Siegal: Time for a Checkup

by Kyle Clapham

While business seems to be really good for everyone right now, it’s also come with a lot of uncertainty and difficulties. COVID-19 has thrown down challenges that would test the mettle of any business owner. A service business such as home improvement is especially vulnerable.

Even while “essential,” you have to assure people that it’s safe to do business with you and to work for you. You have to figure out how to communicate with customers and run an office as well as crews, digitally. You have to manage people through the fear of contagion by developing and enforcing safety protocols.

Prepared for Problems

But as a business owner, you also have to watch over the health of your business in the changed environment the pandemic triggered. Now we’re dealing with government loans, labor issues and supply channel disruptions. For instance, what if you can’t get everything you need from suppliers to finish a job? What if 3 out of every 10 jobs are left hanging?

While COVID has eased a little, it’s exactly the kind of thing that puts a business to the test. If you’re adept at managing the day-to-day, you already had a healthy business, and it’s probably remained that way. A healthy business weathers shocks far better than one that’s marginally profitable because it can pivot when a disaster like COVID appears.

But how do you know your business is healthy? Assumptions often set the stage for disaster. To know the shape my business is in—so I can adjust, tweak or change the things that need it—what I do is make a detailed examination of sales, admin and production. Without doing that, how would you know whether each of those mutually supportive branches of your operation is functioning at a high level of efficiency?

What to Look for

Here’s what I look at when I’m giving my business a checkup:

Sales: Leads are the lifeblood of any home improvement business. You might think: We’re getting plenty. Okay, but how many become sales appointments and how many of those do you close? Is your company making money on each of those sales? There are a number of important metrics for measuring sales efficiency in home improvement, with “net sales per leads issued” being only the first. Spend an afternoon taking a close look what’s going on with your sales. You’re probably going to find some areas where you can improve.

Admin: At a home improvement company, someone has to answer the phone, process a lead and track costs and job progress through to final payment. Paperwork is the least glamorous but most essential aspect of your business. It holds it all together. So, how’s that working? Are you getting emails from clients saying they phoned your office, and no one got back to them? Do salespeople mention that leads, for instance, were not being set correctly? Just because people have worked for your company for a while doesn’t mean they’re doing things the way you’ve indicated they should be done. Set up metrics and check.

Production: You can sell lots of work, but if you can’t install it, you can’t collect, and there goes your revenue. You can also install it and collect payment but still make nothing if your production process is mismanaged. Start with job costing. Is your profitability on jobs what you projected? If it’s not, that could signal a problem with sales or with production.

If, for instance, you’re running at 25 percent materials and 25 percent labor, and your labor is suddenly 26 percent, then, a month later, it’s 27 percent, you may have a deficiency somewhere in your system. If it’s not checked regularly, you may soon be losing money. Don’t wait until it’s too late to fix.

And with increased sales comes an increase in backlogs, add the labor shortage with material shortages, and we have the perfect storm for production. Correct pricing and the ability to increase your price should costs escalate before you get to the job are essential to operating a profitable company.

Monthly Checkup

We’re only too aware of how the COVID-19 pandemic has threatened the health and welfare of everyone. Fortunately, vaccines seem to be working, and people will soon be able to get boosters against infection. That doesn’t mean the pandemic is going away immediately. It will at some point. But one thing that’s clear is we now live in uncertain times. If you’re operating a business in this kind of climate, you need to be sure that business is as profitable as it can be and that your cash position is stable.

Carelessly managed companies are that much more vulnerable. How often should you be giving your business a checkup? Every month is a good way to catch minor problems before they become major ones. Good, profitable companies regularly take their own temperature and blood pressure. It’s a good way to not only stay financially healthy but to ensure that you have the kind of company someone would want to buy. All a new owner has to do is read the chart. QR

Scott Siegal is the owner of Maggio Roofing in Washington, D.C., and also owns the Certified Contractors Network. You can learn more about CCN by going to the website contractors.net.

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