Non-billable time
A major impact on the bottom line is ‘non-billable time.’ This employee hidden cost should be considered when determining the hourly rate applied to managing the customer. Take a hard look at all billable time on service work. If the technician is paid $20 per hour, then add the cost of taxes, insurance, and other expenses. It may be a surprise to learn the raw cost of each employee is $30 per hour. In addition, calculate how much time is wasted each day, which are non-billable hours that cannot be directly charged to the customer. Do not be caught by surprise at the actual (higher) rate the business is paying because of these non-billable costs. Also, the company truck should be billed as an additional technician on the job. Therefore, if there are two technicians on the job, base the rate on two technicians plus the truck, and the owner/manager. This will provide the true labour charge, which should be based on four employees, not two.
Question every cost. Business owners should ask themselves: “Does this expense add value and contribute to the bottom line? Are there alternative ways to achieve the same result? Is there a cheaper, better, or faster way to get the job done?” Always look for more ways to reduce costs. The more cost reduction, the more bottom line profit.
Collections: It is the company’s money
A profit is not made until the money is collected. Cash efficiency is the key to a profitable business. The sooner a business gets paid, the more profit will be realized. Historically, pool professionals have been reluctant to ask for payment. For some, there is a fear of losing the customer. What value does a customer provide if they do not pay what they owe? Take this exercise for example: Go through the company’s financial records, if a 10 per cent profit was generated, and an invoice for $1000 is written off for nonpayment, $10,000 in new sales must be generated to pay for that write-off. The time value of money theory is in effect when collections are not made in a timely manner. Each month the customer receivable is on the books, it affects the company’s bottom line profits. Businesses must make it a priority to collect their money.
Employee efficiency
Building an expense control culture that rewards employees who figure out a way to reduce cost and improve profitability can make all the difference for an organization. Businesses should reward for profits made on a job by monitoring efficiency and rewarding employees with a bonus. Looking for specific areas that merit rewards can include: no lost time, no job site accidents, positive internal workplace safety reviews, and avoiding non-billable hours. Keeping track of tools and wasted materials on the job is also important.
Employees are the eyes and ears of the business in the field. They should be trained to identify changes in customers’ behaviour and provide alerts (e.g. future payment issues). Give employees examples of ways to cut costs and challenge them to achieve the cost reduction goals. Consider this ‘ground-level intelligence.’
Actions speak louder than words
Business owners need to walk the talk when it comes to running an efficient business. Owners who are serious about controlling costs demonstrate it with their actions; and then employees will do the same.
There is no way to predict the financial future without a true measurement of how the money is being spent. There have been times in this author’s experience where hasty decisions were made based on knee jerk reactions related to customer and employee issues. Not only were these decisions risky to the bottom line, but also led to a feeling of spinning out of control.
In these cases, business owners should take a step back, take a deep breath, and assess the long-term consequences of decision-making. In doing this, it will help owners become a more proactive, profitable, business entrepreneur.
Connie Gibson Centrella, MBA, is a professor and program director for the online Aquatic Engineering Degree Program at Keiser University eCampus. She is also the director of education for Team Horner as well as a sustainability officer, having been certified in the principles of ‘green’ and sustainable business practices. Centrella, an industry veteran with more than 40 years of experience in the aquatics field, is a five-time recipient of the Evelyn C. Keiser Teaching Excellence Award ‘Instructor of Distinction.’ She is also a former pool builder with extensive knowledge in pool construction, equipment installation and manufacturing, and a National Swimming Pool Foundation (NSPF) certified pool/spa operator instructor, having trained more than 1850 pool service technicians, retailers and instructors worldwide in the past 10 years.
