Tips for Making Your Accounting System More Useful (Part 2 of 2)

Thursday, January 24, 2019

by Tom Grandy

Last month we talked about creating useful categories and what “other” meant when it showed up on your P&L statement.  We discussed how to develop a budget.  This month let’s look at a few more items concerning your accounting system that might be helpful.  

  • Break Material Costs Out Buy Department - Having worked with contractors one-on-one for over 30 years I can honestly tell you less than 5% break their cost of materials/equipment out by department.  That may not seem like a big deal but it is!  When it comes to setting profitable hourly rates by department, knowing what material and equipment costs are is critical.  Why?  The reason is that materials/equipment are marked up before they are sold to the customer.  The mark-up amount provides gross profit which is a key element in setting profitable hourly rates.  The more markup you have, the more overhead cost can be absorbed in order to lower your hourly rate. 
  • Budget Your Salary - If the cost of rent, insurance, or gasoline were left out of your pricing equation the end result would be an hourly rate that doesn't cover all your costs of doing business and therefore does not generate a real net profit.  That principle seems pretty straightforward and most owners would never leave out actual costs that are that significant. Correct, however it happens every day.  Owner after owner fails to input their salary as an expense into the P&L statement with the reason being "I will live off of the profit the company makes."  That sounds smart and even a bit humble...but it's not!  If rent isn't in your hourly rate, the rate charged will not cover your rent.  Bingo!  If your salary isn't in the cost of doing business it won't be in your hourly rate either and you won't get paid.
  • Realize What Your Accounting System Is Not Telling You - What your accounting system is telling you is very important.  However, what it is NOT telling you is just as important, if not more important.  There are two major expenditures that will never show up in your accounting system that are very real costs of doing business and have the potential to put the company out of business.  Let's take a look at both of them.

Depreciation vs. Equipment Replacement Costs – Depreciation is an accounting term.  The government allows the owner to write off a percentage of the expenses each year.  However, depreciation deals with the past cost of the equipment.   Equipment replacement costs estimate the future costs of replacing equipment and then builds that future cost into today’s pricing so that replacement equipment can be paid for with cash.  Equipment replacement costs will always be 20-50% higher than depreciation.

How Loan Payments Are Handled – Let’s assume a $500/month loan payment is made up of $100 interest and $400 principle.  The government only allows the $100 interest to show up as an expense in your P&L statement. However, the full $500 flowed out of your company and needs to be considered when setting proper hourly rates.

I am literally on a plane heading home from a client’s business that just experienced the very phenomenon we are talking about above.  His last twelve-month P&L statement showed a net profit of $109,000 which they will have to pay taxes on. However, when we subtracted out the principle portion of his loan payments and the difference in depreciation and equipment replacement costs his "real" net profit was really a loss of $81,000.  These are huge costs of doing business that literally will never show up in a standard accounting P&L statement....but are critical to your company from a cash flow standpoint.  Be sure you include these two costs of doing business in your process of setting profitable hourly rates.

  • Review Your P&L Statement with Your Accountant Each Month - There are accountants and then there are accountants that understand business.  If you are able to find an accountant that understands business (and they are a rare breed and hard to find) pay whatever they charge with joy!  They will make you money not cost you money.  When you find that person, have a set time to meet with them each month to go over the previous months financials.  An accountant that really understands business will question items every time they review your numbers and will offer practical suggestions on how to increase your overall profitability.

Remember, your accounting system should be helping you run your company more efficiently and profitability.  Utilizing some of the above suggestions will help you better understand what is really going on within your company.  

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Stop Paying Sick, Vacation and Holiday Time

Thursday, January 24, 2019

By Tom Grandy

You want us to stop paying sick, vacation and holiday time?  Are you nuts!  We would have a revolt on our hands.  Well, hear me out.  Holidays are expected, right?  Vacation is earned, correct?  Sick days are abused, right?  When an employee wants to take a day for hunting, fishing or to visit a sick friend, what happens?  They call in and take a “sick” day.  When sick days are gone the request switches to asking to take a vacation day.  You know the drill because it happens on a pretty regular basis.  The company didn’t just miss a day of work but the worker often has to lie to get the time off.  He or she wanted to go here or there so they used a sick day, right?

