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20 Ways to Increase Profits

© 2016 The ShinerGroup. All rights reserved. 1


Leslie C. ShinerOwner, PrincipalThe ShinerGroup

A copy of this presentation is available upon request to

[email protected]

Leslie Shiner

• Owner of The ShinerGroup

• Financial & management consultant for over 25 years– MBA in Accounting and Finance from U.C. Berkeley

– Advanced QuickBooks ProAdvisor

– Sage Certified Consultant

• Contributing Columnist– Remodeling Magazine

• CPA Practice Advisor 2016 Top Thought Leader

• Author– A Simple Guide to Turning a Profit as a Contractor

– (www.MoneyMazeBooks.com)



Learning Objectives

• Increase profits by focusing on the five areas of significance

• Create a plan for increased efficiency

• Spot quick fix solutions for improved profitability

How Do You See Your Business?

Do you see a series of ongoing, overlapping jobs?

Smith kitchen and bath

Simpson gazebo

Anderson job

Jones whole house remodel

Jackson 2nd story additional



Understand The Profit Cycle

Analysis

Accounting

Production

Estimating and Sales

PROFIT

Five Areas of Significance

Estimating and sales

• Project management

• Financial management

• Analysis

• Strategic management for profit




1. Know how to create a proposal as a repeatable process– Utilize software to create proposals

• Look to similarities in all jobs for template

– Distinguish between the “Budget” and the “Proposal”• Create a proposal for the client

• Create a budget that will be the basis of all job cost reports

– Measure productivity

– Understand your overhead

– Know the difference between markup and margin

What is Negotiable?

Direct Job CostsLabor

MaterialsSubcontracts

Equipment

Overhead

Profit

Non-negotiable without change of scope

Negotiable



Budget vs. Proposal

Direct Job CostsLabor

MaterialsSubcontracts

Equipment

OverheadProfit

Budget

Your costs

Used to compare estimated costs to

actual costs

Proposal

Your revenue, your client’s

costs


2. Create a Process Map– Involve all company staff

– Deal with all aspects of projects

– Create company standards

– Planning, documentation & accountability

– Near real time reporting

– Change order / revision process

– File & information management



From Simple to Complex

Process - Sample

Mar

keti

ng

Sal

es

Des

ign

Pro

duct

ion

Off

ice

Lead Tracking X XClient Meeting XBudgeting X XProposal XEngineering XProject Management XEquipment Order & Tracking XDemolition XFraming XFinishes XTrim XPunch List XChange Orders X XReview X XWarranty X


3. Deliver an excellent on line presence– Have an accurate, up-to-date, inviting website

– Engage in social media

– Blog regularly

– Manage your online reputation

– Explore online listing

– Track online activity



Effective Website Marketing

• Unique page content

• Avoid duplicated content

• Link building (inbound & outbound)

• Clean & consistent pages

• Boost SEO (Search Engine Optimization)

Must Haves on Your Website for Credibility

• Business process

• Professional project, pictures, galleries

• Contact info & web-lead form

• Mission/vision statement

• Company history, employee history

• Community involvement

• Awards & certifications

• Publicity

• Testimonials



Effective Social Media

• Add professional after-pictures of recently finished projects

• Post recent blog & news: news that affects potential and existing customers

• Let Facebook fans, Twitter followers, or LinkedIn connections know when you win awards or get recognized

• Create Buzz!


4. Ask for referrals– Then ask for referrals again

#1 Source of new work comes from referrals and repeat business




• Estimating and sales

Project management


• Analysis


Production

5. Create and utilize schedules– Create schedule to improve sales

• Use a schedule as part of your marketing plan

– Create schedule to improve procurement • Prior to the start of the job and during the job

– Create schedule to improve production • During the job to improve productivity with subs and

employees

– Just one way to improve profit



Create a Gantt Chart

Create a Schedule and Update it!

Crew B Crew CCrew A



Production

6. Manage change orders – Are you consistently going over budget?

• Could it be that there is more work done in the field than in the original scope of work

• Start from the beginning - during the sales process– Clearly state the scope of work in the contract

– Define the process for changes

– Prepare your client for change orders

If you are already doing the work…Why not get paid?

Create a Process for All Changes

• Create field documentation– Change order work authorization form

– Filled out on the job• Manually or electronically

– Three part form for 1) client 2) field 3) office

– Not necessary to include pricing

– Get signature from client

• Make the process easy for your field crews

Too much paperwork may mean more free work



Stop Losing Money on Change Orders

• Review past jobs– Did change orders cause slippage in estimated gross

margin?

• Create zero dollar change orders – Turn change orders into “Profit Center”, not

administrative nightmare

• Consider ‘Processing Fee’ on all change work

Production

7. Manage employees – Use daily timecards

– Track employee utilization

– Are your most expensive employees doing the most difficult tasks?

• Who goes on the material runs?

– Do you need to hire more field personnel or help your current crews be more efficient?



