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Making sense of the numbers

By:
  • Mike Rorie
- Posted: October 3, 2016
As we prepare to head full speed ahead into another season, that means the challenge of managing the front office while selling and performing your work is looming.

Contractors are typically challenged to tackle the daily demands of the snow industry. The seasonality of the snow business usually leads snow contractors to offer a second or third service (like landscaping or excavating), adding to the demands and complexities of the business.

Coupled with the need to sell and service their snow and ice management business, they have to manage different types of equipment, skilled people, facilities and materials - while maintaining the front office and balancing the financial components of a largely unpredictable business.

Over the years, the contractors I’ve encountered have continued to amaze me at how tough and resilient they are in meeting these demands. It’s remarkable to see what contractors and owners of small businesses are able to endure to succeed at running their companies.

For decades we struggled to put together all the resources we needed to compete in the marketplace. We struggled to understand the big picture. If we could win the customer, we knew we would provide top-notch service. That was easy. The hard part was understanding what it was costing us to win the work and then service it.

We specialized in commercial grounds maintenance, so in the summer we were focused on landscaping and in the winter, snow removal. We served large companies and real estate owners in a position to demand much from us. We wanted to meet and exceed these demands, so we did, no matter the cost.

Seek out industry consultants
Not until we had some financial training did things level off for us as a company. We began to make smarter choices about the types of properties we pursued, how we sold our services and what we agreed to provide.

We met Frank Ross, an industry financial consultant out of Chicago, in the 1990s. He taught us the financial implications of contracting. After several years of educating us, he guided us toward industry financial management, and the ability to make better choices about what we could agree to as a provider became easier and easier.

We started with the basics - our estimating system. Once we formalized our estimating system and ensured work was priced correctly and going out consistently, we gained clarity on our P&L. We also customized our P&L to operationally understand it as a team.

Customize your P&L
Customizing our P&L with categories from our profit centers to our own chart of accounts allowed for complete clarity for our team versus clarity for our accountant. Your accountant can’t influence anything in the contracting world; he or she can only tell you the score at the end of the game.

When someone with industry financial experience can clear the fog and show you the effects of what’s happening operationally via your P&L, life gets much better. You begin to understand how and when to make the correct moves to influence your bottom line.

Decisions on your fiscal year, what type of corporation to become, how to manage cash flow, whether to own or lease equipment or to depreciate or expense are all much simpler if you’re properly advised.

Run an open-book business

Beyond organizing our P&L so that it fit our needs, we kept an open-book business so everyone could understand how we were doing and how their hard work influenced the business. This united and enlightened our management team.

Growth becomes the enemy of small contractors when only one or two people have any idea of the company’s cost of doing business. By keeping an open-book policy, your team understands the implications of pricing and what they’re selling, which allows your company to participate competitively while understanding the risk/reward of what is being sold.

Snow contractors are often asked to bid seasonal or lump sum pricing, yet this isn’t always the best scenario for the contractor for many reasons. If your team is armed with real financial knowledge, they’ll understand how to find the best mix of services and contracts to sell for the season.

Our branch managers, sales people and account managers all had good understanding of our material, equipment and labor costs, and the effects of our commitment to service against the cost of delivery. Once we reached that point, it made it so much easier to grow the business and make money.

Explore industry-specific software
Shining a light on the indicators - whether sales, labor costs, gross margins or any other metrics associated with operating your business - becomes easier with the help of a software solution.

When we ran the company in the 1980s and 1990s, software was coming into its own in our industry. Everything was a manual process. We had to bring together many components to reconcile and see the big picture.

We ended up building a system to house our data in one place and show us what we needed to see. Today several good choices for out-of-the-box systems will allow contractors to operate their entire business in one place.

If you haven’t viewed any industry operating software I would strongly encourage you to start. Many solutions exist beyond doing everything in Excel and reporting it to QuickBooks.

Financial data and data that tracks and shows you and your management team the effects of your assumptions and actions in operating the business is invaluable. Further, this information can be displayed in real time with many enterprise resource planning solutions.

Do your homework now
If you desire to take your company to the next level, or just want some clarity on the financial implications of how you’re operating, I’d advise seeking out an industry friendly financial advisor before the season is in full swing. I’d also advocate checking into an operating system that can help you see the data behind your business all in one place. 

Industry trade shows, organizations, publications and blogs can help identify good financial industry advice and a sys-tem to make running these companies more pleasurable. Otherwise, growth may become your enemy, too.

Solutions
  • If financials aren’t your strong suit, don’t be afraid to hire someone to help you make sense of it all. 
  • Customize your P&L so that it accurately reflects your company’s operations.
  • An open-book policy that promotes transparency will help every person on your team see how their work contributes to the bottom line.
Mike Rorie has been a participant in the snow and ice industry for over three decades. He is now CEO of GIS Dynamics, parent company to Go iLawn and Go iPave. Contact him at sales@gisdynamics.com.
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