Keep up good work habits during the busy months.
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 your company is 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 positive or negative directions 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 revenues being accounted for without the expense. This makes the margins increase. There are some months where the expenses are accounted for and the revenues aren't (they are in a different month). So the margins decrease.
You have to account for the revenues and the expenses in the same month -- what I call "apples to apples." This is the only way that you can make 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. You have service technicians who are charging the company overtime, yet you are not charging the customer overtime. As a result, your service gross margin decreases. Many times this cannot be helped because you have to take care of your service agreement customers who are not usually charged overtime rates.
The other factor is the "call back" and "warranty call" factor. Sometimes these expenses increase at this time of year because your technicians fix the "symptom" rather than the "disease" and rush through calls. In these cases, your technicians are working harder and the company is earning less money.
If I see installation margins decrease in the summer, it usually means that they are running to the parts houses or not completing jobs and having to go back the next day. There are too many incomplete jobs. They are stopping work to start another job just to keep a 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 answering "When can you put it in?" rather than "How much?" As a result, your margins can be higher. Of course, you still have to provide the value and a great job installation for the customers.
Even though it is busy, make sure that you get your financial statements on time, have revenues and expenses in the same month, make sure that your service technicians take time to fix problems rather than the symptoms, and installation crews have all of the materials they need to complete a job. This will help you be productive and profitable.
More warm weather business tips
July 21, 2008