What’s the solution?  Combine all sick, vacation and holidays into what you now call Personal Days.  The company policy is that Personal Days can be used any time, for any reason.  If they want to use them for vacation, great.  If they want a day off for no reason, go!  When personal days are created employees tend to manage their time better.  They don’t have to lie about what they are doing and when the personal days are gone…they’re gone.

If you choose to, you can have a company policy that any Personal Days not used at the end of the year may be turned in for cash.  That just might be enough incentive for a tech to show up to work when they might have otherwise stayed home.  It has worked for others…it might work for you.  Give it a try.

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Ready to Launch?

Thursday, January 24, 2019

by Dave Ramsey

As a guy who literally began his company on a card table in his living room, I have a special fondness and respect for others who want to start a business. Owning and running a small business is 24/7 hard work. It’s a roller coaster ride full of highs and lows, so you’d better love what you’re doing.

Many of today’s most successful business owners began with nothing more than an idea, a little cash, and an extraordinary work ethic and desire to succeed. Today, I’m here to give you a head start on those guys.

Business plans and mission statements
Once you have a marketable idea, some cash, and (hopefully) the wisdom to start slowly with no debt, you need to develop a detailed business plan and mission statement.

When putting together a business plan, conduct plenty of research on your industry and the competition. Make sure you come away with the ability to confidently answer any question about your business, and how you plan to address downturns and upswings in the economy.

When it comes to a mission statement, ask yourself what you hope to accomplish with your business. Stay straightforward, simple, and powerful. The people who read or hear this statement should come away knowing exactly what you’re all about.

Trends and tracking
Remember the planning and research I mentioned earlier? It never ends.

A smart business owner is always talking to people within, and those connected to, his or her industry. Keeping track of developments and trends in the marketplace will help provide a good idea of what’s coming next.

Don’t forget Uncle Sam
You know the old saying about death and taxes? Hopefully, your new business won’t be the death of you, but taxes are a certain and important part of the small business equation.

There’s no need to worry about incorporating, or even setting up an LLC, when you’re still in the planning stages. There’s always time for that when you start making some money. Until then, just focus on solid, basic accounting techniques. Later, if you take home any business profits, plan to set aside 25 percent in a small account designated specifically for taxes.

Pastor Charles Swindoll once said, “The difference between something good and something great is attention to detail.” By paying attention to the details of your business from the very beginning, you automatically increase your probability of success!

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Increase Your Rates for Profit

Thursday, January 24, 2019

By Tom Grandy

It’s a simple process to increase your profitability immediately!  We are going to “assume” you are on a flat rate pricing system.  Your internal hourly rate is $140/hour which yields a 15% net profit or a profit of $21.00/hour.  Let’s assume you have two service techs that bill out 50% of their time or roughly 1,000 hours per year.  By doing some simple math we find out our projected profit per year is $42,000 ($21.00/profit per hour x 1000 billed hours per tech X two service techs = $42,000).  This calculation obviously does not consider parts, sales, and the corresponding markup. 

Want to make a bit more money?  If so, bump your hourly rate by $10.00/hour.  If you are on mobile devices like a laptop on smart phone, the formula gets changed at night and the next day the change is in place with no additional investment.  The added $10.00/billed hour is all net profit.

What just happened to your projected net profit?  Over night the net profit jumped from $42,000/year to $62,000/year.  If it’s a one-hour call do you really think the customer in going to complain (or even notice) an additional $10.00.  Absolutely not.

If there are no complaints after a week or two jump it again.  You can always drop back down but think of what the company could do with an “extra” $20,000 to $40,000 in profit.  Pipe dream a bit.  What new equipment could be purchased, tech bonuses paid at the end of each month or year, additional benefits, etc.?  As they used to say in the old TV commercials “Try it, you’ll like it!”

