The Business Side
May 1, 2006
The company planning ideas presented in this column are tailored to company owners as well as managers. This information comes from a seminar I developed titled "Treating Surveying as a Profitable Business." When I conduct this seminar, I ask each person in attendance to develop a company business plan based on three areas important to running a successful business: business structure, profitability and company management. I break each of these three areas down further, asking detailed questions about issues that are problematic for many companies. Many companies, though in trouble, are not without hope or they would have already filed bankruptcy. What they need is help to identify problem areas in their business practices so they can move forward with solutions.
To supplement the information provided here, you can print the two worksheets available below in PDF format.
Business StructureTo start, let's consider business structure. The following five items are important in running a successful surveying business.
Company Philosophy: Owners and managers need to define the company philosophy based on how they will manage the company. A "cash cow" is a company run for short-term profits invested in other areas; this type of company closes upon retirement of the owner. A long-term philosophy, on the other hand, invests in the company for the future. This may include developing employees to purchase the company upon retirement of the owner. This can be a complicated issue. Do you know how you want to manage your future?
Company Structure: Many small companies operate as a sole proprietorship. A good middle-of-the-road option is the LLC (Limited Liability Company), which is a type of company that can be incorporated (in most states). The advantage of an LLC structure is just what it says: a business structure that will limit liability. You will need an attorney to set up this type of company.
Management Style: Are you a hands-on owner that has to control everything or can you depend on others to accomplish the day-to-day tasks of the business? Management style is very closely related to your personality type. There is no right or wrong. It is most important that the management style you choose works for the betterment of the company.
Contracts: Some owners and managers get along fine with verbal agreements, but most companies need more formal contracts to function. Do not be afraid to ask a client to sign an agreement. Remember the most important part of the contract is the scope of work. You sign contracts every day for everything from getting your car repaired to buying a cell phone. Move forward into the 21st century and set up contracts with your clients.
Company Property: You must decide whether to own or rent company property, and this is your call. I believe that most financial advisors would like to see a company buy its building and property. Company owners can also consider buying property with other rental space to help pay the mortgage.
ProfitabilityNow let's address profitability. The following five areas are the most common issues (in no particular order) that keep a company from being profitable.
Geographic Location: You must locate your company in an area of the country where work is available, or you can work over a larger area from a central location. Pay attention to hot areas where many other companies are already doing a brisk business; this is where you also want to be located. If you want to know where these areas are, look up the hottest cities in the United States on the Internet. You may locate your company in a more rural area if you are able to work over a larger geographical region doing work like ACSM/ALTA or engineering surveys.
Price Negotiation: I have reviewed companies that are very busy but never or rarely make a profit. This is usually because they do not understand their cost of doing business, and they work cheap. You can rarely make up for cheap prices by doing a higher volume of work. Is this your problem?
Marketing: You must do some marketing. Don't ignore this aspect of promoting your business. If marketing did not work, you would not receive all the marketing calls and junk mail that you do. Marketing may be as simple as stopping at neighboring businesses to chat about the services you can offer them to staffing a full-blown marketing department.
Collection of Accounts: To stay healthy, your company must be able to collect money owed. If you, as a manager or owner, do not have the heart or organization to collect money, hire a person to perform this service. You must follow up on collections of accounts on a regular basis and keep after slow-paying clients.
Estimation of Job Costs: Estimating the right job cost before beginning the job is of paramount importance. Many managers and owners develop a gut feeling about what the fee needs to be to make money. Do not go below this cost just because the client does not like the fee. You may need to set up a system based on previous job costs to be able to estimate jobs without losing money. Do whatever it takes to get your estimation right-this is a critical step to staying solvent and becoming profitable.
Company ManagementIn the third major area to consider for a successful business plan, you must review how you manage your company. Answer the following questions honestly to determine if you need to revise the management strategy you currently have in place.
Employee Instructions: Do you have written job descriptions for each employee? If your employees are not getting their jobs done properly, are you giving good instructions? Do you need to replace some employees and refill some positions? Do your employees understand what is expected of them?
New Technology: Has your company fallen behind in attaining the proper technology for the jobs it does? Do you know what technology is available and how to utilize it in your company? Will a better quality employee want to work for your company because you are up-to-date with the latest technology?
Employee Training and Retention: Do you train employees or just hope they will learn on the job? Do you try to hire new employees with better skills? Do you provide a fair benefits package to retain good employees?
Job Completion: Is getting the final plat or map finished and delivered a problem? Is a specific employee responsible to get jobs finished? Do you have a procedure to follow up on each job, such as filing the plats or maps and the paperwork?
Billing of Accounts: Is collection of money a problem? Do you bill promptly? Do you follow up with the client to make sure the invoice is being processed? Do you have someone assigned to the job of collecting accounts?
Drafting Your Own PlanAfter reading the items under each of the three topics here, you can draft a plan to improve your business. Look at the five bolded items under each heading, and give each one a grade. Give the item that is most problematic or most essential to your situation a five. Give the next important a four and so on until you give the least important item a one. Then compile a list of the two most important items from each area. These six items will make up your final plan. This will give you two structure issues, two profitability issues and two management issues to work on.
After identifying your most urgent problems, you must write down in your plan how you will solve each one. Address these six items with concrete solutions, no longer than a paragraph in length. The ideas should be tailored to a one-year time frame. Remember that these are general guidelines, and you can add in other items that may be unique problems for your company. After drafting a one-year business plan, keep in mind that it will take some time to accomplish your goals. If you work at implementing your short-term plan, a year from now you will have a better company and be proud of your accomplishments. In the next column (August) we will address the long-term company plan.
Online Resources: Visit www.pobonline.com to access the company evaluation worksheet and business planning form that correspond to this article. These forms can be printed and used to draft a one-year business plan.