“I take pride in my work, but I can’t be bothered with pencil pushing.”
“If I was interested in money, I’d be a lawyer.”
“Put your heart and soul into your work and you’re sure to be successful.”
“Money just isn’t that important to me.”
“The Lord will provide.”
These are all quotes I’ve heard from plumbing contractors. Expressions of denial. Money is not going to fall from the sky and into your lap. You need more of a financial plan than just buying lottery tickets.
It is not noble to shrug off money. It is irresponsible. Your family and employees depend on you to create a business that will provide them with the money they need and deserve. Are you ready to break down your walls of denial?
Thump On The Head: My own road to financial responsibility has been rocky. My husband and I had a contracting business for 17 years. For most of those years we charged the “going rate,” crossed our fingers on the 10th of the month, and actually boasted that we never paid income tax. (Because we never made any money!)
Intrigued by Frank Blau’s calculations in his 1988 PM article, “What Should A New Contractor Charge?”, I wrote Frank a letter. He called me up, listened to me defend my poor financial posture and told me I was a knucklehead. Actually, his choice of words was a bit stronger! Really ruffled my feathers. I hung up the phone, but couldn’t get Frank’s words out of my head. He was right. I had no idea how much my business cost to operate.
I sat down with a note pad and adding machine. Using our tax returns, I tallied up the dollars needed to keep the company afloat. I beefed up the areas that we were scrimping on, including employee benefits and compensation. And as I added up the list of expenses, I got physically sick to my stomach. We were charging less than half of what it was costing us to operate. This was without reasonable salaries for me and my husband. Once I bumped them up, the numbers were staggering.
It was a turning point in my life. I decided that if we raised our prices and lost all our customers as a result, that was fine. For the first time I realized my worth and would not sell myself short. I was not going to charge less than our costs anymore.
It was a huge step discovering our costs of doing business. But I needed to take action. The money would not just appear. Behavioral changes were necessary to create profits.
Be, Do, Have: Philosopher L. Ron Hubbard has a formula for getting anything you want: be, do, have. For instance, you want to create affluence in your life. First, you must be a person who is capable of affluence. Then, you must do what is necessary to make money. Then, you will have money. What usually happens is that we decide to “be” successful and expect to “have” money without the necessary “do!”
Here’s an example: Joe Blow attends a pump-you-up seminar at his trade association meeting. He is flying high. He vows to hold his chin high and charge a fair price. Without crunching any numbers, he doubles his selling prices. That should do it! he thinks to himself. Then, full of his new-found self-importance, he starts spending money — on toys, vacations, all the things he has deprived himself and his family. Raises all around in the company. New logo, trucks, big Yellow Pages ads.
And the bottom falls out. Joe’s employees are still charging $45 an hour, despite what is printed in the fancy flat rate books. The bills pile up. Complaints everywhere. And Joe gets mad. This flat rate stuff doesn’t work. No one around here will pay those kind of prices. I was doing great before! I’d rather be proud of my plumbing work. The good Lord will provide. I was being greedy.
In reality, Joe doesn’t believe in his selling prices, because he never confronted the numbers. He wouldn’t pay any service provider the prices he was charging. And his deeper beliefs about not deserving money need to be addressed. He will sabotage his own success until he deals with these issues.
In order to become successful and make money, you need to believe that you deserve it. For me, confronting the numbers on the adding machine tape is what it took to believe that our prices had to go up. From that point on, I could make the changes necessary to revamp our company. It was difficult, but we shifted our focus from new construction to service. We sold labor at a rate that created profits. And we improved our tracking procedures to document the changes. We didn’t go out of business; we made money.
Face Your Demons: Deal with your money issues. Crunch the numbers. Look them in the eye. You can use an adding machine and note pad. The only problem is that will limit you in the number of scenarios you can devise in a reasonable time. So I recommend using the CMS Overhead Calculator (603/835-2115) or Numbers Cruncher (800/FLAT-RATE). They are cool calculating programs for determining your overhead and direct labor costs. Both are easy to use.
The advantage is that you can crunch numbers for lots of different situations with a few mouse clicks. See what adding or losing a technician does to your breakeven. What does it cost per hour to add another office person? Great programs. They both advertise in the classifieds section of this magazine. Check them out.
Once you’ve addressed the true costs of operating your business, the real work begins. You must create profitable selling prices for your services. Use the breakeven calculations, aim for real, after-tax net profits in the double digits and set your prices. Take a deep breath.
Create a budget. You probably have a nice little budgeting program in the accounting software you currently use. Most have them. Did Microsoft Office come pre-loaded on your computer? Microsoft Money has a super-easy budget worksheet in it.
Build a budget and hold yourself accountable to it. If you over-spend in an area one month, cut back the next. Reassess your selling prices. Maybe you need to increase the prices to adequately cover your costs. The point is to continually monitor your financial position and act swiftly to stay on course.
BE the successful person you want to be. DO what it takes to make your dreams come true. HAVE it all.