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20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 1
20 Ways to Increase Profits
Leslie C. ShinerOwner, PrincipalThe ShinerGroup
A copy of this presentation is available upon request to
Leslie Shiner
• Owner of The ShinerGroup
• Financial & management consultant for over 25 years– MBA in Accounting and Finance from U.C. Berkeley
– Advanced QuickBooks ProAdvisor
– Sage Certified Consultant
• Contributing Columnist– Remodeling Magazine
• CPA Practice Advisor 2016 Top Thought Leader
• Author– A Simple Guide to Turning a Profit as a Contractor
– (www.MoneyMazeBooks.com)
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 2
Learning Objectives
• Increase profits by focusing on the five areas of significance
• Create a plan for increased efficiency
• Spot quick fix solutions for improved profitability
How Do You See Your Business?
Do you see a series of ongoing, overlapping jobs?
Smith kitchen and bath
Simpson gazebo
Anderson job
Jones whole house remodel
Jackson 2nd story additional
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 3
Understand The Profit Cycle
Analysis
Accounting
Production
Estimating and Sales
PROFIT
Five Areas of Significance
Estimating and sales
• Project management
• Financial management
• Analysis
• Strategic management for profit
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 4
Estimating and Sales
1. Know how to create a proposal as a repeatable process– Utilize software to create proposals
• Look to similarities in all jobs for template
– Distinguish between the “Budget” and the “Proposal”• Create a proposal for the client
• Create a budget that will be the basis of all job cost reports
– Measure productivity
– Understand your overhead
– Know the difference between markup and margin
What is Negotiable?
Direct Job CostsLabor
MaterialsSubcontracts
Equipment
Overhead
Profit
Non-negotiable without change of scope
Negotiable
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 5
Budget vs. Proposal
Direct Job CostsLabor
MaterialsSubcontracts
Equipment
OverheadProfit
Budget
Your costs
Used to compare estimated costs to
actual costs
Proposal
Your revenue, your client’s
costs
Estimating and Sales
2. Create a Process Map– Involve all company staff
– Deal with all aspects of projects
– Create company standards
– Planning, documentation & accountability
– Near real time reporting
– Change order / revision process
– File & information management
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 6
From Simple to Complex
Process - Sample
Mar
keti
ng
Sal
es
Des
ign
Pro
duct
ion
Off
ice
Lead Tracking X XClient Meeting XBudgeting X XProposal XEngineering XProject Management XEquipment Order & Tracking XDemolition XFraming XFinishes XTrim XPunch List XChange Orders X XReview X XWarranty X
Estimating and Sales
3. Deliver an excellent on line presence– Have an accurate, up-to-date, inviting website
– Engage in social media
– Blog regularly
– Manage your online reputation
– Explore online listing
– Track online activity
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 7
Effective Website Marketing
• Unique page content
• Avoid duplicated content
• Link building (inbound & outbound)
• Clean & consistent pages
• Boost SEO (Search Engine Optimization)
Must Haves on Your Website for Credibility
• Business process
• Professional project, pictures, galleries
• Contact info & web-lead form
• Mission/vision statement
• Company history, employee history
• Community involvement
• Awards & certifications
• Publicity
• Testimonials
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 8
Effective Social Media
• Add professional after-pictures of recently finished projects
• Post recent blog & news: news that affects potential and existing customers
• Let Facebook fans, Twitter followers, or LinkedIn connections know when you win awards or get recognized
• Create Buzz!
Estimating and Sales
4. Ask for referrals– Then ask for referrals again
#1 Source of new work comes from referrals and repeat business
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 9
Five Areas of Significance
• Estimating and sales
Project management
• Financial management
• Analysis
• Strategic management for profit
Production
5. Create and utilize schedules– Create schedule to improve sales
• Use a schedule as part of your marketing plan
– Create schedule to improve procurement • Prior to the start of the job and during the job
– Create schedule to improve production • During the job to improve productivity with subs and
employees
– Just one way to improve profit
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 10
Create a Gantt Chart
Create a Schedule and Update it!
