By Tom Grandy,
Founder
There is a huge difference between knowing something in your head (yes, I heard it) and knowing it in your heart (it affects your life and future decisions). The difference became glaringly clear when my 3-year-old grandson, Pax, came to visit over Thanksgiving. We have an electric car set that runs on and off the track. When the switch is turned on the back wheels of the little cars spin until they are switched off. As a preventive measure, my daughter instructed Pax (the 3-year-old) not to put the car on his head as his hair might get tangled up in the wheels. Pax nodded, indicating he understood his mom.
A short time later Pax arrived next to my chair with a sad look on his face, indicating minor pain. The little car was running full blast and yes, his hair was wrapped around the wheels. After turning the engine off I summoned his mom. She was unusually patient, and we proceeded to disassemble the car to free his hair. The process didn’t take too long. When it was over Pax looked his mom straight in the eye and said “NOW…I know not to do that again!” The experience had made the shift from his head to his heart. The little term “NOW…I know not to do that again.” has become a phrase we often use around our house when we have done something we know we should not have done.
Chances are you have attended some kind of training over the past year. Each session likely covered some area of your business that, if implemented, would produce some positive results. The material got into your head…but did it move to your heart where real change takes place?
Below are several basic areas that really need to be implemented within anyone’s company. You have likely heard all of them before. Consider this a gentle reminder to actually institute a couple of them over the coming year.
Does the Company Have a Line of Credit?
A Line of Credit is critical for any size company. However, keep in mind that the overall purpose of a Line of Credit is for short-term borrowing against receivables. When that $30,000 check doesn’t come on time the company can “borrow” the money from its line of credit to cover payroll and expenses until the check arrives. When the check does arrive, the line of credit is then paid back producing a zero balance. That is the ONLY purpose of a line of credit. It’s not free money to buy toys or to support the daily operation of the company.
Are You Reviewing Your P/L Statement with Your Accountant on a Monthly Basis?
Generally, accountants don’t really understand small business, they are trained to minimize your taxes. However, if you ever find a CPA that understands taxes and business hire them at any price, they are worth their weight in gold. When you find that individual sit down with them by the 10th of each month and review your P/L Statement. Suggestions for increasing your profits should be the end result of every monthly meeting. If that is not happening, find another CPA!
Are You Working on Becoming Debt Free?
Increasing debt is a slow death for most companies. Suggestion. Make a physical list of all your debts, each month. Total the debt and track the totals month-by-month on a graph. Note the trends. If debt is increasing on a regular basis take it as a red flag and institute a program to get the company out of debt ASAP. How? Put extra dollars in your monthly budget to pay off debt…and stick to it until the company is debt free.
Have You Overcome the Fear Factor of Raising Your Hourly Rates?
Failure to increase hourly rates when expenses are increasing is a wonderful way to gradually go out of business! It does no good for you to charge $110/hour for service, just because the guy down the street charges that if you need $135/hour to cover costs and generate a profit. Review expenses and adjust your hourly rates at least twice a year and quarterly is better.
Has the Company Instituted a Formal Raining Day Fund?
Let’s face it. Nearly every company is seasonal, at least to some extent. In addition to seasonality, receivables often fluctuate causing negative monthly cash flow. If the company has not done so already, institute a program of putting money aside as a Rainy Day Fund. A good goal is to try to accumulate enough cash to cover at least 90 days’ worth of fixed overhead expenses.
Formal Collections Policy
Cash flow is the lifeblood of your company. It’s critical that every company create a formal collections policy…and go by it daily. This is one of those areas that demand the idea move from your head to the heart. Collections needs to be someone’s top priority in terms of their job description.
Company Employee Manual
This is definitely one of those “It’s important, we need to do that.” ideas that seems to never get done. A detailed Company Policy manual is critical for any business. Policies from drug testing to tardiness need to be covered, understood, and signed off on by every employee.
It’s a new year. That means it’s a great time to set a few very specific goals for the coming months. Select one of the above areas, or one of your own, and set it as a priority. If you really want to be sure it gets accomplished share the goal with someone else and have them, ask you “How are you coming along on your project?” the first of each month. Accountability works!
If you would like a few more tips check out this month’s featured Website Special which is Mr. Tom Grandy’s new book entitled, Profitable Labor Pricing for Trades Contractors: The ABCs of Setting Profitable Labor Rates. The book literally walks the reader through the process of filling out ten (10) simple worksheets to arrive at the needed hourly rate to generate the profit you desire. The last chapter covers 17 practical “business” tips every contractor needs to fully understand. Order Today while supplies last.
