What Did You Learn Last Year?
Wednesday, February 28, 2018
by Tom Grandy
Most of us have heard, "Do you have thirty years’ experience or one year of experience repeated thirty times?" The other one we have heard is, "The definition of insanity is 'Doing the same thing over and over again while expecting different results!'" The point is the same in either case. Are we learning and changing?
As the new year begins, it's important to reflect on our victories as well as our failures. What did the company do really well over the past year, and just as importantly, what area produced weak performance? My suggestion would be to have a company meeting to discuss this very topic with the objective of setting specific goals for the coming twelve months. Below are a few topics you just might want to include on your discussion list:
- Turnover - How many employees (techs or staff) left the company over the past year? If the number is high, the question becomes why? Sure, they may have been a poor fit but the larger question is to look at your hiring practices. How do you interview and utilize DISC testing? Are there core issues with how you treat employees? Yes, they may have done a poor job, but , take a good look at your new employee orientation program and training process. I heard a great quote a while back, "Seldom is the problem in front of you the real issue. There is usually a foundational problem behind the issue." Having an open and honest discussion with all employees on this topic can be very telling. If you are an owner or manager, remember being critical or defensive of comments being made will cause the room to suddenly become very quiet. Swallow your pride to accomplish the larger objective of getting better.
- Gain/Loss of Maintenance Agreement Customers - Maintenance agreements are literally the foundation stone for profitable growth. The final selling price for most trades companies is usually heavily dependent on the number of active maintenance agreements the company has. Keep accurate records of the number of maintenance agreement customers gained and lost during the past year. Compare total active maintenance agreement customers at the end of the year with each previous year. Is the number growing? If not, why?
- Did the Company Make a Net Profit in All Departments? - This can be an elusive number for a couple different reasons. The first, is cash flow verses accounting. As most are aware, it's not unusual to see an accounting P/L statement that says you made a profit (which you will have to pay taxes on) while noting there is far less money in the company checkbook. Be sure to look at net profit from both perspectives.
- The other issue is departmentalization - Few companies departmentalize all the way through sales, overhead, labor and materials, but look only at the overall company’s net profit. The potential problem is--one department can easily be subsidizing another one and no one knows it...until it's too late! Review your net profit by department and compare this year with past years. Are profits increasing or decreasing and why?
- Debt Status - This can be an eye opener. Simply list all outstanding debt including balances owed on loans, unpaid credit card balances, overdue money owed to suppliers, personal loans to the company, balances on your lines of credit, and overdue taxes. Totaling these dollars can be a wakeup call. The objective is to have the "total owed" figure substantially DECREASING each year. Hint: Build debt repayment into your overhead cost when setting proper hourly rates. If you don't, all that net profit you made will quickly be swallowed up by debt repayment.
- Closing Rate on Sales Presentations - An acceptable closing rate for sales presentations is at least 50% or more. What is your rate per individual? Is it going up or down year-to-year? If the closing percentage is not increasing, you need to know why. Do some or all sales people and/or selling technicians need some additional formal training? Reviewing these percentages, at least annually (monthly or quarterly is better), can keep the sales team on track.
- Total Dollars Tied Up in Inventory - How many dollars does the company have tied up in inventory? If the dollar figure is going up it might be because the company is growing therefore additional inventory is needed. It may be caused by your sloppy purchasing policy. Do yourself a favor and at least look at the number and ask the question.
- How Often Do You Meet with Your CPA? - This topic was purposely brought up last. It's hard to manage the company without taking a close look at the numbers. All the above topics are important but the bottom line is what is really important. Did the company make a profit this past month? It does little good to find out you had a rotten year three months after the close of the year. Company owners need to know how they did financially within 10 days of closing out each month. Make it a habit (not a goal) to sit down with your CPA by the 10th of each month to review your numbers. If they are not providing "practical" advice on how to improve your bottom line profit, it's time to find a new CPA!
Before you set this article down pick up your calendar and select a date for your annual company meeting to discuss at least some of the above items. Make it fun. Select a really nice restaurant so you not only review progress but provide a big thank you to those that helped the company grow and prosper. Everyone wants and needs to be appreciated.