Contractor Corner

Overhead creep is subtle by its very nature; you may not notice it at first, but over time, overhead creep can take a significant bite out of your profitability. In some home service trade companies, it can lead to major cash flow problems.

But what is overhead creep, exactly? Essentially, it’s the gradual increase in your operating expense. Most business owners will find that, the longer they are in business, the costlier it becomes for them to keep their company up and running. If you’re not aware of overhead creep—if you’re not actively working to control costs—that’s when the problems arise.

The Causes of Overhead Creep

There are a number of potential causes of overhead creep, but let’s start by ruling out some of the things that probably aren’t causing the problem. Fixed expenses—things like your rent or your insurance, which should remain fairly static from month to month—are seldom at the root of overhead creep.

What you have to watch out for are the variable expenses. The most common of all is payroll. If you have too many employees for your volume of business, that’s sure to cause overhead creep, resulting in cash flow obstruction. If that’s the boat you’re in, it’s imperative to trim your payroll costs wherever possible, without compromising the efficiency of your team.

Closely related to this is overtime. If you’re required to pay higher rates for overtime hours, then it’s vital to control these extra working hours as best you can, perhaps by staggering your employee shifts throughout the day.

Equipment and supply costs are ever-changing. Have a process in place to review pricing on the key equipment and supply costs on a monthly basis. Don’t assume the price of something is the same as the last time you purchased it to be resold. Actively review and negotiate with your suppliers to make sure you are getting the best prices available in your market.

Why Overhead Creep Matters

Overhead is one of the key factors you consider when making your budget and when pricing your jobs; indeed, every job you price should take into account overhead as separate from the profit you’re going to set aside. So, if overhead increases and your prices don’t reflect that, it directly impacts your profits.

We’d love to sit down with you, look at your pricing and your operating budget, and help you get to the bottom of any cash flow problems you may be experiencing. To speak with one of the accountants and Profit First professionals at Contractor in Charge, reach out to us directly.

Every customer, every job, every person who calls you for an estimate represents real opportunity for your business—a chance to generate revenues. By the same token, though, missed opportunities represent real loss—money you should be making, but aren’t.

Among home service trades, these missed opportunities can come in several different forms. In this post, we’ll highlight just a few of them—failed connections that detract from your bottom line.

Missed Opportunities and Your Home Service Trade

A few of those common missed opportunities include:

  • Lack of follow-up. You should be following up with previous customers at least once a quarter, if not more often—whether that’s via a phone call, an email blast, or a newsletter. Don’t let your past customers forget you! Keep your company name front and center, should they need additional projects at a later date.
  • Not asking for referrals. There’s no reason not to ask each happy customer for at least one referral—whether that means providing them with your business card or even leaving a personal message on their invoice or receipt.
  • Poor customer service. This one is huge: When someone calls you and can’t get through right away, do you call them back right away? If you wait until the next day to return a phone call, you’ve likely lost that lead to one of your competitors. Consider having a service where a live agent will answer your phones.
  • Not keeping appointments. Show up when you say you will. Don’t be late or do anything to jeopardize those potential referrals!
  • Obsolete website. If your website doesn’t have a clean, professional, and contemporary look, combined with up-to-date contact information, you’re definitely missing out on potential leads.
  • No business cards. When you meet someone for the first time, hand them a card. It’s a simple way to spread the word about your business.

All of these points represent opportunities for you to get customers and jobs—and missing any one of them could result in lost profit.

Making your business profitable means being smart about the revenues you bring in, and always putting Profit First—but at an even more foundational level, it means taking advantage of all the big and small opportunities that come your way.

We’d love to talk with you more about the steps you can take to make your home service trade business a money-maker—including coaching you through Profit First! Reach out to Contractor in Charge today, and let’s talk about the opportunities you have to grow your business.

As the owner of a home service trade business, it’s imperative that you pay yourself a salary. To some, this might seem incredibly obvious; after all, if you’re not getting paid, what’s the point of having a business? More to the point, you simply can’t live without generating an income for yourself. A business in which the owner doesn’t get paid is not sustainable in the long run—yet we encounter many service trades where the owners don’t take a salary, for any number of reasons.

As you consider your owner’s salary, here are just a few important points to keep in mind.

