When you are busy, you can get lulled into a false sense of security. You feel that you are profitable.

When you are busy, you can get lulled into a false sense of security. The dollars are coming in the door and you feel that you are profitable. A good check on profitability is to make sure that your gross margins stay consistent. Consistency means staying within a percentage point or two of where they normally are. Huge swings either in the positive or the negative direction should be a clue that something isn't right with the financial statements.

If I see swings at this time of year, it usually means that everything isn't getting billed. There are some months where the revenues are being accounted for without the accompanying expenses. This makes the margins increase. There are some months where the expenses are accounted for and the revenues aren't, because they are in a different month. So the margins decrease.

You have to account for the revenues and the expenses in the same month. It's what I call "comparing apples to apples." This is the only way that you can makes sure that your pricing is accurate and that you are not losing materials, productivity, etc.

At this time of year, I often see the gross margins decrease, when they should be increasing. Many times you have service technicians who are charging the company overtime yet you are not charging the customer overtime. As a result, your gross margin for service decreases. Many times this cannot be helped because you have to take care of your customers.

Other reasons such discrepancies may occur are the "callback" and "warranty call" factors. Sometimes these expenses increase at this time of year because your technicians fix the symptom rather than the disease and rush through calls. Just be aware that your technicians are working harder and the company is earning less money.

Moving margins

If I see installation margins decrease at this time of year, it usually means that crews are running to the parts houses or not completing jobs and having to go back the next day. There are too many incomplete jobs. Crews are starting one and then stopping work to start another job just to keep the second customer happy. Quite frankly, this is the time of year to increase installation margins. Sales people are taking orders; they really don't have to sell hard. Getting a job is often a matter of "When can you put it in?" rather than "How much?" As a result, your margins can be higher. Of course, you still must provide the value and a great installation job for the customer.

Even though it is busy, make sure that you get your financial statements on time, place revenues and expenses in the same month, make sure that your service technicians take time to fix the actual problem rather than the symptom of the problem, and installation crews have all of the materials they need to complete a job. This will help you be productive and profitable!

Copyright 2002, Ruth King. All rights reserved.

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