The fastest way to a strong bottom line is to build the top line. While the small business owner must always watch expenses, no one can save their way to prosperity.

The surest way to build the top line is good marketing. The four P’s of marketing are product, price, place, and promotion. Over the rest of this series, we will deal with each, but will start with pricing. For service companies, pricing breaks down into four areas…

Imagine bidding a job to supply and install the plumbing, heating and air conditioning for a new home or building, without any drawings, plans and specifications to go by. The owner just says, “Oh, it will be a two-story dwelling with a bunch of rooms.”

Nobody in his or her right mind would take on such a job. But guess what? Most PHC contractors do something just as silly when it comes to running their businesses…

Ellen Rohr
Contributing Author
Bare Bones Biz
My rookie year…
Once upon a time, I quite my real job (restaurant manager – good salary, benefits and someone to cover for me when I wasn’t around) and went to work for my husband, Hot Rod, in his contracting company.
It was the dumbest decision I have ever made.  It was hell.  I left my steady paycheck behind and assumed financial responsibility for a sinking-fast company.  I was college educated.  I graduated Summa Cum Laude with a BS in Business Administration.
The BS really stood for my approach …

Frank Blau
Contributing Author
Blau Plumbing

I don’t know if one of my students made a New Year’s resolution or not but the proof of what he’s accomplished since 2007 is apparent in the profit and loss statements shown on the attached excel sheet. It compares the last five years from a former student. Here’s what he wrote me:

You are sick and tired of being a slave to that disaster you call a business. The one that pays slave wages and lousy benefits to employees and little or nothing to yourself and your spouse. The business that is sustained only by the patience of your vendors, who don’t get paid for 90 days or more when times slow down.

Finally, you are ready to make a change for the better. You purchase the Frank Blau “Business of Contracting Kit”- from ShuBee. You have become a numbers cruncher. For the first time in your life you’ve learned what it really costs to run a business, and what you and your employees are worth in the way of compensation. You make the decision to run a business as it should be run – in a way that takes care of you, your spouse, your employees and your customers the way they deserve.

Frank Blau
Contributing Writer
Frank Blau Plumbing, Owner
My article in the April 27th eBuzz, “I’m Mad As Hell!”, has gotten as much reaction as any I’ve ever written. In it I vented my anger at all the people I deemed “slugs,” who are dragging the industry down.
“What’s a slug?” one of my industry friends asked me not long ago. For those who don’t know, a slug is a type of snail. Snails are slow and primitive, so I used the term to describe people in our industry who fit that description. Most …

In most service businesses, 70% of a company’s costs of doing business will be consumed by only five expense categories. One of them is labor. This article will focus on arguably the number one expense you need to manage—Direct Labor.

When you look at your profit and loss statement every month, I assume you have a minimum of two columns. One column shows you the actual cost in dollars; the other column presents the actual cost as it relates to net sales, as a percentage. Something like this—

Last eBuzz, I pointed out some problems with the format of an actual profit-loss statement from a Midwestern service contractor. You may wish to re-read “Numbers Tell a Story” article to refresh your memory. This edition I’m going to take it a step further by reconstructing the format and plugging in some new numbers that make more sense. The line items highlighted in bold face on the chart are the ones we concern ourselves with.

First, look what I have done with the revenue side. The numbers are higher because I factored in modest 9.62% increase in selling prices for this firm. This was an arbitrary percentage that I came up with to achieve a reduction in direct cost of sales from 44.5%, which was too high, in my opinion, to a more reasonable 37%. I believe that this firm could raise its selling prices and revenues by much more than 9.62%. However, for the purpose of this article, I wish to make the point that even a modest increase in price can reap great benefits.

If you were driving 80 miles an hour, in the dark, with your lights off, heading towards a cliff, would you like someone to yell, “STOP?”

OK. Stop!

Do you produce financial reports – the balance sheet and income statement – every week? Do you analyze sales, costs, cash flow, and debt every week? If not, you may be heading for the cliff.

STOP. And find out. This is the year. This is the day. From here on out…you are going to KNOW.

The 2002 and 2003 profit and loss statements attached reflects an actual case for a Midwestern plumbing and drain cleaning firm. In 2002, the business was a partnership jointly owned by a plumber and a realtor. The realtor bought out his partner and, after attending one of my seminars, revamped the business in a way that resulted in revenues almost tripling. The 2003 financial statement was also much improved, though, as I will explain, it still falls short of the ideal.

The most glaring problem with the 9-month statement for 2002 is in the Cost of Sales category near the top. All it shows is a single line item for Plumbing – $19,115, amounting to 8.7% of sales. I don’t remember what this was supposed to measure, probably materials. In any case, it is an inadequate breakdown. (I was told that this statement was prepared by a CPA, which goes to show how little many accountants know about our industry.

As you see with the revised 2003 format, the Cost of Sales category was expanded to include several items that previously were tallied, mistakenly, under Operating Expenses. We see wages broken out for both plumbers and drain cleaners, as well as subcontracting costs, commissions, parts & materials, permits and payroll taxes. All of these are direct costs, or what we call overhead.