Crew B Crew CCrew A
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 11
Production
6. Manage change orders – Are you consistently going over budget?
• Could it be that there is more work done in the field than in the original scope of work
• Start from the beginning - during the sales process– Clearly state the scope of work in the contract
– Define the process for changes
– Prepare your client for change orders
If you are already doing the work…Why not get paid?
Create a Process for All Changes
• Create field documentation– Change order work authorization form
– Filled out on the job• Manually or electronically
– Three part form for 1) client 2) field 3) office
– Not necessary to include pricing
– Get signature from client
• Make the process easy for your field crews
Too much paperwork may mean more free work
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© 2016 The ShinerGroup. All rights reserved. 12
Stop Losing Money on Change Orders
• Review past jobs– Did change orders cause slippage in estimated gross
margin?
• Create zero dollar change orders – Turn change orders into “Profit Center”, not
administrative nightmare
• Consider ‘Processing Fee’ on all change work
Production
7. Manage employees – Use daily timecards
– Track employee utilization
– Are your most expensive employees doing the most difficult tasks?
• Who goes on the material runs?
– Do you need to hire more field personnel or help your current crews be more efficient?
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 13
Consider Bonuses
• Bonuses provide flexibility– Wage increases are typically permanent
• Bonuses based on net profit are difficult to predict– “What can I do differently today to increase my bonus?”
• Bonuses based on gross profit can improve production– Provide estimated hours on job
– Provide reports to show estimated costs to actual costs
– Provide incentives to keep jobs on track
– Can base incentives on time instead of dollars
Production
8. Manage subcontractor relationships– View subcontractors as source of additional revenue;
paying their overhead and profit can make you more profitable
– Set expectations with subs
– Respect their time
– Communicate schedule in advance
– Pay promptly
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 14
Production
9. Create system for efficient material procurement– Have the right material on the right job at the right
time– What is the cost of one more box of nails? – Avoid jumping at the “deal” for bulk purchases
• Utilize a Purchase Order system– Not a PurchasED Order System– No purchases without prior authorization– Control employee credit card spending with strict
limits
Five Areas of Significance
• Estimating and sales
• Project management
Financial management
• Analysis
• Strategic management for profit
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 15
Financial Management
10. Require accurate job costing– Accounting without job costing is like driving without
a map
• If you aren’t job costing, you can’t measure margins– Create the end result (job cost reports) to begin the
process of job costing
– Decide what you really need to track?• Labor has the most risk
• Are you tracking labor dollars and labor hours?
Financial Management
11. BEBO – Bill early, bill often
– Create process for accounts receivable collections
– Create process to track and invoice for change orders ASAP
– Accounts receivable is just as important as accounts payable
Bill Early,
Bill Often
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© 2016 The ShinerGroup. All rights reserved. 16
Financial Management
12. Track cash flow – Create cash flow projection
– Cash flow is more than just income and expenses
– “Money in” isn’t just from sales and collecting receivables:
• Borrowing funds, selling assets, acquiring investors, earning investment income
– “Money out” isn’t just from paying expenses• Repaying loans, purchasing assets, paying taxes, making
profit distributions
Net Income vs. Cash Flow
Income StatementSales – COGS – Operating Expenses = Net Income
Cash FlowsBeginning Cash Balance – Ending Cash = Flows
Net Income does not equal Cash Flow
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 17
Cash Flow Projection Steps
1. Start with last year P&L Statement– Review data for patterns and trends
– Estimate revenues and expenses for upcoming year, incorporating goals and backlog
2. Look at other cash flow, not in P&L– Purchases such as equipment/vehicles or loan payments
3. Budget for the unusual, infrequent payments– Liability insurance and worker’s comp deposits, taxes, etc.
4. Know the pattern of cash flows– Schedule: yearly, monthly, weekly
5. Tailor to your business
Different Thinking
Classify costs into three types
• Fluctuates with the job, specifically materials and subcontracts
1 – Variable
• Reclassify payroll as a recurring cost • Other overhead costs
2 – Recurring
• Those costs that are not on a monthly schedule
3 – Infrequent
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 18
Create Company Cash Forecast
• Starting Cash Balance
• Add:– Job income, listed by job
• Subtract:– Variable – materials and subcontractors– Recurring – labor and overhead– Infrequent - unusual or extra costs
• Equals– Cash available, (or cash needed!)
