Can Your Business Have Too Much Profit?

The service business is an interesting business. It has its ups and its downs. The downs are often related to weather in the HVAC service business. A cool summer or a warm winter can slow down the customer’s need for service and reduce the opportunities for system replacements since the systems aren’t taxed with mild weather. The plumbing, HVAC and electrical service businesses are usually affected by poor economic times. When customers are concerned about their income and expenses they tend to let maintenance and service go or look for cheaper (in their eyes) alternatives such as friends or a handyman.

What Contractors tend to do

Contractors tend to tighten up the purse strings when the economy is slow or the weather does not cooperate. They put off new trucks, computers, tools, and needed repairs on those items. After all, they need to meet payroll, satisfy suppliers and pay their taxes. I’ve been there and done that through several recessions and a number of poor weather seasons. That’s what a small business does to survive.

Many of my clients had very good years in 2013. Some even had record growth and record profits. In Michigan, the cold weather of December and January resulted in the phones ringing. At least two of my clients had record January sales and profits. What a way to start the year. But, what happens when a service business has a very good year or even a very good month?

High Five Times

Often the first reaction is of joy and high fives as it should be. Then suppliers and other vendors are paid so accounts with them are current, again as it should be. But here comes the concern I have that a profitable year or even a very profitable month causes owners to spend on computer upgrades, trucks, tools, give oversized wage increases, and buy stuff for owner use. They don’t do it at a reasonable pace but tend to forget about the need to have some reserves since another stretch of tough months may be ahead. Funds are spent with the thought that the next month or season will also be very profitable. They also forget about paying down on their line of credit since the bank may only require a payment of interest or minimal principle.

Ant or Grasshopper

The Ant and the Grasshopper, also known as The Grasshopper and the Ant (or Ants), is one of Aesop's Fables, providing a lesson about the virtues of hard work and planning for the future. Similarly as business owners, we should be storing up our abundance for the difficult times that inevitably will be coming. When we are prepared for slower business, we can pay our vendors on time often getting better pricing and terms. We can get materials without scrambling around to try and get them since our credit may be tarnished. We can be prepared to take on additional opportunities when business picks up. Financial reserves give a business a better chance for survival and a chance to grab opportunities when they present themselves.

The answer is NO a business cannot have too much profit but the profit must be used wisely.

Dan has been in the service industry for nearly 50 years. He has operated a large plumbing, heating and air conditioning service company and for the past 12 years has helped small companies in the service business to grow and prosper. Check us out at www.SayYesToSuccess.com.

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Believer or Follower?

We are babysitting our grandchildren in the Orlando area this week. Our Daughter and Son-In-Law are both out of town so we have the opportunity to enjoy and spoil the Grandchildren. There are four of them, all under the age of 7 and keep Grandma and Grandpa going from sun up to sunset. We were able to take them to church on Sunday. They go to classes and we have an hour or so to relax and enjoy the message and worship. Often I catch an idea from the message that carries over to the business world. And that was what happened this Sunday.
The pastor asked if we were a believer in Jesus or a follower. It immediately struck me that this applies to business in a little different way but still as an important point. Are you a believer in the basic principle of business and management or are you a true follower of those principles?
Let me give you a couple of examples. Do you believe your company should make a profit? Or, do you believe your employees should be accountable for their actions and produce a profit for your company? Do you believe a contractor is as valuable to society (customers) as a doctor or a lawyer? Do you believe in providing the customer with “first class” service?
I am quite confident that you believe in at least three of these examples. I find many contractors don’t believe in their own value to society (customers). I work with contractors and techs to help them realize their value to the health, comfort, and well being of society (customers). The other three are areas almost every contractor I have ever met, believe, but that’s where it ends. They believe but they do not follow. What does that mean? There is a huge difference. You can believe in these fundamentals but the real question is do you follow those fundamentals daily in your business? A follower is one who constantly is working at improving these fundamentals. They have a plan and goals. They have check points along the journey to measure their progress. They don’t allow themselves to get caught up in the little meaningless things of the day. They focus on the issues that make their company profitable, sustainable, and customer directed in every area of the presentation to the customer.
Are you a believer or a follower?