Consider Bonuses

• Bonuses provide flexibility– Wage increases are typically permanent

• Bonuses based on net profit are difficult to predict– “What can I do differently today to increase my bonus?”

• Bonuses based on gross profit can improve production– Provide estimated hours on job

– Provide reports to show estimated costs to actual costs

– Provide incentives to keep jobs on track

– Can base incentives on time instead of dollars

Production

8. Manage subcontractor relationships– View subcontractors as source of additional revenue;

paying their overhead and profit can make you more profitable

– Set expectations with subs

– Respect their time

– Communicate schedule in advance

– Pay promptly



Production

9. Create system for efficient material procurement– Have the right material on the right job at the right

time– What is the cost of one more box of nails? – Avoid jumping at the “deal” for bulk purchases

• Utilize a Purchase Order system– Not a PurchasED Order System– No purchases without prior authorization– Control employee credit card spending with strict

limits




Financial management

• Analysis




Financial Management

10. Require accurate job costing– Accounting without job costing is like driving without

a map

• If you aren’t job costing, you can’t measure margins– Create the end result (job cost reports) to begin the

process of job costing

– Decide what you really need to track?• Labor has the most risk

• Are you tracking labor dollars and labor hours?


11. BEBO – Bill early, bill often

– Create process for accounts receivable collections

– Create process to track and invoice for change orders ASAP

– Accounts receivable is just as important as accounts payable

Bill Early,

Bill Often




12. Track cash flow – Create cash flow projection

– Cash flow is more than just income and expenses

– “Money in” isn’t just from sales and collecting receivables:

• Borrowing funds, selling assets, acquiring investors, earning investment income

– “Money out” isn’t just from paying expenses• Repaying loans, purchasing assets, paying taxes, making

profit distributions

Net Income vs. Cash Flow

Income StatementSales – COGS – Operating Expenses = Net Income

Cash FlowsBeginning Cash Balance – Ending Cash = Flows

Net Income does not equal Cash Flow



Cash Flow Projection Steps

1. Start with last year P&L Statement– Review data for patterns and trends

– Estimate revenues and expenses for upcoming year, incorporating goals and backlog

2. Look at other cash flow, not in P&L– Purchases such as equipment/vehicles or loan payments

3. Budget for the unusual, infrequent payments– Liability insurance and worker’s comp deposits, taxes, etc.

4. Know the pattern of cash flows– Schedule: yearly, monthly, weekly

5. Tailor to your business

Different Thinking

Classify costs into three types

• Fluctuates with the job, specifically materials and subcontracts

1 – Variable

• Reclassify payroll as a recurring cost • Other overhead costs

2 – Recurring

• Those costs that are not on a monthly schedule

3 – Infrequent



Create Company Cash Forecast

• Starting Cash Balance

• Add:– Job income, listed by job

• Subtract:– Variable – materials and subcontractors– Recurring – labor and overhead– Infrequent - unusual or extra costs

• Equals– Cash available, (or cash needed!)

• Then add or subtract credit line as appropriate

Simple Cash Flow Sample

January February March AprilBeginning Balance

VariableCash In

Job AJob BJob C

Cash OutMaterialsSubcontractors

RecurringCash Out

LaborRentUtilities

InfrequentCash Out

Work Comp DepositTax payments

Net Cash FlowEnding Balance



Know Your Burn Rate

• How much money does it cost to stay in business each month?– Look at total overhead

– Divide by 12

• That’s the cash out the door every month– Or do it weekly

• Can your jobs cover your burn rate?


13. Take all discounts– Free income

– Improves your bottom line

– Negotiable – call your vendors• Rates can vary

– Track discounts as separate line item • Increase income

• Do not decrease expense

• Do not pass on to the client

If you take 2% discount, what is the equivalent annual interest rate?



Answer

1. Payment terms offered 2%10/net 30

2. # days additional if payment

not taken 20 days

3. Divide 365 by # of days 18.25

4. Multiply step 3 by discount 36.5%

5. Take discount if your cost of borrowing is less than step 4


14. Create system for Internal Controls• Study by Association of Certified Fraud

Examiners– Employee theft costs about $600 billion dollars

annually

• What is stolen?– Cash– Tools– Inventory– Services– Supplies– Insurance benefits

It’s not a question of “if” but “when and how much?”



The Fraud Triangle

Opportunity

Motivation Rationalization

Fraud Triangle

The Fraud Triangle was developed by noted criminologist Donald R. Cressey

Good Internal Controls

• “Tone at the Top”– Take an interest in the books– Provide oversight and review– Written ethics policy– Random spot checking

• Segregation of duties– Layers of responsibility– Layers of authority– Limited signatory authority– Extra set of eyes

• Review financial statement accuracy for fraud prevention

Creating controls does not mean lack

of faith butgood business

practices!







