- THE MAGAZINE
So hopefully by now you are busy, busy, busy with spring cleaning! And yet many carpet cleaners still crash and burn financially and/or emotionally even though they are booked solid for days ahead!
So just why do so many hard-working cleaners self-destruct? I’ve isolated some big reasons why good cleaners crash and burn in business. My guess is you may be at least slightly affected by one or more of these problems:
Ignorance of the true cost of doing business
Most carpet cleaners run their business by the seat of their pants. They will casually glance at the top number (gross income) and bottom number (net profit) on their P&L sheet, if they even get financial statements. Then they’ll say the same thing every month, “Wow, where did all that money go?” (I reacted exactly the same way!)
Few of us actually enjoy in-depth analysis of the numbers! And yet if you are simply not willing to invest time and effort in financial analysis you have only two options: Stay small as an owner-operator running the business out of your hip pocket (I’m not recommending this approach but it can be done) or shut down your business and go to work for someone else!
But if you want to achieve what I call “personal freedom” by building a “critical mass” business you absolutely must carefully pore over and analyze your financial reports. (A critical mass company is a business that will run with you or without you. This means you have the freedom of choosing when and if you want to work.)
For a free copy of the Weekly Flash Sheet I used in my business, just write me at firstname.lastname@example.org and put the phrase “Flash Sheet” in your e-mail subject line.
Now I have already confessed that I’m not a numbers person. And yet I built my company into a $1.3 million per year operation in a population base of 30,000 people by focusing on a few basic principles:
- Trim “fixed overhead”: My fellow SFS instructor, Chuck Violand, likes to ask, “Which is more valuable? To add $10 to your gross income or cut $1 from your fixed overhead?” The answer should be obvious - focus like a hawk on routine expenses that you may have taken for granted for years! Simply put, businesses get bloated. When times are flush, and you are busy, it is easy to let your fixed overhead creep up. So routinely put your fixed cost amounts out to bid. Don’t let your vendors get away with the “good ole’ boy” scam!
- Focus on the percentages over time: Instead of the actual line item amounts I would compare the percentages of both income and expense categories to last month and last year. Are they higher as a percentage? Why? (As Chuck says, “Every number (and percentage) tells a story.” Are you listening?)
- Obsess over labor costs: For most cleaning and restoration companies labor will always be your biggest expense. So guess what you should concentrate on? For example, avoid paying overtime if at all possible. It destroys your profit margins and it burns out your employees. (Yes, I know. Your techs love the bigger paychecks but consistently long hours can seriously affect their family relationships.) If your employees are consistently putting in over 40 hours per week consider going to a 4-day, 10-hour day schedule. They will get more done in less time. Or simply add more employees. (Or look at hiring part-time employees to fill in the gaps work wise. Part-time and especially on-call, employees are often more productive. If you find a real winner, then offer them a full time position!)
- Remember that it isn’t only about controlling overhead costs: You also need to analyze both gross income and net profits per job. Is your total business income consistently growing? If not - why? Are your profit margins improving? If not - why? Is there a part of your company where you simply aren’t making a profit? If so - why? And what will you do about these challenges? Running a business is expensive! And many of these costs are subtly hidden from your casual view. Or even worse, they are “lurking downstream” just waiting for you! For example, cleaners often ignore the fact that their equipment breaks and/or wears out. So they have no replacement fund built up for these expenses. And don’t even get me started on “surprise” tax payments or Worker’s Compensation bills! So what should be easily anticipated costs sand bag these poor entrepreneurs! This leads to self-destruct problem No. 2…
No focus on what is coming down the pipeline
OK, let’s say you get your monthly P&L sheet and are actually analyzing your numbers. Wonderful! But a problem rears its ugly head…
You are examining old numbers from the distant past! Yes, even with fast accounting turnaround you are looking at events and costs that happened at least 4-to-6 weeks ago. That is an eternity in today’s business!
Another challenge is that today’s sophisticated accounting programs will leave you drowning in data. All of these numbers are important, but there is such a thing as too much data. (I know after 12-14 hours on the wand I simply could not digest a 13-page financial document! My guess is you can’t either!)
So yes, it is essential to analyze in detail your monthly financial reports. But it is even more important to focus on what happened last week! Plus going forward you need to know right now what current/future issues you will be facing next week/month, etc. Remember this is a constantly moving target!
So I strongly suggest you develop a “Weekly Flash Report.” This is a one-page summary of what happened in your company during the last week. A good Flash Report also details what is “coming at you” this week and the week(s) to come. I insisted on this business snap shot being on my desk by noon on Monday. You should do the same.
What sort of data should you include in your Flash Report? Keep it to the essential “how to keep my business running and avoid future problems” stuff! Here are a few “What’s coming at you?” Flash Report subjects I recommend you focus on:
- Business cash on hand.
- Credit line balance: If you have one. If not, you should have two to three month’s gross income tucked away that you do not touch except for business emergencies.
- Current accounts receivable: With amounts due this week and due in the next 30 days.
- Problem accounts: Jobs itemized out where you face collections problems.
- Current accounts payable: What you owe vendors this week and due the next 30 days.
- Unusual large expenses coming up: Item, amount and when due.
- Total sales for last week: Along with amounts/percentages for residential/ commercial/restoration.
- Year-to-date sales: Amount and percentage toward your goal. (Plus where you need to be to meet your goal.)
- New commercial contracts signed: Each new account itemized with monthly amount.
- New residential “Stay Beautiful” contracts signed: How many and total amount.
- Current Restoration Losses
- Projected amount on each project and percentage completed.
- Brief notes on any lurking issues for each in-progress loss.
- Pending Contracts/Restoration Work (These jobs have not yet been sold or started yet.)
- What is the next step needed to book the account/loss?
- Who is assigned and when does action need to be taken?
- Customer Service Tracking
- Number of referrals received in the last week: (And comparison to a trailing 12 month percentage.)
- “Cheerleader Index” numbers.
- Number of complaints received last week: With a “Customer Concern” sheet attached for each one.
- Employee/Equipment Issues
- Estimated total for next payroll due and date.
- Total payroll for last pay period.
- Overtime worked: (Total hours and dollar amount.)
- All broken/damaged equipment itemized.
- Any current employee issues: (You may need more than one line for this one!)
So hopefully you see the absolute need to refocus yourself on the past, present and future of your business financials as well as the other foreseeable problems just waiting to sand bag you in the near future! (I always told my employees there was no problem that with adequate warning we couldn’t work out - but never surprise me!)
Over the last 40 years I’ve seen too many hard-working, quality people crash and burn in this business simply because they didn’t have the fire in the belly to buckle down and focus on their financials. Please don’t you be a casualty too!
(In Part II of Avoiding the “Crash and Burn” Phenomenon we’ll focus on how to safely charge more - and to never let an account get away!)