Entrepreneurs tend to be sales-oriented people who operate with the idea that the next job will provide the financial success they are seeking. Sometimes a strategy of saving costs can be more productive than increasing sales. The following ideas are listed in no particular order; they are just thoughts you might find useful:
- Overtime and workers compensation: If your crews work overtime, check your state regulations regarding workers compensation costs on the premium portion of that pay. You may not have to pay workers compensation on the accelerated portion of their normal hourly rate. Also, make sure your workers are categorized in the correct work category.
- Cell phones: Shop cell phone costs by vendors, but don't stop there. Also review time use by each employee, including your own cell phone use. Remember, if your foremen are on the phone, they are not working on production. Cell phone hours can be an excellent method for measuring personal productivity.
- Pay cycles: Consider going to a two-week pay cycle; this gives you another week's payroll float.
- Material discounts: Make sure you take material discounts. If you pay your bills on time or within the 10-day discount period, you are not a typical contractor and your financial prudence should be rewarded. In many cases, borrowing the money is cheaper than not taking the discount.
- Fall depreciation review: Meet with your accountant each fall to review your depreciation and other financial information. This allows you to do year-end tax planning.
- Mileage vehicle maintenance checklist: Have drivers record mileage every time a vehicle is filled with gas. Use this worksheet to make a simple maintenance checklist. For example, if you drive approximately 300 miles between tanks and change the oil every 3,000 miles, then just put "change oil" on line 11. You can do this for checking tire pressure, lights, tuneups, etc. Such mileage recording can also cut down on personal vehicle use.
- Monthly financial review: Have a formal financial meeting each month. Review a balance sheet and income statement, accounts payable, accounts receivable and other key indicators. This will help you avoid financial surprises.
- Adequate tools and equipment: Employees lose, steal and break equipment, but not having enough tools and equipment can cost big dollars in lost production. Adequately stock crews and hold them accountable to maintain and track tools. When crews share a piece of equipment, it is much harder to determine who is responsible for it. In the long run, it is cheaper to make sure everyone is adequately equipped. Know your state laws regarding deducting the cost of lost tools from an employee's pay.
- Track advertising: Advertising can be a feel-good expense. Make sure you have a system that tracks where each lead comes from and how much it costs to generate leads.
- Track closing ratios: Know what percentages of the jobs you quote are closed. Track closing ratios by type of advertising, type of customer, type of job, etc. For example, Yellow Pages advertising may generate a lot of leads; but if you only close 10 percent of your Yellow Pages leads, the cost is offsetting any lead advantages the Yellow Pages might provide.
- Yearly material contracts: Bring vendors in and negotiate yearly material contracts. Review total purchases from the previous year. Don't just take the low price but look at the overall picture. Determine how the vendor can help you other than price. Some vendors might offer co-op ad dollars or training help. Others might take your whole crew to a ballgame or provide leads.
- Material delivery: Make sure you and your employees stay out of supply houses. Have a weekly production meeting and order materials in advance. If you need one item on a job, consider having a cab bring it to the job. In the long run, it's cheaper.
- Insurance review: Review your insurance and make sure you are adequately covered. Buy insurance from a professional who determines and covers your needs. Many contractors have fire insurance but no embezzlement insurance. I have had one customer whose shop burned down but dozens who were embezzled.
- Track non-billable field time: Non-billable field time can become lost in your accounting data. Non-billable field time is employee wages for shop time, training, safety meetings, etc. - anything that cannot be charged to a current job. Tracking non-billable payroll allows you to budget and control such expenses.
- Monitor interest expenses: Interest rates are rising. Try to secure a permanent source of financing and avoid costly financing methods such as credit cards.
- Control supervisory expenses: As businesses get busier, it is a temptation to add a construction manager or superintendent to help manage jobs. In smaller companies, these positions can be hard to make efficient. Consider having this person bill some of his time by running warranty calls, selling and doing small jobs, etc.
- Workers compensation rebates: In states that allow rebate programs, try to join a program that will reward safe companies with a rebate. Also, educate your employees regarding workers compensation costs. Many field employees mistakenly think workers comp is a government entitlement program, and they do not fully understand that it is insurance that is rated much like their own auto insurance premiums.
- Collection policy: Have a set procedure for collections and stick to it. Outline the procedure and have one person in charge of following it. This probably should not be a salesperson or project manager, as workers in these positions are afraid that pursuing collections will hurt their client relationships.
- Job cost large equipment: Many programs are available for tracking vehicle and equipment maintenance, but most job costing systems can do the same thing. Simply make each piece of equipment a job and track costs against it.
- Right wage mix: Employee wages tend to rise over time. One way to offset this is to make sure you have adequate apprentices and helpers to offset the higher, more skilled workers. Look at your overall wage mix.
- Make a budget: Take last year's statement and create a budget for the coming year. Use this budget to monitor your progress throughout the year. While it may be impossible to project all costs, especially costs such as gasoline, the purpose of the budget is to review your logic, not to provide a perfect budget that will account for all contingencies.
Many of you are probably doing all of these things; if so, congratulations. If not, hopefully some of these ideas can put a few extra nickels into your pocket.
