By Howard Partridge
So far in this series of articles, I’ve shared with you that, in order tohave a successful cleaning and restoration business, you must have goals, a business vision, a plan, sales systems in place and a provenoperations structure in your company.
You can review all of the previous articles in this series online at Cleanfax.com/HowardPartridge.
The next installation in this series looks at administration.
Administration is comprised of everything you do to track your numbers, the internal processes for running your office, and making sure you have adequate insurance and legal protection.
To create a successful, profitable company, you need an abundance of data to make the best decisions for your business. Your goal should be to produce the data automatically and consistently.
The one and only reason your business exists is to be a vehicle to help you achieve your goals. You and your business are on a journey.
If you’re on a journey, don’t you need to know how you are tracking? You need mile markers. Regardless of the type of vehicle you have, you need an instrument panel.
Do we have enough fuel to get to our destination? How much longer do we have to reach our next goal?
Can you see that without statistics, you’re actually driving blind?
The guessing gauge
When I graduated high school, I was an 18-year-old, rebellious teenager. It was a miracle that I actually graduated.
The moment the ceremony was over, three of my friends and I jumped into my old jalopy of a car to head to the beach and party for the weekend.
My old car… what memories. I bought it for $250 with my paycheck from a nighttime, stock boy job at the grocery store, which I had to do because I wrecked my good car, and my mother and stepfather took it away from me. I decided to show them I didn’t need them and bought the jalopy.
This car was so bad its missing muffler caused an awful white smoke to billow up into the backseat of the car, which meant the windows had to be open even if it was raining. Otherwise, anyone in it would die!
It probably won’t come as a surprise that the gas gauge didn’t work either. So, I had to guess whether I had enough gas, and in those days, we didn’t fill up. We scraped up change when we needed gas.
So there my friends and I were, driving down one of those dark, lonely back roads of Alabama, when we lost the “guessing gauge” game.
Two of us ended up walking for miles until a headlight appeared in the distance. When it got closer, we flagged the car down. It was full of people, but really wanting to help, they suggested we prop up the trunk lid and sit. Before we knew it, we were headed down the road with our feet dangling out of the back. Eventually, they dropped some folks off and took us to get gas.
Most small business owners don’t have enough data to make the right decisions and don’t really know how to produce that data. Most are using a guessing gauge in their businesses rather than operating by real statistics.
If you are one of those who isn’t paying attention to your stats, my bet is that you’ll be shocked to find that that the numbers aren’t as good as you think they are. Soon you’ll be stranded and out of gas.
That’s bad news.
About 10 years ago, I was mentoring one of my coaching members, and I asked him about his profit margin.
“I don’t want to know,” he said. He went on to say that, as long as he had money in his bank account, he was satisfied.
“Don’t you want to know how you are really doing?” I pressed. “No because I might get depressed!” he exclaimed.
The good news is that, when you truly know how you are tracking on your life and business journey, you can make the course corrections you need to make. Having the right feedback is key to making a profit in your business. You also need to work smarter, not harder.
Remember that the one and only reason your business exists is to be a vehicle to help you achieve your life goals.
“Money isn’t the most important thing in life, but it is reasonably close to oxygen,” Zig Ziglar used to say, adding, “Sometimes you really need it!”
The fact is your business must make a profit. If you want to have a successful business that is profitable, predictable and turnkey, you must address this area of your business. If you want to work less and make more, you’ve got to look at the finances of the business.
The point is, if you don’t know what your stats are, you are driving blind. In the past, I never wanted to know anything about the numbers.
I just wanted to take care of my clients.
In fact, I didn’t want to be a businessman. Imagine that. To me, a businessman was a boring, heartless person that only cared about money. I just wanted to provide phenomenal customer service, and I figured, by doing that, my business would do fine.
Do you realize that you can have a $2-million year and spend $2.2 million?
Business or hobby
You may be like I was many years ago. You may love doing what you do. You may love serving your customers. You can be the best technical person in the world and be broke. You can be the best customer service person in the world and be broke.
If you’re going to go broke, why not enjoy it? Sit on your back porch and have a glass of tea. Go to the beach. Instead of working 24/7 going broke, have some fun. Has it occurred to you that those customers who don’t want to pay your price aren’t going to care that you can’t retire?
Healthy profits cure business evils
What is a business “evil?” Some examples include:
• Unpaid invoices you have to write off,
• An employee who steals,
• Damaged equipment or lost resources,
• A former accountant who didn’t file your franchise tax properly, which costs you $35,000,
• Periods in which sales just don’t come in like you expect.
You’ve got to have healthy profits to overcome these evils. You can no longer just squeak by.
The last recession caught a lot of business owners in a precarious position. They had not positioned themselves adequately and were getting by on thin margins to start with.
Healthy profits make a difference
When you have healthy profits and no evils come along, guess what. You have extra money to do all sorts of wonderful things.
Of course, you can use it in your business to pay off equipment, to take your business to the next level or to bless your staff with bonuses. Or you can give money to your favorite charity or someone who is struggling.
Tracking your business
There’s an old saying that goes, “anything measured improves.” It’s funny how the human mind works. When you have actual data in front of you, and you have a written goal, it’s interesting to see how just that process alone can improve the numbers.
Tracking and posting your numbers causes you to work hard on the strategies and systems to produce the result. Here’s a list of the most important things to track:
Total sales: Have you set your sales goal? If not, your tracking won’t mean as much to you. When tracking your sales numbers, you should post them some place you and your staff can see them every day. Even if you are a solo operator, post your sales goal and tracking where you will see it several times a day.
Our subconscious minds are designed to go to work on problems even when we aren’t thinking about them consciously. When you plant your sales goal in your mind several times a day, it gets burned into your subconscious. Humans do what they see.
