Grandy & Associates Small Business University
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Table of Contents
Description of a Successful Company
Entreleadership: Ask Dave Ramsey
Team Solutions: Behavioral Learning - A new language to learn
Small Business University: The Unfiltered Truth about Goal-Setting
Description of a Successful Company
by Tom Grandy
The question comes up nearly everywhere I go. “Tom, how do you define a successful company?” Now, that’s a pretty broad question. Do you look at the quality of work, customer service, bottom line profits, community perspective or what? After working with over 15,000 contractors across the country, I have finally come up with a definition I am comfortable with. It incorporates three overall areas: covering costs, customer expectations and overall net profit margins.
Let’s begin with covering costs. A successful company will first of all cover all of its “real” costs of doing business, from a cash flow perspective, as opposed to accounting. Basic costs include things like rent, utilities, insurances, gas, maintenance and a whole list of other fixed and variable costs that must be paid before the company makes a dime.
However, covering the basic costs from a cash-flow perspective (cash flow means actual dollars flowing in and actual dollars flowing out of the company) is only the beginning.
There are two often forgotten – but huge – costs of doing business that must also be covered. The single highest cost of doing business is the cost of non-billable time. Non-billable time is the time the company pays the tech that cannot be charged to the customer … or at least not directly. The typical service technician can only bill the customer for about half of his or her time. If your tech is making $18/hour in base pay, and you add company-matching taxes to the rate, you are looking at about $20/hour. If the service tech has 1,000 non-billable hours a year, that means the cost of non-billable time for one tech is about $20,000/year. If your company has four service techs, that means the cost of non-billable time alone is roughly $80,000 per year. That number needs to be added to the basic costs of doing business.
The second highest cost of doing business is the cost of equipment replacement. Let’s assume the service van will last you three more years. Three years from today, the net cost of replacement (which is replacement cost less trade in) is perhaps $30,000. If you divide the $30,000 replacement cost by three years that means you need to build in $10,000 a year for equipment replacement costs. Now think about the number of vehicles and/or major pieces of equipment you have. Wow, the number is huge!
So, at this point covering our basic costs of doing business includes all of the normal overhead costs plus the cost of non-billable time plus equipment replacement costs. However there are a few other costs that need to be covered before we can say our “basic costs of doing business” are covered.
Let’s add a few more dollars to the mix. To be successful, the company also needs to be able to pay the owner a reasonable and regular salary. That may sound like a no-brainer, but most owners simply live off what is left. Well if you don’t include rent or utilities in your pricing they won’t be covered. The same holds true for the owner’s salary.
There is one more basic cost of doing business that needs to be covered if you are going to be considered a successful company. This includes providing a retirement plan for the owner and all of the employees.
Now let’s review the first area. To be considered a successful company “all” of your costs of doing business need to be covered, from a cash flow perspective. That includes the basic fixed and variable overhead costs, the cost of non-billable time, the cost of equipment replacement, paying the owner a reasonable and regular salary, and providing a retirement plan for the owner and all the employees. How are you doing so far?
The second overall area is shorter, but just as important as the first area discussed. To be considered a successful company, you are consistently meeting, and hopefully exceeding, your customer’s expectations. That is no small task, if it is done consistently.
To be considered a successful company, that not only means covering all our basic costs of doing business and meeting (or exceeding!) your customer’s expectations; it also means the company is generating at least a 3% to 7% overall net profit.
Yes, I hear you. “Tom, a 3% to 7% net profit isn’t worth working for. I could make that much with a good savings account.” Well the fact is most savings accounts today earn less than a half of a percent, but you get the point. However, if I could get the “industry” to average a 3% to 7% net profit, that would be a significant improvement for most contractors.
There you have it – my definition of a “successful” company. Now is that what you should be shooting for? Absolutely not! The goal for contractors in the trades industry should look more like this.
When it comes to new construction (track homes), if you can make any profit, congratulations. That has always been, and probably always will be, a tough market to make money. The only good thing about new construction is that it covers a huge amount of the fixed overhead costs therefore allowing other departments to be profitable.
