Plumbers start in the field. It’s the nature of plumbing. You work with your hands and your head, learning the trade. At some point, many plumbers decide they want to run their own show. The skillset that spells success as a business owner is fundamentally different than the skillset for success working in the field as a plumber. Here are four things business owners must know to turn a profit that were not necessary to turn a wrench.
1. Owners know their numbers
Math is no stranger to a plumber. However, the type of math must change. The business owner needs to understand financial math. He needs to understand the math of pricing to arrive at a billable rate sufficient to cover overhead, and leave enough left over to reinvest in the business, reward the investor and let the team share in the success of the business.
The business owner also needs to understand the math of calculating a break-even. He needs to understand how many service calls he needs each month just to break even, after which he makes money.
There are also KPIs, or key performance indicators, the owner needs to understand. Some of these are standard for business, such as a current ratio that measures liquidity. Others are more focused on the trades such as labor as a percent of service, which measures labor efficiency.
Of course, there are also the financial statements. The owner needs to know his way around the income statement, balance sheet and cash flow statement. The income statement, or profit and loss statement, shows the flow of revenue through the business to the bottom line. The balance sheet gives a snapshot of the business condition at any point in time. The cash flow statement shows the cash inflows and outflows. This is especially important since running out of cash is what kills most new plumbing companies.
If the owner does not know the numbers, he needs trusted advisors who do and can advise him. This could be a spouse with business financial acumen. It could also be an outside CPA. Ultimately, a business owner is well-advised to master the math of finance because this means mastering his money.
2. Owners know their people
As a plumber in the field, technical skills are necessary, but if the plumber interacts with people, technical skills are insufficient. The plumber in the field needs to have a good bedside manner. He needs to be able to communicate effectively with customers. While this translates directly to an ownership position, it is not customer communication that matters most, but company leadership and management.
A business owner must wear different hats with his team. Some days he is a motivator. Others require him to become a disciplinarian. Mostly, he is a coach. A coach does not need to be the best player in the game, past or present. A coach needs to improve the performance of his team. A coach needs to be a teacher and trainer. A coach needs to understand the power of incentives and how to apply them for individuals.
3. Owners know promotion
You can run the greatest plumbing company in the world, but if people do not know how great you are, you are winking in the dark. You know what you are doing. No one else does. Business owners need to understand the value of promotion, even if they hire others to do it for them.
Owners understand the power of marketing and advertising. They understand how a good van wrap can dramatically boost impressions in a community. They understand the power of personal networking, which is why the biggest and best plumbing companies are seen as good citizens and integral part of their communities.
Promotion is not only about recruiting customers and generating sales. It is recruiting personnel. A plumbing company’s ability to grow is limited to its ability to recruit and develop plumbers. Successful plumbing company owners are also perpetual recruiters.
4. Owners know themselves
Not everyone is good at everything. Successful business owners understand what they are good at and where they are weak. They exploit their strengths and hire others to shore up their weaknesses. Knowing themselves requires a high degree of self-honesty.
Owners should understand what they do not know and constantly seek new knowledge and information by reading trade press publications, such as Plumbing & Mechanical. They attend the big trade shows and conferences, such as the Service World Expo. They join networking groups, such as the Service Roundtable, so they can network with other plumbing company owners from across the country to learn what they have tried and experienced.
These may seem subtle and nuanced, but they can spell the difference between success and failure. Plumbing requires craftsmanship, as does business. To turn a profit, plumbers must learn the craft of business.
Come to the largest trade show and conference focused on the residential service business, the Service World Expo in Louisville, Kentucky, Sept. 21-24. Learn more at www.ServiceWorldExpo.com or call 877.262.3341.