Question: “How do I determine how much of a percentage of my overhead to allocate to demand service calls?”
Gary Elekes; Founder, EPC Training: Well, it depends on the expectations that you want to deliver to your accountants. With today’s technology, software and basic bookkeeping, you ought to be able to get a clean financial statement within two days of the accounting month-close. You’re going to have some adjustments for that, and it should really be what I’d consider to be an audited or accurate version by the fifth of the month.
A lot of companies are going to end up with something along the lines of the 15th of the following month, and that’s not terrible, except that about six weeks of operating experience have gone underneath the company by the time you actually have the opportunity to interpret that.
So the next layer of that conversation is, well, you really ought to be able to get that into a weekly format, where you’re really looking at your data and your KPI’s and business metrics that you have on a weekly basis, and be able to review that with your management team. That’s probably not going to happen if you’re using a manual-type system, and you’re a smaller company that’s relying on the bookkeeping function to be able to deal with that.
So software becomes the next generation of how you get that information into the accounting system, and the bookkeeping function is doing a lot more trial balancing and just making sure there’s exception reporting and auditing of the ledgers and the purchase journals and the regular cash journals and so forth, and their function changes a little bit.
So the best case scenario in that is a daily accounting system. A lot of companies have achieved that, and I think that’s eminently doable for even a smaller business today. It does require some software, and it does require some discipline in terms of how you’re actually getting the data into the software. But that allows you to actually, essentially, audit on a weekly basis and make sure that you’re not adding those adjustments. So at any given time, theoretically, you could have a cash-forward and accounting system that’s up to date that’s, really current, but at the end of the day for sure.
So it depends on the business owner’s expectations and desires, and how they want that to occur. You know, we moved to a daily accounting system a while back, and that’s an adjustment to the bookkeeping function, and it’s an adjustment for the crews and the men and, just, everybody. But it’s something that’s cultural, and you define that, and hopefully you’re sharing some of the performance data points on a daily if not weekly and monthly basis with your people.
The second part of your question is how do I interpret it, and that’s an entirely different discussion. We have a three-day and a one-day class where we talk a lot about interpretation. I think the easiest, simplest method for this type of a call is to say we do have benchmarks, KPI’s, and those benchmarks have been vetted for many, many years, and then re-vetted again through the consolidation period, and then re-vetted again through the most recent consolidation period. And they’ve withstood the test of time because they’re driven based on percentages.
So as costs change and vary around the United States, Canada and so forth, the metrics are based on percentages. So the real estate costs in California might be higher than in, say, Florida, but you would have a higher price point there, to Drew’s point earlier.
So the metrics give us the opportunity to do some comparisons about how we’re doing against the standards of excellence. We want the business to produce at least a 15% EBIT, if not a 20% EBIT – – EBIT being “earnings before interest and taxes,” we’d define that as operating income. And if we’re not doing that, the interpretation is, “Why aren’t we doing that?”
So operationally we look at those metrics and we look at our company as a comparison against that, and that points us in the direction of trying to figure out what we’re doing operationally. And that’s how we should begin the creation of a business plan, a blueprint to change, and maybe figuring out what we want to do differently.
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