It may be because my parents grew up in the Depression, but one of the things I heard a lot growing up was: “Watch your pennies and the dollars will take care of themselves.” We are now in an economy which, even though not everyone is participating equally, has been growing steadily for over 10 years. It is likely that your kitchen and bath firm has been doing relatively well, if not very well. In such times it is easy to start to believe that the “good times” are here to stay! As a word of caution, though, that is pretty much how everyone felt in 2007.
History tells us that there will eventually be a recession and that will provide some challenges for all of us. When business is good, there’s a tendency to relax our control of costs, particularly with minor things. After the recession that followed the housing collapse, we all had to tighten our belts and eliminate unnecessary expenses and likely had to reduce our staffing significantly. But with years gone by, those painful memories are fading into the past.
But while those memories may be fading, the lessons learned from them should not: Now is the time to do an evaluation of your business to determine if there are areas that have become bloated and/or inefficient. Let’s look at some of the areas that might deserve attention.
Personnel
As your staff shrank to fit a reduced revenue base, those remaining were faced with a somewhat reduced workload and were willing to take on added responsibilities in order to help your business survive. As business picked up, the workload increased for those same individuals. At some point, there was a need to supplement your staff to handle the additional work. In addition, those who stuck with your business through the tough times expected to share in the improving financial situation.
During the recession, it’s likely that your business survived by developing efficiencies, allowing fewer people to accomplish tasks that had previously required more people. The result of this process was to leave your business with the most capable and flexible employees. As the recovery progressed and your business recovered, it would have been necessary to begin adding personnel. The combination of dividing responsibilities and inexperience probably caused many of the efficiencies that had been gained to dissipate. Is the proper training and transitioning taking place? Are capable new employees available in what has become a tight job market?
A sad truth about personnel is that it’s always easier to add payroll than to reduce it. There are several reasons why this is so. Once this work is vested in the new position, re-consolidating it back into fewer employees becomes very difficult. It is also true that, as tasks are divided and delegated, more time is devoted to communication among employees as opposed to actually working on the tasks at hand.
Great care should be taken when making personnel decisions. It is usually best to hold off adding permanent employees until there is certainty that their need is real and permanent. When you do add to your work force, do not settle for the proverbial “warm body,” but instead make every attempt to find the right person for the job, even if it takes longer to find the best candidate. Likewise, if an employee leaves, look closely at the position – can the work be assigned to existing personnel without replacing the person who is leaving?
Job Costs
One of the areas that is often overlooked is that of the many seemingly small choices and decisions that are made, either in the office or in the field, that can add up to significant amounts.
When we sell a project, our contract is based on estimates of the various costs involved. We then perform the job, attempting to contain our costs within the estimates with which we started. The following are some examples of things that can add up to make or break your job cost:
Left items off your estimate – job cost with no associated revenue.
Failed to order materials on time – job stops or temporary measures needed to keep it moving.
Didn’t order correct amount of material – shortage requires extra trip to pick up additional material or excess material is not returned for credit.
Incorrect manning on the project – too many and people wind up standing around, too few and the job cannot get done properly or someone gets hurt.
Inadequate protection of client premises – you pay for cleaning or repairs.
Extra trips to the job by field personnel due to lack of material, incorrect tools at job or access not arranged – this translates to lost time.
Under qualified people performing work they don’t understand – this results in rework.
These things taken by themselves may not be hugely costly, but they will add up. If there are 10 such occurrences on a job where your gross profit is supposed to be $25,000 and each of these “mistakes” results in an increased cost of just $100, your gross profit has been reduced by 4%.
Overhead
Many overhead costs and decisions would not be considered small, such as office space, vehicles or large equipment. On the other hand, others are not major and usually have some discretion as to whether they are incurred. Do you provide uniforms or T-shirts for your field employees? How about the company picnic? Do all employees get their own laptops? There are compelling reasons for all of these, but most would not be considered necessities.
A reality about overhead is that, as with adding personnel, it’s much easier to increase it than to cut it back. When times are flush, it’s easy to okay any number of questionable expenditures that would have seemed frivolous or unnecessary in more normal times. The problem is that your staff will quickly come to view these luxuries as necessities and trying to eliminate them later will have a negative impact on morale.
Finally, general and administrative overhead functions tend to grow to fill the available staff time. That is why your staff will still seem extremely busy, even when the volume of business drops.
The point to keep in mind is that each and every decision you or your management team makes will have an impact on your bottom line. While any one of these may seem trivial, the cumulative effect can be substantial. If you make it a practice to approach each of these in a conservative and frugal manner, the positive impact on your kitchen and bath firm’s profit picture can be impressive. ▪