To send Al your own questions, which if selected will run anonymously, send him an e-mail: firstname.lastname@example.org or a fax at 212/202-6275.
This column is meant to be a resource only. Please check with your own trusted business advisers, including your own attorney, to make certain that the advice here complies with all relevant laws, customs and regulations in your area.
Customer ComplaintsDear Al,
Money is tight. We budget our expenses based upon our last year’s sales. For three years, sales grew each year. But, the economy slowed and the weather was off this year. I got slow and took too long to react. Right now I have enough to meet payroll and some cash in the bank but I wanted to know what you suggest.
Dear Cash Squeeze,
Congratulations on making an annual budget. You’re a distinct minority. But, things happen. Creating a budget requires that you account for a worse case scenario or at least a rainy day. I offer that because I’m sure you’ll be able to right the ship and I want you to avoid being back here in the future.
In general, you can raise cash by examining the financial statement. If there’s money in accounts receivable, you can call your customers and try to get that money in now. If necessary, offer a discount on what they owe as incentive to get the money now. Many times the customer will respond because they feel they’re getting a deal and they’re helping you.
Is the payroll too high? This is the time for a tough assessment of proper staffing. It may mean you have to take back jobs you once delegated or ask staff to work overtime to save on extra help and the associated benefit costs that go with them.
Are you selling service agreements? This is a steady producer of income. As a matter of fact, this is one of the few things we do that generates money when we’re not in the customers’ basements.
Are there any other fixed costs that can be cut back? Communicate early and often with your creditors. Most times they’ll work with you because it’s in their best interest and because you were straight with them.
Try not to see it as a defeat but rather as a temporary set back that many companies go through. I suspect you’ll emerge a leaner and meaner company ready for the resumption of smart growth.
Disappointing StaffDear Al,
My staff feels that they can arrive late and miss days. They don’t even call. They just show up. Don’t they have any pride? Don’t they know I can’t run a business this way?
I get upset but I don’t say anything because I’m afraid if I confront them they’ll leave and then I’ll be stuck doing more work or disappointing my customers and catching hell from them.
Is there some policy I should write that will address these issues?
On Time and Showing Up
Dear On Time and Showing Up,
The sad news is that there’s nothing that you could write that will get your staff to be on time or just show up. Because I suspect they know you’ll never enforce it.
Please resist writing policies and procedures you need to enforce but are unwilling to. It will actually make your position worse. It’s like raising kids. (I don’t mean employees are kids.) If you threaten often enough and don’t do what you said they stop listening. Your staff knows you’re afraid and you’re a hostage. A slave to what they will and won’t do at your company.
I used to be a slave so I know what it looks like. Years ago I walked on eggshells, too. But then, I got sick of it and began to take back my company. I learned how to recruit and train new employees. I got buy-in with the existing employees who would listen and demonstrate change.
It’s a big commitment. There were times I got in the truck when I sent the apprentice home for showing up 10 minutes late. But I delivered an unwavering message.
Did people still show up late? Rarely. And if they were running late, they called and it was my decision to let them work. Did people miss work? Sometimes. But they knew the procedure to follow to let us know and what they had to do before they were allowed to return.
What About The Little Guy?Dear Al,
I have read several of your columns. You seem to speak of bigger companies. I am a one-man shop with one part-time employee. I do residential service work in plumbing and heating, as well as radiant installations and boiler replacements.
My current pricing is time and material for service work. I have read Ellen Rohr’s books and I know what my business costs are. I have been thinking of switching to flat rate pricing, but I don’t know where to start. Some of the larger companies in my area (New Hampshire) are flat rate, but some of the prices that they charge are very high (in my opinion).
If I switched to flat rate would my prices be just as high? Is there a middle ground? From reading your articles you sound as though you were a flat rate company so I thought you could possibly give me some advice.
Want To Switch
Dear Want To Switch,
My writing may seem like it’s written to larger shops, but I think my advice is just as applicable to small companies as it is to larger companies. It’s even more helpful to small shops that hope to grow some day. The goal is the same for any size company, and that is to run a profitable company that serves your customers’ needs.
I was a flat rate contractor. And today I continue to feel that it is the only ethical way of selling. Most time and material contractors feel the need to tack on to the material costs because they don’t want to defend their labor costs.
Once you know what your costs are, there’s no need to be embarrassed. It’s in the customer’s best interest for you to charge enough to be profitable. But you need to be delivering on the following promises that make you worth the money:
1. Respond in a timely manner and show up when you promised.
2. Protect the owner’s home.
3. Take the time to ask enough questions and really listen to the customer to perform a proper diagnosis.
4. Keep your skills sharp by ongoing reading and training.
5. Come back willingly, if and when there’s a problem.
If you do, then you just need to share this with your customers. And you want to market to those potential customers who see the value of what you’re offering.
You ask if there’s a middle ground on pricing. The answer is you decide how profitable you want to be. But be aware, you only have so many hours of work to sell to cover all of your overhead expenses. Once you take care of these, you decide when, where and how you want to adjust your pricing and how profitable you want to be.
What you’re also selling will be the assurance that your pricing is fair since your customer’s neighbor won’t get a better price by bargaining. Flat rate pricing offers protection against surprises that come with handing a bill over at the end of the job that is calculated on time and material.