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Praise and Raise

Thursday, January 24, 2019

by Dave Ramsey

We don’t give out raises based on longevity at Ramsey Solutions. In my book, the simple fact that you’ve been breathing air in the same office building for a year doesn’t qualify you for a salary increase.

However, if you’ve brought value to the company, if you’ve proven yourself to be a hard-working and consistent contributor, you bet you’re going to be rewarded! Even now, after more than two decades of running my own business, I love how a team member’s face will light up when they hear they’re getting a raise.

Your team is probably stocked with players holding varying degrees of talent, tenure, and maturity. At some point during their careers, every one of them is going to have a moment when they feel they’re worth more than the numbers on their paycheck. Some of these team members will be right, and they’ll deserve to be rewarded generously. Others, however, may have an unrealistic view of what they’ve brought to the table. 

As a leader you have an obligation to provide your team with everything they need to succeed. That’s why I’ve rarely cut a team member’s pay due to poor performance. People are more than figures on your bottom line, or statistics in a weekly report. Sometimes, if a team member is underperforming, additional training is warranted. Other times, someone may be battling personal issues outside work. This happens to all of us, and a good leader will realize when a little grace and understanding are needed.

But for the players who are consistent contributors year-in and year-out, raises should be given happily and with a praise sandwich. Praise the person’s actions and talents, give the raise, then praise the person some more. These moments are times for celebration, because they’re win-win scenarios. The company wins because it has a truly valued and productive team member. And the player wins because they see — in a tangible way — they’re valued, respected, and appreciated!

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Tips for Making Your Accounting System More Useful (Part 1 of 2)

Thursday, January 24, 2019

by Tom Grandy

If your accounting system just collects data for your accountant to file your taxes, you have missed the point.  We all have to file taxes and need a system for doing that.  However, your accounting system should do more than help you file your taxes.  It should help you run your business more efficiently and profitably.

Having worked one-on-one with contractors for over thirty years I have noticed a few things about accounting systems.  Below are a few thoughts that might help you turn your tax data collecting system into a more useful tool to help run your business more efficiently and/or profitably.

  • Create "Useful" Categories - In order for an accounting system to be of benefit - income, expenses and cost of goods need to split costs out into simple but understandable categories.  Don't just list "Utilities".  Have a heading that says Utilities with sub-categories for gas, electricity, water etc.  The same goes for "Insurance".  Create subcategories for life insurance, vehicles, workman comp, etc.   Similarly, break out your income by departments.  If you only do service and installation two departments or categories are sufficient.  However, if you also do commercial work and/or new construction those department’s incomes need to be split out as well. 

Create an income category for maintenance agreements if you offer them.  There are lots of reasons to track maintenance agreement income separately which we will touch on in another article.  Your accountant may tell you this amount of detail is unnecessary.  If you are the one filing taxes that may be true.  However, if you are the company owner you need to know where every dime comes from and where it went in language you understand.

  • Know What "Other" Means - The vast majority of contractors use QuickBooks.  When categories and subcategories are created it's not unusual to view a P/L Statement and notice a subcategory, that you did not create, called “other”.  What that means is the person entering the data put the information in the main header category rather than one of the subcategories.  When that happens QuickBooks automatically creates a new subcategory called "other" and sticks it in there.  If that happens, simply double click "other" on your P/L Statement and it will bring up the detail and allow you to reclassify it into the correct category or subcategory.
  • Develop a Budget - Once you have a years’ worth of detailed data in your accounting system it's time to create a budget for the coming year.  To my knowledge, every accounting system (large or small) has a place the owner can create a budget, by month.  QuickBooks has one by clicking Company/Planning and Budgeting/Set Up Budgets.  Since you already have all the proper categories developed within your system creating next year’s budget is pretty straightforward. 

To create a budget simply review the past twelve months actual income and expenses and ask yourself one simple question.  “Will this income or expense go up, down or stay the same next year?”  A second question is "When do you expect to pay it, what month or months”?  Placing income and expenses in the proper months begins the process of creating the cash flow part of your budget.

