2005 - Time to Get the Business Going
Maybe for many years you wondered, “Where is the Money?” Life as a contractor
can be frustrating, exhausting, and unprofitable. Day after day, year after year we wait
for the perfect hot summer or the coldest winter on record to start us moving to prosperity and
wealth, only to find it rarely happens.
Profit is a state of mind, an attitude about yourself, your business and your relationships with
family, co-workers, and customers. You REALLY can make a profit in the contracting business
if you do the RIGHT things. Just like a magic pill for losing weight, we want to make a
profit in the HVAC or Plumbing business, but won’t make the effort to succeed. We work,
but not work for profit. Let’s change your approach this year and make the hard earned
monies you deserve. Proper budgeting, cash flow projections, and breakeven sales values are critical
for business growth.
Great contractors in the U.S. are not greedy nor do they overcharge: however they have grown to
realize that profit is a necessity in any business to take care of the demands of their family,
co-workers and customers. If you are not making enough monies to take care of these individuals,
you will fail as an owner and fail as a business. Your goal in 2005 should be to pay yourself at
least 8% of your sales in salary and benefits and leave at least 8% left over for profits. The
salary should provide for your family and the profit should be enough to grow the business.
Each year you should start with an Annual Budget that is broken down into twelve monthly budgets.
Approach each month as you would the whole year. Think about opening your business on the first day
of each month and closing it on the last day of each month. Focus on monthly sales goals, not yearly.
If you need to sell at least $30,000 per month, determine how you are going to get that money. Maybe
you just sell service, so you need $7500 per week or $1500 per day to meet your goal. If you go on 5
calls per day, they need to average $300 per day. At the end of each week, you need to see if your
sales are on track.
The issue is not just selling, but collecting. Personally as a consultant, I have never seen a company
go out of business because of a lack of sales or customers. Contractors are busy and contractors sell,
but they do not bill or collect in a timely fashion. Most contractors have their customers trained not
to pay when service is rendered. You cannot pay your bills with accounts receivables, so a cash flow
projection is necessary for you to pay your overhead and make a profit. Cash flow, not selling, is what
is important. Your budget may say you anticipate selling $30,000 per month, but how much do you need to
collect each month or week to pay the costs of sales and overhead? With any good budget, a cash flow
projection should be prepared to show your monetary obligations.
In order to meet these monetary obligations you must know your breakeven on all jobs. The
breakeven price for a job is the price that covers all costs of a job, covers all overhead associated with
that job, and yields a net profit of zero. That value is really the most important number to have calculated
before you quote a job to a customer. If my breakeven for a replacement job is $3000, I cannot sell
the job for less than that number. If I do, I have lost money before I even do the replacement.
How many times do you underestimate the cost of a job? Underestimate the cost of labor on that job? So keep
in mind the breakeven price is the price if my estimate is exactly the same as my actual costs. Typical the
breakeven costs for labor, is determined by multiplying the wage per hour of a field person by 2.5. The
breakeven for materials or equipment is determined by multiplying the costs of parts, materials and equipment
by 1.25. A cautionary note here; these are national averages and you must specifically
calculate breakeven for your company. Always, always know what your breakeven is before you start selling.
You need a plan for 2005 to earn the monies necessary to operate your company and take care of your family and
coworkers. You need to not be dependent on the weather for success, you need to determine your own success by
taking control and planning for profitability. Our newest business software, ProfitTracker, gives you the tools
to plan for success in 2005. With it, you can develop a strategy for sales revenue generation, cost control,
cash flow and breakeven pricing. You can run monthly budgets, cash flow projections, what-if scenarios, and price
jobs for a profit.
Get on board, take control with this new software, it’s all there with ProfitTracker and support from the
Collier Consulting Group.
For more information on ProfitTracker, visit
www.profittrackersoftware.com.
