Explosive Sales = Profits, Yes/No?

Explosive Growth – My Lessons Learned

Approximately 16 months ago, we were slammed with the onset of COVID-19.  At that time predictions were made by many (myself included) that Canada would likely be in a recession by the fall of 2020.

Little did anyone know the impact of COVID-19 would be on the construction and landscaping industries.  Canadians were faced with many restrictions; working from home, all international travel stopped, eating out at restaurants led to take-out only, shopping is only curb-side pickup and all spending on lifestyle (sporting events, music concerts, day camps) were reduced to live-streaming only.

Many people related to these industries have seen reduced incomes or been laid off.  However, people in general like to spend money and while they were not able to spend on luxury items as mentioned, they have spent money on their homes.  This has resulted in a boom in the residential construction and landscaping related sectors.

This boom in sales will not automatically result in a boom in profits unless the following points are considered!  I can speak from experience, I personally underestimated the cost of growth and got excited with top line revenue only.  These points below will help you make profit!

KEY POINTS TO CONSIDER

Accurate Pricing & Estimating

1. Ensure materials and equipment is priced accurately as pricing is fluctuating daily for some commodities
2. Price what the market will bear!  Now is the time to increase profit
3. Restrict too much growth – raise pricing before adding more crews

Profit Review

1. When the schedule gets full, we tend to forget to job cost.  The investment in job costing will pay dividends and allow for tweaks along the way
2. Just because sales come “easy”, do not add extra expenses.   Higher sales do “cover a multitude of sins”
3. Remember that “Net Profit” on the Income Statement DOES NOT mean more cash in the bank.  Continue to complete cash flow projections.

Staff are your Greatest Assets

1. Focus on becoming a “Destination Company” – invest in culture building activities
2. Now more than ever, always be hiring!
3. Hold yourself back from promoting people too quickly as this may result in the “Peter Principle” – a great crew leader does not automatically become a great manager.
4. Invest in on-the-job training and bulk up the crew size before starting another crew
5. Support & invest into your staff, especially those with the most responsibilities

Equipment Utilization

1. Ensure that you have the right equipment for the right job/task
2. Be careful that you do not add too much too fast as when sales start to decrease, “dumping” equipment becomes costly

Managing Risk

1. Cash – ensure money is being saved (in a separate savings account)
   1. Growth takes cash
   2. Cash flow projections – look out 3-5 months
2. Account Payables – get into a routine, extend where possible (but not to incur fees)
3. Accounts Receivables
   1. Watch this weekly, invoice on time & have 1 person responsible for collections
   2. Update deposit terms to ensure you do not become your client’s bank
4. Make sure that your employee contracts include clauses that prevent solicitation
5. Customer contracts – change order (how do you ensure approvals and getting paid)

Take care of yourself, personally

1. Do not neglect to take care of yourselves – down time is required
2. Ensure that you get your sleep

For further details on how to ensure profits are made, contact Southbrook Accounting.