Raising red flags

by Allan Heydorn
Created: October 17, 2008

C&L Sweeper Service and Contract Sweepers & Equipment share job costs to improve bottom line.

"We've always felt that you can't manage what you can't measure, so we've made a real effort to track our costs," says Gerry Kesselring, Contract Sweepers & Equipment. "It's really not difficult...
"We've always felt that you can't manage what you can't measure, so we've made a real effort to track our costs," says Gerry Kesselring, Contract Sweepers & Equipment. "It's really not difficult. You start simply, and as you go you'll get more and more detailed. Job costing just becomes a way of running the business. It's a matter of having the discipline to do it. You have to be dedicated and you have to make sure you're putting your costs in the right spots."
"Cash flow is very important; but people mistake cash flow for profit, and they are two completely different animals," says Gabe Vitale, C&L Sweeper Service. "The bottom line is the bottom line, and...
"Cash flow is very important; but people mistake cash flow for profit, and they are two completely different animals," says Gabe Vitale, C&L Sweeper Service. "The bottom line is the bottom line, and keeping track of your costs is the first step in improving that bottom line. We now better handle our bottom line, there's no question about it."

Vitale and Kesselring stress that there are many ways to collect the information you need to job cost. Kesselring relies on a custom computerized system he terms ?pretty robust.? Vitale relies on standard QuickBooks and Excel software that generates profit-and-loss statements, income statements, and cash flow reports. Vitale says all C&L Sweeper Service labor is broken down, from porters to mechanics to truck operators. And it?s broken down even further so the company knows the labor cost for the driver of an air sweeper or a construction site sweeper.

?As a percentage of labor to sales, a broom operator on a construction site at night gets paid more than an air operator working on a shopping center during the day,? Vitale says.

And here?s one of the values of knowing that: ?Your broom operator might be making you a nice profit on his job while the parking lot sweeper might be losing money on his job. If you keep all those figures lumped together you might never realize that and might continue to lose money or not be as profitable as you could be on the two jobs combined.?

Kesselring says Contract Sweepers has always done a pretty good job of understanding where its costs go. ?Maybe we even go overboard on it, but we always understand how much it costs to run each piece of equipment. Everything is computerized in our system, but that?s just the way we do it. You don?t have to do it that way,? he says.

All Contract Sweeper labor is assigned to specific class codes, fuel is assigned to each specific piece of equipment, and when an operator goes out to a job, construction sweeping for example, that labor is charged to construction sweeping. In addition, every Contract Sweepers purchase order is allocated to a specific place. ?If something is bought for a piece of equipment it?s allocated to that piece of equipment. If we?re buying inventory it gets allocated to inventory, but once that inventory gets put on a piece of equipment it?s allocated to that specific truck. And all equipment is allocated to whatever specific job it works on.?

Kesselring says Contract Sweepers tracks equipment allocation on each job and applies labor costs to each piece of equipment on each job. Contract Sweepers? approach to job costing also generates an hourly rate (that includes depreciation, fixed costs, maintenance etc.) for each sweeper. On large, longer-term projects all costs are allocated to that specific project, generating what essentially is a mini profit-and-loss statement.

To help track costs even better Contract Sweepers assigns operators to a specific piece of equipment. ?That way if the costs on that particular vehicle are higher we can look at the operator and talk with him to try to determine why that might be,? Kesselring says. ?If we know his costs are higher than someone else operating the same piece of equipment, what?s the reason for that? If he?s wearing out brooms faster than someone else, why? Is he not adjusting them properly? Is he leaving them down driving from one job to another? And if it?s a production issue we can look at that, too. If we know a job should take an hour and it takes him 90 minutes, why? Is he doing things you shouldn?t be doing??

Raising red flags

Both contractors always felt they had a handle on job costs and that costs were where they should be.

?But when you start looking at the numbers things start to jump out at you,? Kesselring says. ?I don?t think there?s ever been an ?a-ha? moment. It was more like, ?Look at this?? People have to understand that it?s the incremental piece that?s important. It?s not the low-hanging fruit that?s now going to make an impact. I?d like to think that as an industry we?ve already picked that. It?s the small, incremental steps of pulling out savings, of asking one question, such as ?Why is it taking one driver 30 minutes to get out of the shop each night when it takes everyone else 20 minutes?? Those 10 minutes add up.?

?There are some situations you can?t change,? Vitale says, ?But if you see a red flag you at least know there?s a red flag and you can decide what, if anything, you want to do about it.?

Among the red flags the two contractors raised are:

#1. Fuel costs. C&L Sweeper Service had noticeably higher fuel costs than Contract Sweepers. So they talked about why that might be. As it turns out, C&L Sweeper Service operates in a much more rural market than Contract Sweepers.