How about retrofit, or replacement of, equipment? I would suggest you shoot for an overall net profit of 10-12%.
The last area is service. Service should be the most profitable department within your company. A well-run service department should generate a 15-20% net profit. If you are on flat rate pricing that number can easily jump to an overall 20% to 25% net profit.
Take a good look at your company and see how you measure up.
If you would like to take a really good look at what successful companies do check out this month’s website special. The detailed full-day seminar manual and short overview CD entitled “Fifteen Things All Successful Companies Have In Common” is bundled together for only $75.
Special to Grandy & Associates' eNewsletter
Entreleadership: Ask Dave Ramsey
The Ask Dave series is brought to you by the Dave Ramsey EntreLeadership team. In this series, Dave Ramsey will answer questions that come into his radio show or at his live EntreLeadership events across the country. Dave will address a couple of questions each month with the same methodology that he uses everyday in running his business.
Assessing Prospective Renters
I’m a landlord, and I’ve always felt it’s not a good idea to rely entirely on previous landlords, or apartment complexes, for referrals on prospective tenants. Do you have any tips for selecting good renters? -Jean
Most landlords aren’t thorough enough with the screening process. You can’t get to know someone without spending some time with them and digging into their personalities and backgrounds a little.
I have several rental properties, and here are a few tricks that work well for me. I always pull a credit bureau report on prospective renters. I also get a big deposit up front. I spend quite a bit of time talking to them one on one, as well, so with all this they’d have to be a pretty good con artist to get past me.
nother thing I do is to drive by the place they’re currently living. I like to see what condition the house is in, and if they keep the yard maintained. To me, this is a great indication of how responsible they are and how they would treat my property. It’s not a bad idea to get some proof of them having made previous rental payments on time, either.
In some ways it’s a leap of faith any time you sign an agreement with a new tenant. But there are things you can do in order to make a more informed decision as to whom you’re doing business with. Lots of renters appreciate knowing they have a landlord who handles things in a professional manner. -Dave
Just An Idea, Or Your Calling?
How do you know when you’ve found your true calling when it comes to your job or your business? -Matt
I’ve met a few people who’ve had a spiritual experience in this area. Something has happened, almost like they were struck by lightning, and they knew what they were supposed to do with their lives. This isn’t the normal way people come to realization about their futures, but it does happen from time to time.
I believe this kind of revelation usually starts out as a simple idea that grows into a job, and maybe into a career or business. Then, it evolves over time into a calling. That’s how I stepped into what I’m doing today. I can’t honestly tell you when I started on radio, or began writing and teaching, that I knew it was God’s purpose for my life. But I felt the weight and the drawing of it, almost like a magnetic pull.
I’ve been doing it for 20 years, so it definitely evolved over time into what it is today. And I’m positive it’s the reason I’m on this planet! —Dave
To learn more about Dave's EntreLeadership program, visit his website at www.EntreLeadership.com.
Grandy & Associates has announced its 2013 Business Bootcamp schedule. Registration is now open for all bootcamps. Click here for more information about locations and course information.
|Owensboro, KY||August 13-15|
|Green Bay, WI||August 20-22|
|Los Angeles, CA||September 10-12|
|Sacramento, CA||September 24-26|
|Phoenix, AZ||October 8-10|
Here’s a quick quiz. Don’t over think it; just let the answer fly off the top of your head. Which of the two below companies would you rather work for?
Company A: The average age of the vehicles is between 12-14 years old, and many consistently drip oil on the customer’s driveway. It’s been two years since you had a raise, and three of the other four techs have quit within the past six months. The customers lovingly call your dispatcher “Grumpy” because she always seems to be in a bad mood. The only benefits you receive consist of a Christmas card and an occasional day off… when you call in sick. The boss is always on your back, and the company hasn’t made a profit in three years. However, you do get paid on a pretty regular basis. As a matter of fact it’s been nearly a month since one of your checks bounced when you tried to cash it.
