- SPECIAL REPORTS
- THE MAGAZINE
The Cost of Doing BusinessI am amazed at the number of company owners who do not know their cost of doing business. To be able to cost out a job-and to be able to make money-you have to know how much to charge. To know how much to charge you need to know all the costs that are included in an hourly rate. You may not charge the client an hourly rate, but you need to know the correct rate to develop a profitable lump sum fee. I have taught seminars on calculating overhead rates, recommended business software and have had articles published on this subject. For those who still don't know your cost of doing business, let me make one suggestion: as you get your tax information together for tax filing, hire a CPA to prepare your tax return and to calculate your overhead. This will be some of the best money you will ever spend as a company owner. What should you learn from this study of your company records? An ac-countant will break down your expenses into categories. This will let you better understand where you are spending your company income. As you can expect, a great part of your income is spent on employee wages. But, contrary to what many company owners think, this is a cost you can cut. You may find that you need to pay a better wage to attract a few top-quality employees. Doing this may relieve you of some of the burden on the company.
Two of the seminars I give, one on construction and another on ALTA surveys, are very different from each other. But both include developing a cost estimate for a project. Attendees are paired up, given information on a job and asked to develop a cost estimate based on an agreed hourly wage. The results from each pair are then posted and the estimates are compared. Two categories of people are frequently revealed during this exercise. There is a core group that has what I call "a fair and reasonable estimate." Then there is a group that has a price that is one-half to one-third of the core estimates. I have made a point to interview some of these people following the seminar. The stories I hear from these people are very similar. They work in a very low overhead environment, sometimes from home. They get every job where they summit a bid. They feel overworked. They have no idea if they are making a profit. They complain that they can't hire good help, but they pay poor wages without benefits. What a disservice they are doing to the profession! Their lack of understanding of business principles not only hurts them, but it also hurts other companies by setting artificially low prices. Thus, a very important part of your checkup is to make sure you are not one of these martyrs giving work away.
Other Items For Your CheckupEmployee Wages and Benefits
It's wise to take a careful look at the wages you pay employees. My years of experience tell me that good employees do not like to change jobs. If your company is a good fit for their skills, they will prefer to stay with your company. What's important to your employees is that they make enough money to support their families in a manner that makes their lives comfortable. Successful companies have a key group of employees that allow the company to continue to operate even in the owner's absence. The key item in keeping these people is to pay them adequate wages.
Providing employees a reasonable way to buy health insurance is also a necessity. Group plans are available through many professional societies and small business groups who band together to negotiate the best price. Many companies provide a pool of money for each employee that can be used to purchase health insurance. If a spouse has health coverage, the money you offer can be used to add dental or vision insurance.
All employees want some retirement benefits. This may be in the form of a 401K plan, matching investment funds or both. Many investment bankers agree that social security alone is not enough money for retirement.
Safety and security have become a much larger concern of businesses since September 11th. In the past, many owners hired just about anyone who walked through the door. Now, I see, as an example, a nationwide move toward training field crews who work along or on state highways, or at airports. Make sure you add the time in your cost estimate to cover any security related checks like these. A good question to ask potential clients is what type of safety and security requirements they have in place.
One of the most important issues of marketing is client retention. Many companies have a core group of clients that bring in a large percentage of revenue for a business. The December time frame is a great time to say thank you for this business. Some owners deliver special gifts to the homes or storefronts of their clients.
As most of you know, the amount of work turned out by a company decreases during the week before Christmas and the week between Christmas and the New Year. This is a great time to get out and do some marketing. Most people are in the holiday spirit and may spend more time with you than during the remainder of the year. Another good marketing tool is to have a holiday open house at your company. Even a small ad in the newspaper inviting people to stop for refreshments and learn more about the type of services you provide can be beneficial. Have employees available to do a "show and tell" on computers.