked about typical things such as local attractions and encouraged everyone to enjoy the city. Just before leaving, he commented that he was asked to offer some business wisdom and explain why his company was so successful. His reply was, “Every year we take in more money than we spend. Thank you.” He was already leaving the podium before the crowd realized what happened and thunderous applause erupted. The simplicity of his statement was profound but the reality of doing so is not all that easy.
Most of our consulting is for people hoping to increase their bottom line. The first step is to stop the bleeding. Company owners tend to blame losses on an incident or situation such as customers not paying, one bad job, a poor salesperson, etc. In reality the problem is usually cultural and has more to do with how the company is run. The incident merely triggered the inevitable. Unfortunately, most will only change when the pain is great enough and lately, many have called us when it is too late.
Start by cutting costs. Entrepreneurs tend to think they can sell their way out of a loss. There are two problems with this theory. One is that the current economy makes increasing sales a challenge. Second, assuming everything goes OK, you only get to keep the gross profit out of additional sales. However, every dollar you cut is yours to keep.
For contractors, the big buck areas of cost are material, labor (or subs) and overhead. Cutting material costs is difficult as there are only so many suppliers and if you are struggling to pay your bills, you are probably not buying at the lowest price. Labor costs can be cut by lowering wages or being more productive. Overhead is the biggest area of concern because percentagewise it dramatically increases as sales drop. No matter what you do, it is going to be painful, but the longer you wait, the more painful it will be.
• Look closely at your average hourly labor cost.There is a tendency to keep the higher-paid employees as they have seniority and are more skilled. However, if you work two-man crews with a foreman earning $20 an hour and a helper earning $10 an hour, your average is $15 an hour. If you put two people at on a crew and both are earning $20 an hour, your hourly crew costs increase by $5, which is a whopping 33 percent ($15 original average divided by the $5 increase).
• Backward delegate.If you have superintendants and estimators who used to work in the field and now do not have enough work to keep them busy, consider moving them back to the field.
• Look closely at advertising. Know where your leads come from and the cost per lead and per sale.
• Consider cutting back on office employee hours. Unemployment varies from state to state, but some states will let employees work part time and collect unemployment part time.
• Take a look at recurring costs.Compare insurance companies and cost but make sure you are adequately covered and not just taking the lowest quote. Evaluate what you are paying for phone, Internet and mobile communications. Consider reducing the amount you pay on hospitalization and other employee benefits.
• As owner, re-engage in your business. You need to be visible and interactive. Show me an owner who is not there in the morning and never visits jobs and I will show you an organization that is not as productive as it should be. Go out and visit customers and see what kind of work you can create. Yeah, I know you may have been doing this for a long time and may no longer enjoy project management and sales. You aren’t going to enjoy bankruptcy either. Get out of denial and concentrate on activities that bring profit to the company. Stop comments regarding the economy, banks, politics, etc. You are a contractor. You will turn things around in the trenches. Concentrate on things you can control.
• Ruthlessly manage your activities.If what you are doing is not going to immediately generate income, don’t do it. Explain the situation to your family and that you will be working extra hours but it is only temporary. Possibly they can help. Teenage kids can pass out door hangers. Spouses can help make phone calls or send mailers. Of course, if you have been living in denial for years and making hollow promises of success to your family, credibility may be an issue.
• Make every sale count.If you have a salesperson that is not closing jobs, get rid of that person. When a potential job reaches a certain size, visit the customer twice. Work the process harder. Make it happen.
• Make every job count. Assign your most productive employees to jobs where they can make you the most money. Micromanage the work you already have. If you have a big job you need to be a home run, force it to happen.
• Fire someone.Years of good times have left many organizations enabled. Do not accept poor performance. Demand and implement performance. Figure out who is “with you” and who is “against you.”
Now is not the time to be egotistical or prideful. You only have two choices: make it work or quit. Whether your business was murdered by the economy or poor management, it is what it is. Get in the fight. Make the tough choices.
If it is too late to save it, go bankrupt and start over. Bankruptcy laws were made to protect people who made mistakes. Don’t die a slow death of denial where you and the problems merely grow older and older.
Well, there is one more choice. Call me at 800 864-0284, as I will be happy to talk with you about it. Everyone needs someone on their side, but I am going to focus on the facts and talk about having the courage to change. Change is never easy.