Company B: This company if growing. The customer base is great and customer service is the name of the game. The pay and benefits are wonderful, you look forward to going to work each day, and the new trucks are properly inventoried. It seems like someone in the organization tells you what a great job you are doing at least weekly. The whole family looks forward to the summer company picnic and the annual “family” Christmas Party is the highlight of the year. That’s when the company has a great sit-down dinner, there are presents for the whole family (including the children) and it’s also the occasion when the annual Christmas bonuses are given out. The average employee has been with the company for over 12 years and at least one new employee is added every six months.
Ok, without putting a lot thought into it, which company would rather work for? I’ll bet the majority of you chose Company B, right? Sure you did. Everyone wants to work for a great company. If you are going to spend eight or more hours of every weekday working, wouldn’t it be great to actually enjoy being part of a company that both pays well, and appreciates what you do?
There is another odd thing I have noticed. The best companies attract the best employees. As a matter of fact ,most have applications in their files from people who just can’t wait to work there. Great companies also make a consistent profit and they pass on some of that profit to the employees who helped them become successful. Let’s face it. Successful companies grow, make money and are a magnet for the top employees in the area. There is something else about those top companies. They are “seldom” the cheapest in town. The emphasis for these companies is not price, it is providing GREAT customer service. When service is outstanding, price is normally not even on the top ten list of customer concerns.
So what’s the point? The point is to take some time, on a regular basis, and work on your business. Companies don’t evolve into becoming successful. Someone has to make the decision to become an outstanding organization and then they have to plan and implement.
Do you need a bit of a road map to get started? If so, consider this month’s Website Special. Our full day class manual and short overview CD entitled “Fifteen Things All Successful Companies Have In Common” are bundled together for only $75. This CD and manual will outline, in a detailed manner, what other successful company owners are doing. Don’t waste time reinventing the wheel. Learn from those that are already successful!
Behavioral Learning: A new language to learn
By Kevin Griswold
I would not say that I am fluent in any language other than English. But I have learned recently what is referred to as the “silent” language: DISC. DISC is the behavioral assessment team solutions tool that has been promoted and harvested by Grandy & Associates for many years. With this language comes the “100% No-Loss Guarantee” and “Hire the right person the FIRST time” assurances that the company offers. But, what is this DISC language?
DISC is the language created by Dr. William Moulton Marston in the early 1900s. It’s an acronym for Dominance, Influence, Steadiness and Compliance. These are the four primary behavior modes, and each is scored on a scale of 1 to 100, with 100 being the high end and one being the low end for that particular behavioral characteristic.
These are the primary behavior styles that each of us utilize and practice, and they measure how we work, how we communicate, and how we live. Coupled with the behavior style (the how) is the “motivator,” which measures the “why.”
This tool -- or language as we’ll call it -- provides a comprehensive picture of an individual and, when plotted alongside others from the team, becomes the foundation for how an individual will perform and how the team will interact across the spectrum of possible style types.
As the rookie in the area of behavior, what has all this taught me? It has taught me a lot! If nothing else, it has revealed clearly why some very specific workplace scenarios and previous jobs were atrocious for me! If the team had been aware of these varying degrees and types of behaviors, I may still be employed with at least one company in particular.
These assessments reveal who will want to control and lead meetings and projects, and they reveal who would be most comfortable sitting in the background. They reveal who will need encouragement to share their opinions, and who will naturally be doing the sharing!
As I was studying for my Certified Behavioral Analyst certification (yes, I passed!), I was sitting in bed one night and decided to read the four descriptions of each behavioral type to my wife and ask her “Who does this describe, and who comes to mind?” Now, keep in mind that I had not shared any of what I was learning with her.
First was the description of someone who would be described as a high “D.” Right on queue she replied, "That sounds like John Jones.” (Names have been changed to protect the guilty.) This person happened to be the owner of a company I previously worked for in my career and she was spot on in describing him. I then read the description of the high “I.” “That sounds just like you!” Correct again! Two for two. Then came the high “S.” “Well, to be honest, that sounds just like me.” Right again! Three for three. Last came the high “C.” “That’s easy. That’s Bob, your old boss.” Perfect score and right on target…four for four.
