Recently. I launched the “Stupid Things” series. Since it was a trilogy, I covered only the first two stupid things contractors do in the summer in the first part of the series – not hiring a parts runner and not checking payment receipts for credit card payments. For this installment, I am offering the next two (or 3 and 4) very stupid things contractors do. Let’s make sure neither you nor your team members, both in the office or on the road, make these mistakes. And I am quite sure, once they are revealed, you won’t do them!
Stupid Thing #3 – NOT Saving Cash
During the slow season, it can be painful to put all maintenance plan money in a savings account because you may need the cash to operate. However, when it is busy, there is no excuse at all, not to put all maintenance plan money in a savings account. Cash flow is plentiful, and you don’t need maintenance payments to operate. Assuming you have a savings account in the same bank as your operating account, it takes less than a minute to transfer the funds. And, if you refer to the first article, you won’t allow your drivers to squander money, so you should have even more to save!
Currently, if you have maintenance payments coming into your business as monthly recurring billing payments, tell the credit card company to direct deposit the payments into your savings account. That way the money will never hit your operating account and you don’t have to remember to transfer the funds.
In addition to saving all maintenance plan receipts, be sure to put at least 1% and preferably 5% (in the summer especially) of every dollar that comes in, directly into a savings account. Ideally, you should have two savings accounts – one for maintenance receipts and one for an emergency fund. The allotted 1% to 5% savings should go into the emergency fund savings account.
Why 5% in the summer? Cash flow is plentiful since it tends to be busy and the 5% will add up quickly. If you heed this advice, it’s possible to have all the funds you need during the slower season by saving this higher percentage as directed. Once the summer is over, you can drop the 5% back to 1%.
Stupid Thing #4 – NOT Tracking Purchase Orders and Materials
This is the “best” time of year for field personnel to steal. If you aren’t consistently comparing materials taken out the door for a job with what is required for that job, you might miss materials dwindling each day or each week. So, in addition to tracking purchase orders, if not tracked, materials that go “missing” can be the start of losing thousands of dollars of your hard-earned money.
During the busier season, it’s easier for a field tech to add unnecessary materials to a job, especially if no one is monitoring these parts against what is needed for the job. Extra materials are taken personally – it’s more common than you think.
A Stupid Example of Theft – Don’t Do What This Guy Did
One summer, when reviewing financial statements for an HVACR owner, I noticed the material expenses were a little high for the month. I told him about it but advised him that we need not jump to conclusions yet. I advised him that since it was the first time it had happened, it was merely a cause to pay attention to. And indeed, it may have been an issue that would eventually reverse itself the following month.
The owner agreed and said he wasn’t worried because he had cameras in the warehouse watching all activity. He indicated that he had seen nothing out of the ordinary when he reviewed the videos.
The next month when the material expenses were presented, once again, they were too high. The purchase orders matched the inventory coming into the warehouse. However, the materials going out, slated as job-related, didn’t balance out financially. The only explanation at which I could arrive was that someone was stealing from the company.
The owner again insisted that it was impossible. He had cameras in the warehouse “watching” and there were procedures in place that offered checks and balances that guarded against theft.
It happened in the third month. This time, I got an email, “You were right.” The owner discovered that the theft was occurring in the only place where there were no cameras in the warehouse – by the back door. In response to this discovery, he installed cameras there to watch any unscrupulous activity. The revelation–line sets were being put by the back door and taken out at night through a hole in the chain-link fence at the back of the property. The hole had been strategically covered up with the chain fencing so that someone driving by couldn’t see it from a distance.
The theft totaled approximately $250,000 in copper line sets. But as you can see, it was taken a little at a time, so no one would catch it. And, because no one checked the materials reported against the materials needed on the job, it was an easy steal. If someone had been checking materials going out against what was needed at the service appointments, he would have noticed the additional line sets charged to the job.
According to their bookkeeper, s/he was too busy to track materials taken against the job materials needed. That “too busy” excuse was exceptionally costly at $250,000, and a mighty stupid mistake!
Next month… two more stupid things NOT to do in summer.
Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors distributors and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at email@example.com or 770.729.0258
Ruth King explains everything you should know about balance sheet graph
A feature on the importance of keeping accurate balance sheets and how crucial a part they play in a successful business.
What is the gross margin and why is it important to graph changes monthly?
Tease: Utilize both monthly trailing data and P&L data when analyzing the profitability of your business
Ruth King concludes the Stupid Mistakes Series with this final installment, Don’t Make These Mistakes This Fall