Three Things That Kill Your Business
Originally published: 01.01.08 by Ruth King
Make 2008 the year you resolve to keep your business alive by being in charge of your destiny.
Did you make New Year’s resolutions? If so — and if you are like most Americans — many of those resolutions will be forgotten by April. However, here are three resolutions that you need to keep. If you don’t, they can kill your business.
When we wait for the telephone to ring it rarely does. When we wait to call an upset customer, a minor issue can erupt into a major crisis. When we wait to discipline an employee, his behavior doesn’t change and can get worse rather than better.
Resolve to take action when situations occur. Be proactive. Instead of complaining that the telephone isn’t ringing, make calls. You know that slower periods exist in our business. Plan for them. What marketing activities are you doing that bring in business during traditionally slower times? Constantly remind your customers and potential customers that you are there to help make them more comfortable in their homes and offices. One of the biggest mistakes that most companies make is to cut their advertising budget during slower times. Don’t follow the crowd. This is the time to
Be proactive by calling your customers. Return all customer telephone calls within 24 hours. Handle the customer’s issues immediately. One of the best questions to ask, “How do you think we should resolve this situation?” You’ll get an idea of what the customer wants and is expecting.
Be proactive with employees. When you catch an employee doing something right, praise immediately. When you catch an employee doing something wrong, discipline immediately. If you wait, that employee thinks he got away with something. Other employees will notice and complain “that’s unfair” or worse, begin doing the same, wrong behavior. They think, “John got away with it so why shouldn’t I?” This could be something as simple as not calling in when they get to a customer’s location or as serious as having open beer cans in a service truck. Correct inappropriate behavior as soon as you discover it. Also, discipline fairly. You must follow your policy and procedures manual equally for your best-performing employee and your worst-performing employee.
You have a contract with your employees, whether it is in writing or not. You pay them a certain dollar amount each week. For that pay, they agree to perform certain tasks. If that employee isn’t performing those tasks within a reasonable time period he isn’t living up to his end of the contract.
Resolve to keep your contracts even. If a person is doing more than expected, revise the contract (usually this involves an increase in pay). If a person is doing less than required, make sure you have explained what is required verbally and in writing. If that person still isn’t accomplishing what is expected, it is time to renegotiate the contract or ask him to leave. You don’t need to expend your hard-earned cash on unproductive employees. Whether it is laziness, inability to do a job, or some other reason, the contract isn’t balanced.
Unproductive employees can be a drag on the entire company. They can hurt morale, customer relations and other employees’ productivity. You don’t want one person dragging down the entire company. I’ve seen it happen. Be proactive and get rid of that person. Your employees will thank you for it.
Profits are not cash. Profits may get turned into cash only when you collect for a job, pay the expenses for that job, and have cash left. Cash is the lifeblood of your business. Without cash it cannot survive for long. Profits are necessary for long-term survival. Cash is critical for long-term survival. Resolve to watch your cash on a weekly basis.
Think of cash flow like water going in and out of a tank. There has to be a certain level of water, i.e., a minimum dollar amount that you feel comfortable with in that tank. You can’t have negative water in the tank. After all, your banker isn’t going to let you have an overdrawn checking account. Each week you add to the water level by collecting cash from jobs and service calls, or selling assets, or getting loans. Each week you drain the tank by paying bills: payroll, suppliers, rent, and overhead items. At the end of the week there must be water left in the tank!
A weekly cash-flow statement shows you how much you started with, collected, and disbursed each week. It also estimates what you should be collecting and paying the following week. This way you keep an eye on accounts receivable as well as the cash that needs to go out the following week. This ensures that there will always be cash to pay payroll and bills. If you’d like a copy of a weekly cash-flow report, e-mail me at firstname.lastname@example.org or see my column in the June 2007 issue. You also can download the report at http://www.hvacr business.com/downloadcenter.
Being proactive, eliminating non-productive employees, and watching cash flow are three critical resolutions to keep in 2008. Defy the odds and keep these resolutions. If you don’t, it could kill your business.
Ruth King has over 25 years of experience in the hvacr industry and has worked with contractors, distributors, and manufacturers to help grow their companies and become more profitable. She is president of HVAC Channel TV and holds a Class II (unrestricted) contractors license in Georgia. Ruth has written two books: The Ugly Truth About Small Business and The Ugly Truth About Managing People. Contact Ruth at email@example.com or 770.729.0258.
Articles by Ruth King
Understand Your P&L Statement: Gross Margin
Understand Your P&L Statement: Cost of Goods Sold
However you decide to categorize expenses in your P&L, it's important to be consistent.
Understand Your P&L Statement: Sales vs. Revenue
Sales are critical to survival — when revenue is actually generated is even more critical.
The 20 Percent Profit Myth
For a realistic goal, include owners’ compensation in the net profit equation.
Rethink Your Bonus Strategy
Enact a profit sharing program, rather than a bonus entitlement.