Sometimes you only get one chance at an opportunity in your lifetime, and you either jump at it or miss it. Such was the last round of consolidations a few years ago. Your company was either ready, as a market-leading, profit-making machine, or you were passed by for your competition. However, now you may have another chance at some rewarding opportunities. The consolidation movement is rolling again. This time with more precision and closer scrutiny of the real value of successful businesses. Don't miss this golden opportunity as it appears again.
To take advantage of what is going to be available, you have to be prepared. This is your second chance at bat; get ready for a home run by preparing your business to be the most competitive in the area. Let's review several of the steps necessary.
Real ValueBusinesses that are headed for success grow. As they grow in sales, their margins are maintained or increased. Their profits grow along with the business.
The simplest test of a business' success is its growth and increases in sales and profits. If the amount of money the owner(s) keeps each year isn't increasing, then something is not optimized, which limits the business' future potential. That future potential is exactly what a consolidator is purchasing. If it looks doubtful, then the value of the business is reduced.
The value of the future business profits is magnified if the trend is a positive growth line. In other words, your future profits may bring a multiple of the actual dollars you make in the business now. A consolidator may pay, for example, four or five times the earnings you show for the business. Let's translate that into the effect of increases in current profits. That means that for every additional dollar you earn in net income this year, you may receive several times that amount in additional dollars paid for the business.
Good reason to increase net profits - now.
Not only do you need to show increasing profits, a predictable trend of future increases and control over expenses from proven accounting systems, you need reliable record-keeping systems and modern computerized systems that permit instant notification if there are any deviations in planned revenues or expenses.
Companies, interestingly enough, are only worth what the efficient control systems can prove they are worth. Positive trends in a business that cannot be tracked and projected into the future are not as valuable to the owner as the same business - same trends - with an up-to-the-minute accounting system. It's all documentation. Can you show the data? If not, you will lose value on the sale of your business.
Steady TrendAll businesses, and even the economy as a whole, fluctuate between good years, exceptional years and not-so-good years. As the economy varies from year to year, profits are bound to vary to some extent with the changes in the economy. However, the successful business will be able to show a consistent growth trend, year after year.
That's the challenge when preparing the business for a sale at a desirable price. Keep the earnings on an upward trend and the rewards will be there. Permit a few years of flat earnings growth and not only the value will decrease, but so will the desirability of purchasing the business from an overall perspective.
That means in slower years you must make an extra effort: try new marketing approaches, offer more - are you seriously selling service agreements? - and maintain margins. All of those standards will require trained technicians: ones who look for additional legitimate business on every call; ones who consistently generate average invoices higher than in past years; ones who recognize they are part of the team. Plus, they receive compensation for their efforts.
To provide incentives for technicians as well as other personnel who work in the business, the pay system must offer a return for extra effort and performance. Paying a fixed amount for a service call or only hourly wages does not offer technicians the incentives they need to perform at an exceptional level. Nor are they going to boost your profits as much as they need to for your business to grow consistently.
Let's agree: Technicians are sales persons. Sales persons are compensated for sales, not for driving the truck, not for diagnosing customers' problems, only for fixing them after a sale is made. The more they fix, the more they make.
Incentive pay encourages them to be on the lookout for problems (real malfunctions and failed systems) that customers need to have fixed. Some may present safety hazards that could threaten the health and safety of the occupants of the home. Some may just save the customer money by avoiding another service call. Trained technicians meet those needs, and at the same time increase revenue for the business. But they must be trained.
Some component of performance-based pay should be part of your overall compensation package for employees in all departments. The better they perform, the better the business performs (more profits), the more they make. It's fair and it works. Technicians receiving performance-based pay, just like sales persons in other businesses, make more money when they generate more business.
Real Flat RateIn addition to progressing past the hourly compensation system for technicians, you also want to use a modern, effective flat rate system - a real flat rate system.
When I say real flat rate, I mean a proven system, one that works. When putting the business up for sale to savvy purchasers who know the service and repair business, expect a requirement for a flat rate system that works - for customers, for technicians and for the business.
It will work for customers if the system includes a flat rate manual that permits them to easily follow along with the technician as he identifies the jobs to be completed. It shows the prices, discounts for service agreement customers, plus any add-on jobs that would make sense on the service call to save the customer money.
A flat rate manual that is made up of small print and hard-to-read charts will not work with customers today. They want to know where the prices are coming from. They remember the old days when the technician ran out to the truck to “look up” a price, suspecting that the price was arbitrary or made up on the spot, perhaps based on the value of the houses in the neighborhood. With a good flat rate system, the “mystery” of job pricing is eliminated. The customer pays the same price for the job as her neighbors did.
A flat rate system works for the technician when he is assisted in quoting prices for jobs by the clear descriptions in the book, so he can quote comfortably with the customer looking on. And he can mention add-on jobs, showing the customer the savings possible by completing the work on the same service call as the original job.
The flat rate system also works for the technician because he knows how much he earns from completing the job (and any add-on jobs). A good flat rate system makes the technician's job easier, not more difficult.
The flat rate system, including a well-designed manual, works for the business by:
1. Generating more revenue for the business (from both scheduled tasks and add-ons);
2. Keeping the customer happy and increasing repeat business;
3. Simplifying accounting, payroll and invoicing, because all the jobs are standardized (same price, same margin, same commission to technician, etc., for the same job); and
4. Maintaining the company's reputation with no ill feelings from customers. All customers pay the same amount.
Generating BusinessNo company is going to purchase a service and repair business that has difficulty in generating customers. Growth is dependent upon the successful handling of customers' calls and sending technicians to their homes and businesses.
The telephones should be professionally answered by customer service representatives who use a script effectively. They should make the customer feel comfortable about doing business with the company and efficiently close by booking the service appointment.
Ineffective call taking costs the company an untold amount of lost business. I think all of us have heard horror stories of what CSRs have said over the phone, or maybe listened to such calls from our own business. Call-taking must be professionally accomplished. Or else how will the technician even get a chance to close the sale and perform the work?
If the CSRs are professional and do their job well, the next potential weak spot in generating business falls on the dispatcher and the dispatch system. Are they able to put the right technician in the customer's home in a minimal amount of time? If not, all of the rest of the system fails. Fortunately, there are systems available that will help dispatchers containing a combination of hardware, software and even GPS data to get the job done efficiently. Don't overlook this key function in preparing your business to be worth its maximum amount on sale.
Finally, be conscious of appearance. If the business operates smoothly, has grown steadily, generates a good profit, but looks like an old abandoned warehouse or dilapidated gas station, the value, despite the books, will diminish.
Specifically, the surroundings - desks, chairs, office set up, etc. - will contribute to the environment in which the business operates. A rough-looking office indicates an inefficient environment, where the business succeeds despite the office, instead of as a result of the office's efficiency.
Similarly, the warehouse should have a sense of order about it. If technicians and warehouse managers have to hunt for parts and equipment, the efficiency of the business is reduced. Appearances do make a difference, but the smooth flow of equipment and materials into trucks may be interfered with in messy-looking warehouses. Have a warehouse management system and keep it neat.
You know the opportunity is coming. You have some time to prepare. Don't waste it.
Stay tuned for more details. Exciting times are coming to the service and repair business.