Owner’s Pay and Profit are Not the Same Thing

Every time you make a bank deposit, you should be setting aside some money as profit. (You can learn more about this through our Profit First coaching services.) It’s critical to understand that this profit is not your salary. Profits are the return on the investment that the owner or stockholder receives after costs and expenses. Your owner’s pay should be separate.

Owners Should Be Paid an Hourly Wage for Their Work on the Job

Even as the owner of the company, you may be in a position where you’re still working jobs—whether that means actually being present at a work site, alongside your technicians, or even just driving materials and supplies to technicians in the field. This may not happen every day, but on the days when you do work on jobs, pay yourself an hourly wage. This is part of the job cost, and should be factored into your job pricing.

Owners Should Also Get a Regular Salary for Owning the Company

In addition to these hourly wages, you should be paid a regular salary for being the owner of the company. Again, this isn’t something you take out of your profits; it’s an overhead expense. But at the end of the day, you’re the one who’s taken the financial risk by starting this business, and you’re the one who’s ultimately accountable for it. You should be compensated accordingly.

This may seem like a simple idea—owners getting paid for their commitment—but actually, it’s something that has a major impact on the way you run your business. Your hourly wages should be factored into job costs, while your salary should be taken into account when calculating the overhead.

Again, this is important for keeping your business afloat in the long run—because companies where the owner doesn’t get paid simply don’t last. For guidance in figuring out how to pay yourself properly, we’d encourage you to contact our accountants and coaches. Reach out to Contractor in Charge to schedule a consultation.

Profitability isn’t something that just happens to your business on accident; rather, it’s something you achieve through the right financial habits, practiced day in and day out. If your home service trade business isn’t generating profits, then it’s wise to take a step back and review some of your company’s practices. Adopting the right habits isn’t always easy, but it can set you on the path to profitability.

Give the Right Estimates

One way to ensure a profit is to price your services correctly. As we’ve discussed in a previous blog, many service trades fail to understand that markup and profit are not the same thing, and that when giving a quote for any project, you need to factor in both overhead and the money you’ll set aside as profit.

A related problem that companies run into is that they simply price their jobs too low, hoping that their cheap prices will help them land work. If you’re having a hard time getting customers, that’s fundamentally a marketing problem; underpricing your services means you’ll never make a profit, even if you do win jobs, so that’s a dead end.

Work with Good Numbers

Something else you should do, routinely, is ensure you’re working with good numbers. Figure out your mark-up/gross margin, then never adjust that number to lower the sales price. Again, lowering prices just to be competitive is a losing game.

If you adjust that mark-up number, you’re definitely going to lose some of your profits, maybe even all your profits. You’ll also lose some of the money you need for overhead expenses—and of course, those expenses will still need to be paid, whether you lower your prices or not.

Set Aside Profit First

A final habit that all home service trades should be in is putting aside money for profit—before doing anything else. This, of course, is what the Profit First system is all about, and we’d love to walk you through the specifics.

For now, we’ll just say this: If you don’t intentionally safeguard profit, from every bank deposit you make, your business probably won’t grow. That’s because you’ll use everything you make to pay your expenses, market your business, etc. Hoping for “leftover” profit is never effective. There won’t be any leftovers unless you make leftovers, and that means putting profit first.

These are just a few examples of how setting the right financial habits can make your home service trade more profitable. To see how your habits stack up, and to unlock new ways to generate profit within your business, speak with one of our accountants/Profit First professionals.

We’d love to set up a free consultation. Call Contractor in Charge to start the process now!

Home service trade businesses fail for many different reasons—and often, there are warning signs present early on.

It’s important for business owners to be alert to these red flags. If you identify them early, it’s possible to make the necessary course corrections and keep your business from going under; in fact, by partnering with the right accountant, you can actually turn your struggling business into a major profit generator!

But, if these warning signs are ignored, your business could find itself in deeper and deeper financial peril.

