Earning a profit is both your right and your responsibility as a business owner.
Brian Spencer opened Rapid Rescue Plumbers three years ago. After 15 years in the plumbing industry Brian had seen it all. He had worked for several companies in a management capacity, trained and managed field staff, nurtured relationships with local vendors and he knew many of the regional reps for the major industry suppliers. Brian had experience with commercial installations and new home construction, but his heart was in emergency plumbing services.
Brian knew the first year would be tough and he had planned accordingly. He saved nearly $100,000 he would use for working capital to pay for business expenses including a modest salary as he built up his clientele.
He built a strong website, did some local advertising and with his connections in the industry was able to provide support to other companies when their capacity was maxed.
Revenue followed quickly and in the first year he celebrated achieving revenues of $250,000. The milestone was exciting, but he still had a long way to go.
In year two Brian added to his team. He was well connected and good at his trade. Finding talented people wasn’t easy, but he was confident in his ability to train new hires on the job. He finished the year with revenue of $500,000 and a team of four.
Brian was still very much on the tools, but his own workload was growing considerably and he was frustrated that his team was not completing the volume of work he expected.
As he started year three Brian was getting stressed. The savings he had started with were nearly gone, and to compensate he had cut his personal draws from the company. Winters were good for revenue, but he felt disorganized. The volume of calls requesting emergency response for burst pipes and furnace repairs was high and he didn’t want to turn people away.
He knew this meant that his crew could be spending 40 minutes or more traveling from one jobsite to another. He was also struggling to keep his trucks stocked with parts meaning more frequent trips to the wholesaler.
Brian began to question if his rates might be too low. In the beginning he wanted to offer fair pricing. He had a good idea of what others charged for service and he didn’t want to take advantage of his clients. But with strong sales, why was he struggling so much to make a profit?
It was at this time that Brian ran into an old friend named James. They had worked together many years ago. James had moved away and starting a plumbing business of his own and was back in town visiting family.
Asking about his business, Brian was blown away by the difference. Revenues were similar, but James was not having any cashflow difficulties. “What have you done so differently?” Brian asked.
Comparing notes, a few things stood out. James had moved to a small town of 30,000 people and didn’t have the same issues with travel time between jobs. James was also charging premium rates (10% to 15% more than his competitors), and he charged an emergency call out fee of $200 for each job.
Occasionally clients would complain, but when James explained that this fee allowed him to invest in a larger supply of stock parts on his trucks, minimizing trips to the supply store and increasing the volume of clients that could be served, they understood.
Brian was amazed at how two simple differences could have such a significant impact on the business.
Profitability is a Responsibility
Think back to the time before you opened your business. Why did you choose to work for yourself instead of working for another company?
Whether you didn’t see eye-to-eye with the owner of your last company, or you wanted to provide a better life for your family and create a legacy you could leave for your children, you chose to take a risk and started your own business.
Now think about what you would be earning if you still worked as an employee with a guaranteed paycheck and far less financial stress. The reality is that most business owners earn less than equally qualified professionals employed by other companies.
To further complicate things, life as a business owner is more expensive than life as an employee. Do you recall the last time you applied for a mortgage as a business owner. The bank probably asked you for two years of financials, both personal and corporate.
They may have also asked for a larger down payment, quoted you a higher rate or even denied your mortgage altogether. By contrast, your employee will only be asked for a letter from you stating their current salary combined with their prior year tax return, and they will likely get a better rate than you.
Profits are not a cherry on top, they are not a dream for one day. Profits are compensation for the job function provided by the business owner and the risk they accept in operating their business.
Business owners have a responsibility to many stakeholders. In fact, these responsibilities are often the things that consume our minds at 11 p.m. when we’re winding down for the day. When it’s quiet in the house, when our kids have gone to sleep and when there’s finally no phone calls distracting us. This is the time when we’re left alone with nothing but our thoughts.
We have a responsibility to our staff to ensure the reliability of their paycheck, to our clients to be available for that emergency call when their pipe bursts and to warranty their water tank if an issue arises. Can you imagine the stress of completing warranty work when your mind is consumed by ensuring you have the cash for payroll?
We have a responsibility to our vendors and the financial institutions that lend us money. Failing to live up to these commitments increases the cost of doing business. Vendors may reduce or revoke credit limits, banks may increase the rates on loans.
We also have a responsibility to our communities and our families. Business owners support community events, sports teams, charities and other local businesses. Our families rely on us for long term needs such as college education and retirement. They also rely on us for short term needs like family vacations and team sports. Without consistent, dependable profits how could we ever expect to live up to these responsibilities.
As a business owner you will be challenged constantly about your profitability. Some will call you greedy, some will call you tax cheats, some will say “can’t you give just a little bit more.”
Please remember, most people don’t understand the struggles of running a business. When we face these critics, we must always be kind, reminding ourselves that they only see one side of the coin, but we must never give in.
Earning a profit is both our right and our responsibility as business owners.
Keeping Score and Good Coaching
Think about your business like owning a sports team, it’s important to remember to keep track of all the statistics – the operational day-to-day business operations and also the financial statistics – and remember the importance of having the right people in place to manage the team in the field, as well as coaching the front office or the financial side of the operation.
Your financial reporting is your scorecard – protect your scorecard at all costs. This means hiring experienced professionals to diligently manage your accounting system versus just hiring that affordable bookkeeper who charges $50/hr.
Review your scorecard frequently. The time to act is now and you can’t take action without reviewing your performance. Large profitable companies look at their performance at least every month. You can’t afford to wait until the end of the year for your meeting with your tax accountant.
Hire an amazing fractional CFO – think of this professional as your financial coach. The Edmonton Oilers started the 2023/2024 season with a record of 3-9-1 in their first 13 games. In a season where they were expected to be a contender, they were 31st out of 32 teams leading to the firing of coach Jay Woodcroft.
Over the next 29 games, with new coach Kris Knoblauch the Oilers record turned around, and as of this writing they’re in the Stanley Cup Finals!!!
Aside from the coaching switch there were no material changes in the team. Having a coach matters, having the right coach can be a game changer.
The original article was published on HPAC Mag, on June 13th, 2024.
