Two keys to success for service companies

AS QUALITY SERVICE Contractors' business coach, I frequently visit member companies and give advice on how to improve their operations. I also lead many seminars across the country on business management topics. Invariably, two subjects always come up: financial statements and maintenance agreements. Successful contractors really need to understand how both of these work and how they can be used most

AS QUALITY SERVICE Contractors' business coach, I frequently visit member companies and give advice on how to improve their operations. I also lead many seminars across the country on business management topics. Invariably, two subjects always come up: financial statements and maintenance agreements. Successful contractors really need to understand how both of these work and how they can be used most effectively to help their companies grow.

I'll be presenting seminars on these topics Sept. 7- 10 at Network ' 05, PHCC's annual convention in Orlando, Fla. In the meantime, I'd like to provide some advice on why I think these two areas are so important to a company's success.

How many of you get a financial statement every month? Every quarter? Once a year? You may be surprised to learn that most service companies do not get a monthly financial statement. And of those who do, few know how to use it as a tool to manage their company.

QSC has discovered over the years that many contractors are afraid of the numbers in their company because they really do not understand them. Most of us turn to the last page and look to see if we made a profit or lost money, then throw the report into a drawer or a three-ring binder never to be seen again. Just remember that you do not have to be an accountant, but you do need to know how to use your financials as a tool to improve your company.

It is your company, and you are ultimately responsible.

You must start with understanding the balance sheet and why it is important. Although you may have an accountant who prepares your balance sheet, you really need to realize what it all means each month. It is your company, and you are ultimately responsible.

In a worst-case scenario, games can be played on your balance sheet that can artificially inflate the profits or losses. Remember Enron? Most of the accounting games that were played there were on the balance sheets, and we saw what happened.

The actual profit and loss statement also is important. There are key numbers to look at on the P&L besides the profit number. Do you know what the successful businesses' labor costs are as a percentage of sales? How about their material costs as a percentage of sales? One business model for service companies identifies the five key percentages to know in your P&L statement to become the company you want to be. I'll cover this at the seminar.

Increasing your cash flow and productivity of your technicians is always a goal. Every company today depends on cash flow to stay in business, and if you can increase yours, you could start taking discounts or maybe even give yourself a raise. The productivity, or lack thereof, can really change the profitability of your company. What if a shop that has five service technicians could put an additional $50,000 a year to its bottom line and not raise prices a penny?

Regarding maintenance agreements, how do you know your customers are really yours? Maintenance agreements are an excellent way to establish longterm relationships with customers.

In today's world, it is more important than ever to be able to lock in customers long term, not only to keep other contractors away from them, but also to keep away the big-box stores. At the Network '05 seminar, you will learn to create a maintenance agreement program to make customers for life. At the same time, you are creating fans raving about your service business. And who better to talk about your business than your customers?

Think about it, if you are looking for a new doctor or lawyer, don't you ask your friends whom they use? It should not be any different when people are looking for a plumber or HVACR company. If people are thrilled with your company, they will always tell people to use you. You could call it "building bridges to new customers."

Like any building project, you must start with a solid foundation. You must position yourself and your business as the company of choice for your area. You also must determine your target market and ways to advertise and promote your business.

Next, you must discover who you and your business really are in your marketplace and why people should buy from you. By creating a unique selling proposition, customers will see what it is that makes your company different from all the others in your marketplace. It is easier than you think.

Mike Maynard is business coach for Quality Service Contractors, an enhanced service group of the Plumbing-Heating-Cooling Contractors - National Association. He will present two seminars at Network '05: "Financial Nuts and Bolts" and "Residential Maintenance Agreements: Building Bridges to Long-Term Clients." For the full convention schedule, visit www.network05.org.