Warning Signs That Your Business is Failing

So what are these warning signs, exactly? Eight of the most common indicators that your home service trade business is in a bad place include:

  1. You (or your spouse) are working on jobs for free. If you’re working for no pay, there’s a job cost that’s not being met—plain and simple. And this could be something as simple as delivering materials or supplies to a job site. All job costs need to be accounted for!
  2. You’re not taking a regular salary. Ultimately, you started your business to make money—and if you’re not paying yourself, that’s a major warning sign that something’s wrong with the business. A successful business pays its employees, and that includes you!
  3. You cut your sales prices just to get a job. This could point to many underlying issues, including a lack of proper marketing. Ultimately, cutting prices means you’re missing out on revenues. You cannot grow or even sustain your company without revenues.
  4. You can’t keep up with credit card debt. When your business is financially healthy, it’s able to chip away at old credit card debt each month. An inability to do so points to some deeper problems with your business.
  5. You’re only making partial payments on the bills that are due. Or, you’re not paying your bills at all. Again, healthy companies can pay what they owe. If you allow debts and unpaid bills to mount, that’s a problem that’s only going to grow.
  6. You’re paying old bills with money from new jobs. Is your business essentially surviving paycheck-to-paycheck? In other words, are you desperate to get paid so that you can settle outstanding debts? If that’s the shape your company is in, then it’s probably not setting aside any profits or savings, which means it’s not growing. If anything, it’s sinking.
  7. You’re not paying your employees on time. It goes without saying that, if you don’t pay your employees promptly and fully, you’re going to have some major personnel issues on your hands. Plus, it won’t be long before word gets out that your company is in a bad place financially—which could destroy the brand you’ve built for yourself.
  8. Your checks bounce. The ultimate sign that your business is failing? You can’t be sure that the checks you write are going to clear. If your business reaches this stage, it may be too late to save it.

These warning signs are all pretty dire—but for the most part, if you identify them early and take the right action, you can not only right the ship, but turn your money-gobbling business into a real profit generator.

It all starts with seeking the right assistance. Contractor in Charge can help. Our accountants and Profit First professionals can look at your books, identify where you’re going wrong, and provide you with an action plan to make your business successful. If you’re seeing any of these warning signs, you can’t afford to delay. Contact us now and set up a free consultation!

There are a lot of misconceptions about accountants—what they do, and what benefits they provide. To a lot of people, accountants are the people who check the general ledger, fill out tax return documents, do complex bookkeeping, and ensure basic financial health.

Certainly, those are all encompassed within the accountant’s role—but if you think accountants exist merely to do paperwork and keep your records in shape, think again. Actually, accountants have the skills to go through your financial statements transaction by transaction, identifying hidden profit centers within your company—highlighting ways to start generating more cash from your business, whether by tweaking your prices or by eliminating unnecessary overhead.

The Benefits of Outsourced Accountants

There are a number of specific benefits you can expect when you hire an accountant to take a look at your financials—among them:

  • Cost savings. A good accountant will have the skills necessary to discover areas where you’re overspending, helping you eliminate some unnecessary costs from running your company.
  • Time savings. Likewise, accountants can help free up your time by taking some of the repetitive administrative tasks off your plate—freeing you to focus on the things that really bring value.
  • Growth opportunities. Are there areas where your business is poised for major profit increases? A good accountant can help you identify these opportunities, and strategically exploit them.

The Right Skills for the Job

More than anything else, though, a qualified business accountant has the right skills to make your business more profitable. Just as you’ve trained hard to become an expert in plumbing, electrical work, remodeling, or HVAC repair, an accountant has financial expertise to help generate cash profits on your company’s behalf.

Do you have the same skills? Are you able to do what accountants do, and locate hidden opportunities for increased profitability? There are some easy ways to check. We recommend doing a quick online skills assessment to see how sharp your accounting skills really are. SkillCheck is the platform we use for our own pre-employment testing, and they offer a number of accounting tests you can try in order to get a fair self-appraisal.

Accounting Help from Contractor in Charge

If you take a skills test and find that maybe you’re not as well-versed in accounting as you could be, that’s no reason to panic. You can hire an accountant who will help you find those hidden profit centers in your business. In fact, that’s one of the main services we offer at Contractor in Charge.

Our accountants:

  • All have a minimum of a Bachelor’s degree in Accounting;
  • All have a minimum of five years’ accounting experience;
  • Are skilled not just in QuickBooks, but in all accounting systems;
  • Are all in-house, salaried employees of Contractor in Charge.

We’d love to sit down with you, look through your books, and help identify a clear strategy to make your business more profitable. Contact Contractor in Charge to schedule a consultation!