• Then add or subtract credit line as appropriate
Simple Cash Flow Sample
January February March AprilBeginning Balance
VariableCash In
Job AJob BJob C
Cash OutMaterialsSubcontractors
RecurringCash Out
LaborRentUtilities
InfrequentCash Out
Work Comp DepositTax payments
Net Cash FlowEnding Balance
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 19
Know Your Burn Rate
• How much money does it cost to stay in business each month?– Look at total overhead
– Divide by 12
• That’s the cash out the door every month– Or do it weekly
• Can your jobs cover your burn rate?
Financial Management
13. Take all discounts– Free income
– Improves your bottom line
– Negotiable – call your vendors• Rates can vary
– Track discounts as separate line item • Increase income
• Do not decrease expense
• Do not pass on to the client
If you take 2% discount, what is the equivalent annual interest rate?
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 20
Answer
1. Payment terms offered 2%10/net 30
2. # days additional if payment
not taken 20 days
3. Divide 365 by # of days 18.25
4. Multiply step 3 by discount 36.5%
5. Take discount if your cost of borrowing is less than step 4
Financial Management
14. Create system for Internal Controls• Study by Association of Certified Fraud
Examiners– Employee theft costs about $600 billion dollars
annually
• What is stolen?– Cash– Tools– Inventory– Services– Supplies– Insurance benefits
It’s not a question of “if” but “when and how much?”
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 21
The Fraud Triangle
Opportunity
Motivation Rationalization
Fraud Triangle
The Fraud Triangle was developed by noted criminologist Donald R. Cressey
Good Internal Controls
• “Tone at the Top”– Take an interest in the books– Provide oversight and review– Written ethics policy– Random spot checking
• Segregation of duties– Layers of responsibility– Layers of authority– Limited signatory authority– Extra set of eyes
• Review financial statement accuracy for fraud prevention
Creating controls does not mean lack
of faith butgood business
practices!
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 22
Five Areas of Significance
• Estimating and sales
• Project management
• Financial management
Analysis
• Strategic management for profit
Analysis
15.Determine the metrics you need to manage your company and manage each job– Track revenue per employee
– Track employee utilization
– Track bid/close ratio for leads
– Track gross margin by job• Gross margin for material
• Gross margin for labor
– Track gross margin by type of client• Commercial, residential, public works
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 23
Analysis
16. Create an Executive Dashboard– Create a one to two page document - No more!
• Look at the forest, then the trees
– Overview for management purposes
– Include everything you need to know
– Include:• Dollars
• Percentages and ratios
• Forecasts
Customize to Your Needs
• Track financials – Cash balances – Accounts Receivables, Accounts Payables– Revenue per employee– Margin analysis– Gross margin and breakeven– Cash flow projection
• Track sales and marketing– Number of leads– Number of proposals– Backlog– Jobs to complete
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 24
Customize to Your Needs
• Track operations– Employee efficiency
– Warranty
– Schedules
• Track human resources– Employee retention
– Safety records
• What else do you need to track?
Measure sustainability
Snapshot and ratios
Sample Balance Sheet Dashboard
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 25
Measure profitability
Snapshot and ratios
Sample Income Statement Dashboard
Analysis
17.Analyze jobs during and after
• Compare actual costs to budgeted costs– Review the varianced
– Labor has the most risk. Analyze: • Hours variance
• Dollars variance
• Know how to actually close a job– When do you stop coding costs to a job?