Upsells: The most profitable sale ever made is the upsell, and this is definitely something you want to track. Again, track them as often as they happen, and post them where everyone can see.
Sales by category: Every business should have multiple products or services (also called “profit centers”) so there is more to offer the customer.
This makes upselling possible and provides ways to grow. Which products or services you should offer depends on a number of factors, and diversifying properly is a long, important discussion by itself, but for our purposes here, we need to know how much we are selling of each product and/or service.
Sales by source: This kind of tracking pinpoints where your clients come from. Have they used your service before? Were they referred? Did they come from an advertising source? If so, which one, and how much did it cost?
Average order: Whether you sell a product or a service, it is important to know the average amount of each transaction/order.
Sales closing rates: Another valuable statistic comes from tracking leads and prospect activity. Whether you do a traditional process in which a prospect calls your company, and you do a sales presentation, or you have a website where you generate leads, you want to track this activity.
Returns or re-services: These produce not only a financial cost, but also a branding cost. This is something that needs to be closely monitored. It’s hard not to get emotional about refunds or returns. Instead, put your thinking cap on, and find out how to solve the problem.
Are you attracting the right type of client? Is it a service issue or the way the product is being presented? If the client isn’t doing his part, try to figure out how you can help him get more value.
Your income statement
Your profit and loss statement (also known as your income statement) tells whether you made money — or not. There are only five numbers on any income statement, whether it’s the smallest business in the world or one of Warren Buffet’s companies. My goal for you is to plan your future income statement on a cocktail napkin. Once you understand the five numbers, you can create the picture simply and easily, but you must understand each of the five numbers first.
Income: All the revenue or sales you make less refunds.
COGS: Cost of goods sold, also known as “variable expenses,” are expenses that vary with the amount of income. This typically includes labor and materials.
I find that many small business owners are missing this vital stat. The goal here is to determine the running percentage of your COGS.
Gross profit: Gross profit is the amount that is left over after subtracting the COGS from the total income. Also called the “contribution margin” because it is the amount that “contributes” to the overhead and profit.
Fixed expense: Also called “overhead,” these expenses don’t change drastically with swings in revenue. Your advertising might change some, and you may have some things in fixed expense that vary depending on where your accountant has things listed on your chart of accounts, but basically it stays the same whether you do one dollar or a million dollars in revenue.
Net profit/loss: The amount of money that is left over after all expenses is the amount that helps fund your life goals. Of course, the amount listed here may not be the actual amount, depending on depreciation, interest and the way that accounting is done.
However, when you do what I call a 12-month “cash flow budget,” you can predict how much taxable income you will likely have once you know your first four numbers.
No matter how many line items you have on your income statement, they are grouped into those five categories.
Income – COGS = Gross profit – Fixed expense = Net profit/loss
Be sure to always have a pulse on your monthly bills and be able to report your accounts payable at any point.
You could be showing a lot of cash, but your outgoing bills can wipe it out quickly.
Another big mistake is not having a process in place to bill your clients and follow up on a regular basis to make sure you get paid.
In fact, don’t bill people unless you absolutely have to. Do a credit application, and/or take a company credit card that you will bill if you don’t receive payment within 30 days.
If you service residential clients, it’s insane to bill them unless they are ultra wealthy and truly pay their bills with a check from the office.
Your balance sheet shows what you “own” and what you “owe.” It tells the story of where you are and where you’ve been. It also reveals what your vehicle is actually worth.
Your net worth is very important, and it is increased by your profit. Although this is not something you’ll stress over weekly or monthly, you do need to become familiar with it and follow it over time to make sure it is accurate and that you are increasing the net worth of the business.
Tracking is not exclusive to the financial side of the business. Marketing, sales and expenses obviously directly impact the numbers that are easily known, but marketing and sales also are supported and validated by service, which impacts the numbers in repeat and referral business.
The desired outcome of your successful operations system is to exceed your client’s expectation — to wow them — by making them feel special. How do you track that? Feedback from clients is the best way. Do you have a way of seeing what they feel?
There could be many production stats to measure in your business (like production rates per hour), but here’s a quick-list of things to track that will help you in your small business if you aren’t already doing them.
Client feedback surveys: Close to 90 percent of unsatisfied customers will never let you know because they don’t want to create conflict. They have been trained that few business owners care enough or really know how to handle a complaint, so it is easier for them to just go somewhere else. Having a way for them to give you feedback anonymously is vital.
A simple way to accomplish this is a survey. It can be online or offline, depending on what they are buying and how it is delivered.
On-time tracking: How often are your staff members on time to work? How often do you deliver your product or service on time? If you aren’t on time, you’ve already blown the service experience. Having automatic reporting on these items can alert you to issues before they become epidemics.
Did you notice that I said “on-time” tracking instead of “late” tracking? You want to recognize the good that people are doing because individual recognition is the most powerful motivator people.
“I caught you” cards: These are cards for team members or clients to recognize a team member for something specific. A fun thing to do in your team meetings is to read these and recognize those that are “written up” — in a good way. I have noticed these cards at hotels as well.
Track the number of positive comment cards you get on specific employees, and reward those employees for their good work. Behavior rewarded is behavior repeated.
In the next installment in this article series, we’ll talk about the most important system of all… leadership.
Howard Partridge started his cleaning business from the trunk of his car over 31 years ago and built it up to over $3 million per year. For two decades, Partridge has been coaching cleaning and restoration companies and teaching them to have phenomenal success. He is the exclusive small business coach for Ziglar Inc., the world’s first Ziglar Legacy Trainer, the founding member of the John Maxwell Coaching Team, a DISC Certified Trainer, a ONE THING Certified Trainer and a four-time Amazon.com, No. 1, bestselling author.