Analysis


Analysis

15.Determine the metrics you need to manage your company and manage each job– Track revenue per employee

– Track employee utilization

– Track bid/close ratio for leads

– Track gross margin by job• Gross margin for material

• Gross margin for labor

– Track gross margin by type of client• Commercial, residential, public works



Analysis

16. Create an Executive Dashboard– Create a one to two page document - No more!

• Look at the forest, then the trees

– Overview for management purposes

– Include everything you need to know

– Include:• Dollars

• Percentages and ratios

• Forecasts

Customize to Your Needs

• Track financials – Cash balances – Accounts Receivables, Accounts Payables– Revenue per employee– Margin analysis– Gross margin and breakeven– Cash flow projection

• Track sales and marketing– Number of leads– Number of proposals– Backlog– Jobs to complete



Customize to Your Needs

• Track operations– Employee efficiency

– Warranty

– Schedules

• Track human resources– Employee retention

– Safety records

• What else do you need to track?

Measure sustainability

Snapshot and ratios

Sample Balance Sheet Dashboard



Measure profitability

Snapshot and ratios

Sample Income Statement Dashboard

Analysis

17.Analyze jobs during and after

• Compare actual costs to budgeted costs– Review the varianced

– Labor has the most risk. Analyze: • Hours variance

• Dollars variance

• Know how to actually close a job– When do you stop coding costs to a job?

– Determine how you account for warranty costs







• Analysis

Strategic management for profit

Strategic Management for Profit

18.Utilize metrics– Create objective (not subjective) measurements

• Create KPI – Key Performance Indicators– Revenue per employee

– Gross margin projected vs. achieved

– Labor utilization

• Create targets for individuals

• Determine who is responsible for what measurement




19. Become a better manager– Distinguish between managing and doing

– Give up the “I’m the only one who can do it right” attitude

– Explore the characteristics of effective leaders

– Become better at conflict resolution

Characteristics of Effective Leaders

1. Leads by example

2. Manages time efficiently

3. Resolves conflict

4. Acts consistently and treats others consistently

5. Motivates others

6. Promotes teamwork

7. Stays positive




20.Use the financial information to analyze the results of past decisions to make better decisions in the future

– Measure margins

– Find your ‘sweet spot’!

– Create an operating budget to make spending decisions

– Create a breakeven analysis

– Delegate, don’t abdicate financial responsibility

– Make informed decisions!


Estimating and sales

Production

Accounting / financial management

Analysis

Strategic management for profit



Leslie C. Shiner, MBA

[email protected](415) 383-6255

www.ShinerGroup.com

www.facebook.com/TheShinerGroup

Twitter: @TheShinerGroup

Questions and Thank You

A copy of this presentation is available upon request to

[email protected]

Week of: March 31, 2017

Checking Account Line of CreditConsolidated 235,200 Current Balance 40,000

Available Credit 105,000

Receivables PayablesCurrent 265,400 Current 244,700

1 - 30 126,900 1 - 30 23,80031 - 60 45,100 31 - 60 13,000

61+ 18,400 61+ 43,900

Balance of A/R 455,800 Balance of A/P 325,400

Inventory 68,200 Plus PR Taxes & Other 12,500Prepaid & Other 21,900 Other 0.0

Other 0 Cust Deposits/Overbillings 152,500

Total Current Assets 781,100 Total Current Liabilities 530,400

Current Ratio Current Assets

(Should be > 1.25) Current Liabilities(Higher is better)

Debt to Equity Total Liabilities (all) 785,000

(Should be < 1) Total Equity 910,000(Lower is better)

Company NameFinancial Dashboard

Balance Sheet Items (measure of liquidity)

1.47

0.86

© 2016 The ShinerGroup. All rights reserved.

Week of: March 31, 2017

Last Completed Month Year-To-DateCompleted Months 3 3 Months

Revenue 459,100 1,304,000COGS 305,700 848,452

Gross Profit ($) 153,400 455,548Overhead 143,000 350,000Net Profit 10,400 105,548

Average # Employees 28 29

Average # Field Employees 24 25

Gross Margin - % Gross Profit

Revenue

Breakeven Overhead Costs

Gross Margin

Revenue per Emp Total Revenue

(annualized) # Employees

Revenue per Field Emp Total Revenue

(annualized) # Field Employees

Closing Ratio Total # Job Closed 31

(current year only) Total # Jobs Quoted 70

Backlog to be completed in next 3 months 768,000Backlog to be completed in next 6 months 1,410,000Backlog to be completed in next 12 months 2,570,000

Accounts Receivable Turnover:(Higher is better) Revenue

A/R Balance

Days in Receivables 365

(Lower is better) A/R Turnover

Inventory Turnover(Higher is better) COGS

(annualized) Inventory

30

53.79

196,757 179,862

229,550 208,640

44%

12.09

Financial Dashboard

Profit and Loss Items (measure of profitability)

33% 35%

427,975 1,001,870

Company Name

© 2016 The ShinerGroup. All rights reserved.

20 ways to increase profits - gocms.informacre.com › gal › shows › remodeling › ... · 20...

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