Psst! Tell your clients: want to make an extra $5,000 to $10,000 next year?
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No, I don't mean suggesting that they do telemarketing from their homes. This is not one of those great investment "tips" you keep receiving in your email inbox.
This is all about having someone in their office take about 30 minutes each day so that they can understand how much money was made (or lost) on the jobs that shipped out the day before.
It's easy. It's common sense. So naturally I rarely see business owners, like myself, doing this. We need to hear things 57 times before they sink in. But if your clients are in the service, manufacturing or distribution businesses they could really be letting some dollars slip away.
Here's what to tell them:
* Take out the payroll register from last year (and try not to get upset when they're reminded how much they're overpaying some people). Add up all the hours spent last year by their production and service employees.
* Next, take out last year's tax returns (and try not to get teary-eyed by all those low and soon-to-be-history tax rates) and add up all the overhead expenses they've incurred last year, like utilities, maintenance and office expenses.
* Now divide the overhead expenses by hours to come up with an overhead rate per hour.
* Finally: create a little spreadsheet. Have an admin person in their office find out the materials cost used and the time spent for each job that shipped the day before. This is not a tough assignment as long as their admin person knows how to use a phone. Have that person enter this information plus the selling price and shipping cost on a pre-designed spreadsheet that includes the overhead rate per hour. Let the spreadsheet calculate profit.
Get a copy of that spreadsheet every single day! Every single day! And start getting surprised.
Some jobs (or products, or classes, or services or projects) that your client thought were making money probably didn't make as much. Other jobs may have been more profitable than estimated. And many probably came in line with what was expected.
Now you help them make your adjustments. Tell them to yell at some people. And stamp their feet. Throwing things at a wall helps, too. Have them go back to customers and re-quote future orders. Advise them to find new customers who would take their more profitable jobs.
It's not perfect. The numbers probably aren't exact. Some time incurred may be mis-charged. Some of the overhead expenses or hours may have changed a bit. But it's going to be pretty close. And it's also not a six-figure job costing system that some consultants would recommend. Plus you and your clients are going to find it pretty darn interesting.
You both may find yourselves getting reacquainted with production people and customers. Your clients may be relieved to get rid of those customers that were always suspected of being unprofitable. Maybe your client may find themselves taking advantage of some vendors that for years were taking advantage of them.
Want help setting this up? Get your client's accountant involved. Wait a second - are you their accountant? Well, then hopefully you've already made this suggestion. If not, then don't share this column with your clients.
How did I come up with $5,000 to $10,000 savings? I figure if a client bills out half a million or a million a year, and they increase your job profits by just 1 percent ... well there's the answer.
A great penny-pincher starts with each job going out the door. Time to warm up that spreadsheet!
Gene Marks, CPA, is the owner of the Marks Group, which sells customer relationship, service, and financial management tools to small and midsize businesses.
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