  • Review Budget vs. Actual Each Month - Creating a budget is of little value if you don't use it.  It's kind of like buying a brand-new car but never taking it out of the garage.  You feel great because you own it but it has no practical value.  Each month review your Budget vs. Actual Report.  The objective is to find out how close your actual figures are to your budgeted figures.  Note any significant differences asking yourself why it's different and what, if anything, you can do about it.  You are now beginning the process of managing your business.  Keep in mind that the ultimate goal of budgeting to develop proper pricing by department.  Having accurate cost information is the foundation stone for setting profitable hourly rates.

Next month we are going to look at breaking materials out by department and budgeting your salary.  We will also discuss a couple things that never show up in a standard P/L Statement but have the potential of putting you out of business.  Lastly, we will discuss finding the “right” accountant to review your numbers with each month.  

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Mistakes and Solutions

Thursday, January 24, 2019

By Dave Ramsey

Being a leader is a lot like writing a novel. Everyone thinks they can do it, but few do it well. Fortunately, leadership is a skill that can be learned. And the most common way to learn and gain that necessary experience is by making big, whopping mistakes. Earning a Ph.D. in mess-uppery is an essential part of your business education.

Many of the lessons I teach are culled from mistakes. We made a mistake, that mistake caused us pain, and we vowed to never make that mistake again. Believe me, mistakes are painful in the business world. Learning from them is crucial to winning.

Less painful is learning from the mistakes of others. With that spirit in mind, let’s look at a few of the most common leadership mistakes and problems, along with solutions for fixing them.

Fear of failure
A small amount of fear is a healthy thing. It motivates you to leave the cave, kill something, and bring it home. But when it paralyzes you, it's a huge problem.

The solution: First, recognize that you are fearful and your concerns may be well-founded. A bad decision could cause you to be sued, or lose money, customers, and team members. But you can't let that possibility control you. The best way to kick fear right where it hurts is to come up with a system to deal with it. Setting deadlines, gathering facts and options, and working out the worst-case scenario are just a few examples of steps you can take to get over your fear.

Get it right, not right now
One of the biggest mistakes business owners make is hiring too quickly. Often, they’re desperate because they need someone, but quick hires usually do nothing but create more problems down the road.

The solution: Take the time to find the perfect person for the job. Get the right people on the bus. At my office, people are run through the gauntlet before they’re hired. This includes at least four interviews, a personality test, and a meet-the-spouse session. The result of all that scrutiny is a company full of rock stars, and an incredibly low turnover rate.

The “nobody does it better” syndrome
Yes, I know. It's your baby, and no one can treat it as well as you. But micromanaged employees are unhappy employees. They will often leave, simply because they don’t want to endure the constant, intense scrutiny. In order for your team members to grow and become stronger, you have to let go.

The solution: Step back and let your team fly, no matter how nervous it makes you. Trust them! You were impressed by these people, and you hired them for a reason. Stop micromanaging, and allow them to perform to their full potential.

There is an exception to this rule, however. When someone first joins my team, they are heavily micromanaged until they prove their competency and integrity. I call this “training.”

The mistakes above are just a few of the most common. But there are many, many more you'll discover on your own. Just remember to learn from your miscues, and never let mistakes hold you back. George Bernard Shaw once said, "A life spent making mistakes is not only more honorable, but more useful than a life spent doing nothing."

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Do You Want To Work At Chick-Fil-A?

Thursday, January 24, 2019

By Tom Grandy 

You are a tech making $15-$30/hour so you would never consider working at Chick-Fil-A for $10.00 or less per hour, but that's not my point. Lots of teens and retired people go to work for Chick-Fil-A because it's a great environment to work in. The franchise goes to great lengths to screen, hire, and train their employees. Seldom will you be greeted with a poor attitude.  When you say thank you they say, “It's my pleasure!”. Employees get along with each other and are always looking for ways to help out their team members.  It's a clean environment that offers a quality product. Employees really enjoy working there. When customers go to Chick-Fil-A they know they are going to be treated with respect when they walk through the door.  Is the product better than anyone else's? 

