ASK ROGER Top 10 financial leak points in a contracting business

Roger Grochmal is the CEO of AtlasCare in Oakville, Ont. To submit a question about your company, business practices, or the industry in general, send an email to Mechanical Business Magazine’s editor, Kerry Turner, kerry.turner@ mechanicalbusiness.com.

Top 10 Top 10 financial leak points in a contracting business

How to keep expenses from sinking the ship

We have all put a lot of energy into trying to keep the pipeline busy lately: as more customers postponed non-urgent HVAC work during the pandemic, we have had to work much harder to keep things moving.

If the past year has taught us anything, it’s that keeping an eye on expenses is every bit as important as driving sales. The larger the company is, the harder it can be to scrutinize every last line item in your budget and seemingly small leaks can add up to quite a bit of money over time. Anyone from the smallest contractor to a large operation can lose sight of less obvious cost centres in their business.

Neil Smith, my former business partner and one of the most practical businesspeople I’ve known, gave me a simple but crucial piece of advice back in the 1980s: always sign your cheques. Even today, despite our growth over 35 years, we always ensure an owner or senior manager personally authorizes all payments. It’s not about trust – we couldn’t trust our people more – but it is about awareness. When we are constantly reminded of business costs, they remain at the top of our minds. In the digital age, this is even more essential: electronic transfers and automatic payments can be invisible if we aren’t watching closely.

This year will be better than 2020, that much I hope we can predict. It will take time for the economy and our markets to recover. My advice: spend some time poring over your cost centres now. Get ahead of these leaks and keep your ship afloat.

Leak points and how to plug them

1Smartphone bills – rather than reimburse employees who need to use their phone on the job, see if you can negotiate group data plans and hardware purchases, which can amount to thousands in savings.

Toll highways – this can run away quickly. There is no doubt that time is money and toll roads can reduce driving time considerably. Spend some time analyzing the cost-benefit of toll highways on your routes, and carefully monitor use or requests from employees for reimbursement.

Digital marketing – this is a must have in our world, no doubt, and Google Adwords, display ads, Facebook and other targeted digital channels pay off in valuable leads. You need an expert hand on the wheel who can analyse and calibrate campaigns to make the most of advertising investments. 4 Subscriptions – there’s a reason so many HVAC contractors have gone with a monthly membership service model. Those monthly payments are easily ignored because there isn’t a large annual invoice to pay. This is a prime example of an invisible monthly expense that can pile up without careful analysis into usefulness. Reviewing payment items for monthly items, from software packages to online training, will ensure fees aren’t destroying your bottom line.

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5Inventory – managing inventory is valuable expertise to have in any enterprise. Stocking what you anticipate needing in a short period of time keeps business moving and customers paying since there is no downtime waiting for a part to come in. But having too much inventory can be deadly for cash flow; it requires storage (another cost), and supplies may become outdated or unsellable. Designating a set time each month or quarter for inventory management will help keep you on track.

6Price increases – in addition to inventory management, learn to proactively ask about potential price increases on frequently used parts and materials, and watch closely for notifications about pending increases. Stock up on those items in advance and get ahead of cost increases. This will either give you a cost advantage against competitors, or allow you a higher margin on those items.

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Mistakes on the job – of course, we all try to avoid them. Going back out to a customer’s home to fix a poor installation or repair is costly and can be damaging to a company’s reputation. I believe mistakes are the responsibility of managers, not technicians. Investing in continuing training and education is key, as is an allowance for employees to spend the proper amount of time on each call. People generally want to take the time to do the best job they can, but they rush through work when pressured to get to the next appointment. Keep this in mind when scheduling; small windows of extra time can prevent costly errors.

8Credit card fees – these can be a necessary evil for many cash-on-demand businesses like ours, and yes, it can mean getting paid right away instead of waiting a month or more. It can also mean you aren’t left wondering if a cheque will bounce. Nonetheless, it pays to look at alternatives to offer customers, such as financing through partners, which may cost you and your customers much less in the long run.

9Interest on credit and late fees – as much as our customers may need to live on credit, at times we do as well. What business doesn’t have a line of credit with the bank, or a credit card or two? Managed well and paid off properly, credit can make a big difference in your ability to manage inventory and cost centres such as marketing. Letting the interest pile up or making late payments can add up quickly and have long-term implications. Keen oversight over credit is key.

Staffing – the toughest point of all. When it comes time for cost-cutting, consider options such as trimming a benefit plan, the staff appreciation budget, or salary reductions before letting someone go. But know this – if you are keeping employees who are underperforming because you like them, or feel awful for thinking of axing them, you are making one of the most common and most costly mistakes in business. Some people may need to be moved to a different role, or trained, while others should simply be let go. I’ve had people thank me several years later for “helping” them realize they weren’t where they should be. Remember, the longer they stay, the more expensive they are to release.