Is your business financially fit? And why do you need to examine if your business is financially fit? Does it matter if it’s all running smoothly?
The quick answer: It gives you freedom. It’s the tool that gives you the ability to do what you want to do.
Financial Freedom 101
First, let’s go over the types of financial freedom. It’s not just about freeing up liquidity. The benefits are more wide-ranging.
Here are three types of freedom:
• Money Freedom
• Time Freedom
• Location Freedom
Which of these do you have?
A financially fit business gives you all three. If you don’t have all three, it’s time to look at getting fit.
• Money. Yes, you love your business. You’re generating revenue and profit and have enough recurring revenue, enough so that you don’t worry about money business-wise or personally. It’s even true that you can buy what you want. So, good for you, you may have achieved money freedom. Check this box.
• Time. But, do you have time and freedom? Can you work when you want? Are you a slave to your business? Does it control you or do you control it? Do you have a great management team that runs the business on a day-to-day basis? Is the business at a place where you can come and go, only there to oversee – look at the metrics – and make sure the business stays headed in the right direction?
Many contractors I know have achieved money freedom, but have not quite mastered the freedom of time. They ARE slaves to their businesses.
• Location. Location freedom is the third. Do you have the choice to live where you want to live or go where you want to go? Money and time freedom usually give you location freedom.
Over the years, I have worked with business owners who live in one area and manage their businesses in a different geographic area. How do they do this? They have the metrics and oversight and hire excellent managers – all of whom are well compensated on bottom-line performance. And yes, they do visit the business but usually once a quarter.
To be financially fit, you need to be able to check all three boxes.
Your Business is a Valuable Tool
Start thinking about your business as a tool. How can you use this tool to get what you want? How can you use this tool to give you things in life that you want to do?
Over the next few months, I’ll write about five simple, easy-to-implement things you can do to sharpen your business tool so you can achieve freedom – and usually be able to do it in less than 10 minutes a month. But here is the first step.
Step 1- Know how you generate revenue and maximize it!
It’s not just service, project, replacement, etc. These are the results of how you generate revenue. So, how DO you generate revenue?
It’s about billable hours. Your revenue production is based on how efficient your field labor is. If you pay your field team members for eight hours per day, can you bill a customer for those 8 hours? If not, how many hours are actually billable?
If you are paying for eight hours and only billing for four hours, then half their time is unproductive. Decide if it is training, meetings, or something else that can help them do their jobs better.
If your labor is wandering around in the warehouse, spending time at a parts house, stopping at the gas station and getting food, drinks, etc., or stopping at the donut shop on the way to a job, you’ve squandered the ability to generate revenue for that time.
Your field labor hours are perishable! If you don’t use all eight hours today, you cannot save the unused hours and use them tomorrow. They are gone. Tomorrow, you start fresh with another eight hours.
Your labor hours are like that empty airplane seat when the plane took off…or that hotel room that wasn’t booked by the end of the day. Once the day is over, the opportunity to bill them is over too.
Most of you keep your field personnel out of the supply houses.
Here’s the breakdown and a reminder of why that is financially prudent:
• Travel to the supply house: 30 minutes
• Pick up parts/equipment/load into truck: 1 hour
• Travel to the job: 30 minutes
A total of 2 hours of unbillable time per person. Your billable percentage just went down to 75%.
How much did this really cost you?
• Labor cost per person: $30 an hour
• Overhead cost per person: $40 an hour
• Net profit per hour that you lost per person: $75 an hour
This two-hour trip to the supply house costs you $145 an hour or $290 per person. If a two-person crew went to the supply house, the crew cost you $580 for that trip.
Put your company numbers into the equation. It might be even more than $580 for that trip.
Step #1 to your financially fit business – know how you generate revenue and maximize it per day.
If you would like a tool to help you achieve freedom, go to https://financiallyfit.business. Using this tool usually takes less than 10 minutes a month.
Ruth King has more than 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. Contact Ruth at firstname.lastname@example.org or at 770-729-0258.