The difference is not the product, it's the people. The next time you pull through a drive-through window ask yourself these questions.  Did you understand the person on the order microphone?  Did they smile when they handed you the order?  Were you treated with respect? Did you have a warm fuzzy feeling when you drove off? 

What's my point? The point is that you are the company from the standpoint of the customer.  A smile, a friendly word, and being treated with respect are all things the customer appreciates. It's the kind of thing that makes them come back again and again. You may never work at a Chick-Fil-A but there is a lot to learn from them that can help you become a better tech. 

The acid test is always the same. Would you want to be treated the way you just treated your customer?  It's something to think about.

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The Common Denominators

Thursday, January 24, 2019

By Dave Ramsey

Building a team of hard-working, creative, go-getters seems like a distant dream for some small business owners. Sometimes, even trying to get someone to close the office and lock up properly at night can seem like a pipe dream. The good news, though, is it doesn’t have to be this way.

Inspiring a team to follow you and do their absolute best is often not about money or control. It’s about quality leadership. With that in mind, here are some guiding principles I believe world-class leaders live by.

Make your vision known early and often
If you work for something bigger than yourself, you play harder and smarter. The same will hold true for your team. Most people will work harder (and better) when what they do is infused with a sense of purpose.

Tell your team what they’re working for and why. You can start with something as simple as a short email. Keep it short, insightful, and from the heart.

Praise and recognition
Let your team members know it when they’re doing a good job. Sincere and specific compliments are unusual in most workplace environments today, and this will set you apart. Or, take a few minutes and write a personal note. These simple gestures can create magic!

Surround yourself with greatness
It doesn’t matter if you are trying to fill a minimum-wage job, or selecting a new leader for your company. Hold out for the perfect person. Having the right people in the right positions allows you to do your best work. Take plenty of time during the hiring process, and set your standards high.

No power trips
A boss has an iron grip on his team, expecting every employee to immediately jump at his command. Disobey, and you could be gone in an instant. A leader, however, realizes the only power they can use is persuasion.

Don’t boss people around. Instead, explain why you do what you do, and treat your team like the co-workers they are. You wouldn’t be anywhere without them!

Caring and respect
Your team members are not robots or faceless units of production. Every single one deserves to be treated with dignity, respect, and a caring heart. If you love your team well, and treat them like family, and they will act like family.

There is one simple rule we apply to everything we do at my company, and it’s something you can start using today — treat others the way you would like to be treated.

The key to becoming a great leader is serving your team, and everyone around you, by putting them first. If you do, you’ll be paid back in full with loyalty, hard work, and amazing results!

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The First Minute Is Critical - Do It Right

Thursday, January 24, 2019

By Tom Grandy 

First impressions are more important than most technicians realize.  It is so critical that their greeting should be scripted and taped to their clipboard as a reminder. 

Below are some steps:

1.      Ring doorbell once - Listen closely to make sure the bell is working.  If you can hear the doorbell OUTSIDE your customer can usually hear it INSIDE!  Don’t irritate the customer by ringing the bell again and again as they are desperately running for the front door!

 2.      Step back three feet -  Don’t crowd the door.  Security is a huge issue especially for women.  Step back so the customer feels comfortable opening the door.

 3.      Your helper should be visible - If you have helper with you, be sure they are at the front door as well.  The helper should be one step behind the lead tech or one step down if there are steps.

 4.      Look your customer in the eye and SMILE! – I’ll bet you get a warm fuzzy feeling when someone smiles at you.  Your customer does too.

 5.      Introduce yourself - “Hello, Mrs. _______. I’m (your full name) with (company name). Hand the customer your personal company business card. This is (co-worker’s full name) and he (or she) will be helping me today.”

 6.      Helper says - “Hello, Mrs. _________.”

 7.      Hand the customer a company brochure and/or a copy of your maintenance agreement –Tell the customer the company brochure will provide an overview of the company and a listing of their other services you may not be aware of.  The maintenance agreement will provide details on how you can save money on today’s call.

If you follow this simple process on every call you will be amazed at how it puts the customer at ease.

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