Why is all this important to you as a business leader? Because knowing who you have on the team matters to your business. Knowing that you have the right person in the right role is important. Knowing that you can and will hire the right person, the first time, for the role is important. It all makes so much sense!
It’s important to point out that these assessments are NOT personality profiles. That is a common misconception. DISC is an assessment, not a test. There are no right or wrong results. My previous boss wasn’t “wrong” in the fact that he was an off-the-chart high “C” (compliance) individual. In fact, there are numerous reasons that having a “high C” individual on your team is beneficial. What made the role a mismatch for both of us, though, was simply not knowing that each of us was wired differently and there could have been ways to communicate more effectively.
Have you been there yourself in the past? Have you experienced the pain and anguish and stress of being in a role that was not going well? I would have to say we’ve most likely all been there before.
These assessments are so much more; they reveal who a person is in their natural style and how they may adapt in the workplace. It’s the behavioral style that most people form by the age of seven. It’s who you are and how you’re wired.
Just recently I was able to assist in my first real assessment case. I was helping a client hire a new Controller position. This was a very important position for the client; it was one that had not worked out well for the previous two individuals. This new hire would sit on his key senior management team, so he had to have the right person this time.
After reviewing nearly 60 resumes, “John” boiled the candidates down to two finalists. Each would be interviewed at least twice, flown in and canvassed for an entire day, so it had to be right. Each candidate completed the behavioral assessment and John and I sat down to discuss the results. He knew that the assessment piece was just 33% of the total decision. Along with the assessment was also how the individual would fit with the team (33%), and the other third would be their overall experience and ability to do the job.
As we began to look at the results, it was so fun to watch John get excited and see the behaviors come to life. “Yes! That’s exactly how Jane responded to that question! And when I asked Jill about her likes and dislikes, she went on and on about everything!” He was able to see and define how the finalists were wired and who may be more suited for the role of Controller. He was able to see and determine who may be stretched more (adapted) and who may be a better contributor and communicator with the team. He was able to see and determine who may be more comfortable handing his direct approach. He was able to formulate specific questions and follow-ups that would be explored in the final interview. John knows that he was much better equipped this time around in having the right person in the job.
The bottom line is this. Utilizing DISC behavior and motivator assessments can and will give your organization:
1. Increased Profitability
2. Increased company-wide communication
3. Improved team performance
4. Better decision making
5. World-class selection process
6. Proper skill set alignment
7. Strategic focus
I have enjoyed my process of learning this new language and already see the tremendous value and benefit that it can and will bring. Are you ready to learn a new language…a language that will help propel your company into higher and better levels? Give us a call. We can and will help.
The most profitable businesses in the country are run by owners/managers who understand the business side of their business. The Small Business University Audio Series provides a continuous flow of cost-saving, profit-increasing information. Here is a summary of this month’s Small Business University Presentation:
The Unfiltered Truth About Goal Setting
by Larry Winget
You will never achieve a goal you didn’t set. Believe it or not less than 3% of the people in our society set specific goals for their lives, which explains why the other 97% are wondering why things are not changing for the better. This program will lay out the specifics of how to set, and achieve, your desired goals.
Make a List of Everything You Want to Accomplish:
• List little things to provide a sense of accomplishment
• List big, challenging things, to keep you motivated and moving towards a goal
Creating Goals for Every Area of Your Life (business, social, financial, health, etc.)
Steps for Goal Setting
• Be very specific
• Make the goal personal (you are the only one that can set your goal)
• Goals are not fantasies, they must be things you “want” to achieve
• Determine what you need to know in order to achieve your goal
• If you are going to ask for advice, but sure you are ready to receive it
• Determine what you need to do to get started today.
• Don’t think too much about “how” you are going to do it
• Be careful who you share your goals with
• It’s what you become on the way to your goals that’s important
• Know why you want to achieve your goals
• Start with a completion date
• Setting specific completion dates allows you to measure your progress
• Focus on results
• Believe it can happen
• When a goal is achieved – celebrate!
The Small Business University features a new trade focused audio presentation every month. These programs are designed to provide the trades contractor relevant information that can help their business immediately. Get more information on this program or sign up for a monthly subscription today.