I coach and consult with quite a few contractors, and I really enjoy working with you guys. Over the past decade, there are three things that really stand out to me about residential service contractors.
- You are genuine, authentic, “salt of the earth” people.
- You are smart, determined, and driven…just the kind of people I enjoy.
- You don’t pay enough attention to the numbers that drive your business.
Why did I make that last statement?
Think back to when you were first learning to drive a truck or car. Can you remember looking at all the gauges, seeing the knobs on the console, and also trying to remember the correct order for shifting gears? Maybe it was a little overwhelming at first.
My dad was a military man and he did things by the book. For example, I had to learn to drive using a manual transmission. My father told me that if I could drive a truck with a manual transmission, then I could drive just about any vehicle on the planet; from a tractor to a bus, to a steamroller.
In fact, one summer I worked for the Texas Department of Transportation and drove a steamroller every day of the week. It was a hot job, but I loved the feeling of being in control of such a powerful machine.
About a week into the summer, the brakes went out on the steamroller. State budgets were tight in the 70’s, and they would not spend any money to fix the brakes. I had to learn to downshift just right so that I could stop the steamroller without denting or crimping the asphalt. It was a good lesson for me to learn, to improvise, to make things work, rather than complain about the fact that my steamroller had no brakes.
What does this story have to do with knowing your numbers?
Well, some contractors make excuses about why they don’t track their numbers more carefully. I hear things like: “my software is not that good,” or “I just don’t have the time,” or “I have my hands full working with my team,” and on and on. The truth is we all have the same number of hours. It’s a matter of how we use the time we have.
Many owners have not experienced how powerful it is to know your numbers, and how you can leverage the numbers to grow your business faster and healthier.
Here are 3 Simple Keys to Blow Away Your Breakeven
Key 1: Find out your monthly breakeven.
First, what exactly is your breakeven?
Your breakeven is the amount of revenue that you need to acquire each month to pay your bills, but you still have not made a profit.
To start, you add up the costs of all your parts and materials: equipment purchases, field labor, permits, subcontractors, etc. Then you subtract this amount from your monthly revenues to get your cost of goods sold (COGS). If you are using QuickBooks, you can automatically print your cost of goods sold on a monthly, weekly, or daily basis as your bookkeeper inputs your expenses and revenues. QuickBooks will also provide your gross margin/profit BEFORE you apply overhead costs.
To get your breakeven, you then add your regular monthly expenses to your cost of goods sold. Overhead expenses include all salaries for employees, managers, and owners, in addition to all operating expenses. This will give you an average breakeven for the month. Remember that you don’t make a profit if you just break even.
Related: Would you like to take a deep dive into your financials?
Key 2: Plan to make a profit EVERY month.
Achieve a profit even in the first quarter of the year? …YES!
Every business owner needs to plan to make a profit every quarter. Some owners blame the weather, OR their techs, OR their customers, for not making a profit. Now, I could have blamed the steamroller’s lack of brakes for not stopping in time, but would that have helped me keep my job? I don’t think so. I had to improvise and overcome.
You must plan for three key items to have a sustainable business.
- Service Debt
- Save or Take
1) Service Debt – This includes any loans or debts that exist. The cost of credit can be huge. You want to get rid of debts by using a strategic plan. This requires you to add debt service to your monthly operating costs. You can have money in the bank but have a business that is “technically broke”, if your balance sheet shows that you have more liabilities than assets. Get rid of debt as fast as possible. But remember, you still need cash flow.
2) Reinvest – You need CASH FLOW! One of the biggest challenges in the first quarter of the year is having the cash flow to meet payroll, and also pay for parts and materials if revenues are not as strong as you need. Are you putting cash into a savings account for your slower times and/or capital investments?
3) Save or Take – You want to have money in savings. You want to have money for marketing. You want to have money for capital improvements. You need money for retirement… we will not be young and healthy forever.
These are all major reasons for you to have two or three savings accounts. Each month, plan to deposit a moderate amount into each savings account. Build this into your operational expenses. By adding savings to your breakeven, you will begin to accrue profits as part of meeting your breakeven. You will have money left for yourself! Now that’s a cool idea!
Meeting your breakeven will leave you BROKE!
Meeting your TRUE Breakeven will give you a sustainable business, and provide you with the profits to live the kind of life you desire.
Don’t you deserve to take your family on a nice vacation every year?
Don’t you deserve to have funds to purchase your family’s needs?
YES, of course, you do!
Key 3: Create a reason for your technicians to BEAT YOUR BREAKEVEN.
Do your technicians care if you meet or beat your breakeven?
Honestly, your technicians probably don’t think about your breakeven too much. It’s not that they don’t care, they just have other priorities on their mind. It’s not their job to know your breakeven. It’s YOUR job!
However, you can easily design a plan to get your technicians to beat your breakeven. It involves multiplying the # of service calls per technician, times a realistic average service call amount. Then you need to add a realistic amount of installations, set leads, and made sales that each technician is responsible for.
In the next blog, I will give examples of how you can create a plan to get your team working with you to beat your breakeven.
If you want to know how your financials stack up to industry standards, download the Free Financial tool today.
Super Simple Financials
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