– Determine how you account for warranty costs
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 26
Five Areas of Significance
• Estimating and sales
• Project management
• Financial management
• Analysis
Strategic management for profit
Strategic Management for Profit
18.Utilize metrics– Create objective (not subjective) measurements
• Create KPI – Key Performance Indicators– Revenue per employee
– Gross margin projected vs. achieved
– Labor utilization
• Create targets for individuals
• Determine who is responsible for what measurement
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 27
Strategic Management for Profit
19. Become a better manager– Distinguish between managing and doing
– Give up the “I’m the only one who can do it right” attitude
– Explore the characteristics of effective leaders
– Become better at conflict resolution
Characteristics of Effective Leaders
1. Leads by example
2. Manages time efficiently
3. Resolves conflict
4. Acts consistently and treats others consistently
5. Motivates others
6. Promotes teamwork
7. Stays positive
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 28
Strategic Management for Profit
20.Use the financial information to analyze the results of past decisions to make better decisions in the future
– Measure margins
– Find your ‘sweet spot’!
– Create an operating budget to make spending decisions
– Create a breakeven analysis
– Delegate, don’t abdicate financial responsibility
– Make informed decisions!
Five Areas of Significance
Estimating and sales
Production
Accounting / financial management
Analysis
Strategic management for profit
20 Ways to Increase Profits
© 2016 The ShinerGroup. All rights reserved. 29
Leslie C. Shiner, MBA
[email protected](415) 383-6255
www.ShinerGroup.com
www.facebook.com/TheShinerGroup
Twitter: @TheShinerGroup
Questions and Thank You
A copy of this presentation is available upon request to
Week of: March 31, 2017
Checking Account Line of CreditConsolidated 235,200 Current Balance 40,000
Available Credit 105,000
Receivables PayablesCurrent 265,400 Current 244,700
1 - 30 126,900 1 - 30 23,80031 - 60 45,100 31 - 60 13,000
61+ 18,400 61+ 43,900
Balance of A/R 455,800 Balance of A/P 325,400
Inventory 68,200 Plus PR Taxes & Other 12,500Prepaid & Other 21,900 Other 0.0
Other 0 Cust Deposits/Overbillings 152,500
Total Current Assets 781,100 Total Current Liabilities 530,400
Current Ratio Current Assets
(Should be > 1.25) Current Liabilities(Higher is better)
Debt to Equity Total Liabilities (all) 785,000
(Should be < 1) Total Equity 910,000(Lower is better)
Company NameFinancial Dashboard
Balance Sheet Items (measure of liquidity)
1.47
0.86
© 2016 The ShinerGroup. All rights reserved.
Week of: March 31, 2017
Last Completed Month Year-To-DateCompleted Months 3 3 Months
Revenue 459,100 1,304,000COGS 305,700 848,452
Gross Profit ($) 153,400 455,548Overhead 143,000 350,000Net Profit 10,400 105,548
Average # Employees 28 29
Average # Field Employees 24 25
Gross Margin - % Gross Profit
Revenue
Breakeven Overhead Costs
Gross Margin
Revenue per Emp Total Revenue
(annualized) # Employees
Revenue per Field Emp Total Revenue
(annualized) # Field Employees
Closing Ratio Total # Job Closed 31
(current year only) Total # Jobs Quoted 70
Backlog to be completed in next 3 months 768,000Backlog to be completed in next 6 months 1,410,000Backlog to be completed in next 12 months 2,570,000
Accounts Receivable Turnover:(Higher is better) Revenue
A/R Balance
Days in Receivables 365
(Lower is better) A/R Turnover
Inventory Turnover(Higher is better) COGS
(annualized) Inventory
30
53.79
196,757 179,862
229,550 208,640
44%
12.09
Financial Dashboard
Profit and Loss Items (measure of profitability)
33% 35%
427,975 1,001,870
Company Name
© 2016 The ShinerGroup. All rights reserved.