By Tom Grandy, Founder
In Part 1, we covered several “tips” for new or relatively new company owners in the areas of labor pricing, Chart of Account, QuickBooks tips and the use of partners like your CPA. This month we will continue our discussion covering several additional areas.
- Join A Mixed Group – It is strongly suggested your company become part of a mixed group. Input from peers outside of your company can be invaluable in terms of growing your company. Remember, pride comes before the fall. Be willing to receive outside suggestions, especially if they come from contractors that have been in business much longer than you have.
- Have the Office Manager Take $100/week Out of The Company Checkbook for Personal Savings – Saving money is tough, especially when the company is young. However, saving a little bit consistently can produce significant savings over time. I promise you by taking $100 out of the company checkbook once a week will not cause the company to fail. Saving $100/week results in $5,200 in savings over the year plus growth! The stock market historically has an average return of 10%-12% over time. Saving $100/week, over five years will result in savings in excess of roughly $35,000. Over ten years the number grows to nearly $100,000. The key is to have the office manager take the $100 out each week and place it in a mutual fund. Tell them not to ask questions, just do it! I can’t tell you how many contractors have come up to me at National conventions to tell me that is the best thing they ever did for themselves.
- 100% Customer Satisfaction – There will be times when the company will need to pay out some money because of a dissatisfied customer. It always hurts when money has to be spent in that way. The solution is to build 1% to 2% of the company’s estimated gross sales into the overhead, just like rent, utilities, insurance, etc. The 1% to 2% percent then becomes part of the overhead costs and therefore part of the company’s hourly rate. 1% or 2% of $500,000 in gross sales is $5,000 to $10,000. That is a pretty nice pool to draw from should the need arise.
- Build Credit Card Fees into Overhead – Credit cards are a fact of life. A huge percentage of customers are paying via credit card and the percentage is growing. Some use credit cards because they lack funds. Others do it to utilize the benefits/points offered. No matter the reason, the company is going to have to pay from 1%-3% for accepting their credit card. That’s expensive. The answer is to build that cost into the company overhead and therefore into your hourly rate.
- Some companies simply build 1% to 3% of their total gross sales into the overhead costs.
The benefits are significant:
If the customer uses their credit card, the fee is covered in the rate.
If they don’t use a credit card, the company can offer a 2% discount if payment is made by a specific time.
If the customer fails to pay on time, there is a 2% late fee already built into the pricing.
- Create a Totally Separate Payroll Checking Account – Out of sight, out of mind. When payroll taxes (Individual, State and Federal withholding taxes and company matching taxes) are left in the company’s operating checkbook, there is a tendency to want to use those funds for other purposes. Taxes, all taxes, will need to be paid in full and on time! Failure to do so can get very expensive, including jail time. The answer is to shift all payroll dollars, including company matching taxes, into a totally separate payroll checking account. When checks are written out of that account the individual’s withholding taxes, and the company matching taxes remain, and are therefore available when those taxes must be paid. Shifting payroll dollars into a totally separate checking account reduces the possibility of misusing those funds.
- Create a Formal Collections Policy – Cash flow is critical and getting paid on time is a huge piece of that puzzle. It is suggested that the company create a formal written collections policy early in its life. Once written, be sure it is utilized.
- Get Deposits – When contractors are asked during seminars if they get a deposit on jobs, typically less than half the class raise their hand. Those that do get deposits, routinely get a third to fifty percent down. Why don’t the rest of the contractors in the room get deposits? They don’t ask. Getting a deposit on a job achieves two things:
- Money up front, when properly handled, pays for materials and helps cash flow. It also allows the company to take advantage of any discounts distributors may offer for paying within 10 days of billing.
- Deposits greatly reduce the possibility of a customer having the work done by someone else (even though they may have signed a contract) should they get tired of waiting during the busy season.