Build Your Company’s Profitability
Originally published: 02.01.16 by Ruth King
Sustained profits lead to profitability. But, what does it take to be profitable month after month? Year after year?
This year I will "break apart" the operations of most HVACR companies into individual components. Each month, you'll get ideas and implementation steps to increase the profitability in that segment of your company. If you implement all of these steps, your company will be much more profitable.
Here are the subject areas I'll be covering over the next 11 months:
- Pricing for profits
- Service technician profitability
- Dispatch proitability
- Replacement profitability
- Maintenance profitability
- Installer profitability
- Sales profitability
- Marketing profitability
- Warehouse profitability
- Office profitability
- Leadership profitability
Caution: Change Ahead
Implementing these procedures and ideas is change. Most employees hate change. As the leader, you must give them reasons for the changes, ask for their input and remind them of why the company is doing these new things. At times you will feel like you are repeating yourself over and over again. Keep at it. Change takes time.
Remember to praise in public and punish in private. When you see your employees embracing the changes, praise them in front of everyone. If you have an employee who refuses to make the changes, discipline and the "Three strikes you are out" rule might apply.
I see company owners living with the "status quo" rather than change because they are afraid of losing employees when change is implemented. Decide what is best for your company, make the changes, and implement them. Some who cannot change will go through your "career readjustment program."
Tracking is Critical
Each month, I will give you suggested activities/metrics to track. Be sure to track these activities/metrics against your company's progress. Don't worry about "national averages." Progress can be slow. As long as the company is moving in the right direction, your company metrics matter more than industry averages.
When you track changes your employees can see that things are moving in the right direction. Once you set the plan in motion, they want feedback. Tracking also sends a subtle message that an implemented profitability idea is permanent. It is not something to "try" and if it doesn't work (which it won't if you just "try") you will go back to the old way of doing things.
In the beginning it might not work really well. Get ideas and suggestions from your employees of ways it might work better. Listen to their ideas. As the owner or manager, you are the final decision maker.
The series starts in the March 2016 issue with Pricing for Profits. If your costs are higher than your revenues, you will never be profitable, no matter how productive you get. Last month, I wrote about net profit per hour and overhead cost per hour (HVACR Business, January 2016, pg. 14). Calculate your company's numbers in these areas to prepare for next month's profitable pricing article.
Also, get your financial statements in order. Make sure you are receiving them on time. Make sure they are
accurate. Invest 30 minutes or less analyzing them. As you implement profitability ideas in each operations area of your company, you should see increasing profitability and increasing cash.
If your fiscal year ends December 31st, then last year's year-end statement should be complete (balance sheet and profit and loss statement). These statements will be your baseline for comparison throughout the year. If you have never looked at your balance sheet, I've described balance sheets in past articles available in the archives.
You can also go to funfinancials.com to take my course, "How to Make Your Financial Statements Fun and Sexy." If you have other areas that you would like me to cover throughout the year, please email me at firstname.lastname@example.org.
Now, here's your last homework assignment this month:
Ask your employees how they would increase revenue by $100 per month and how they would decrease expenses by $100 per month. The reason I ask for only $100 is that your employees can imagine $100. Asking them to increase sales or decrease expenses by $5,000 per month is out of their realm of reality and they won't think of any ideas.
Offer them a $100 gift card for every idea that is implemented.
If all of your employees give you a revenue or expense cutting idea, and you implement it, you will achieve more than $5,000 per month increase in sales or decrease in expenses.
Ask employees for their ideas in writing — put a note in their paychecks. Give them a deadline of no longer than three days after the request was in their payroll checks. When your employees have input to the profitability changes, they are more likely to adhere to the changes.
Make 2016 your most profitable year ever.
Ruth King is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. She has more than 25 years of experience in the HVACR industry, working with contractors, distributors and manufacturers to help grow their companies and make them profitable. Contact her at email@example.com or call 770-729-0258.