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."

#7. Waste disposal costs. ?Gabe has done a much better job of pushing that back on the customer than we have, and that came to our attention when we saw that our dumping costs were so much higher than his,? Kesselring says. ?We have always accepted that cost but we?re trying to get property managers to provide dumpsters for us to dump into on their site. Our dumping costs have gone down, and we expect them to continue to decline.?

#8. Job profitability. Job costing has also helped the contractors get a better handle on the accounts it has, enabling each to decide how it wants to handle each account. ?We?ve raised prices on some accounts when renewal time comes as opposed to just keeping them because they?re nice folks, because we?ve had them a long time, or because they pay on time. We?ve raised them or let them go,? Vitale says. ?We know we?re going to allow about 20% of our customers to be marginal or incremental business for us but we need to make a good profit on the other 80%. We know how much marginal business we want to have and why, but we can?t know that if we don?t know our numbers.?

#9. Can we afford raises? ?If we?re going to give raises we know that money has to come from somewhere, and through job costing we can get a better idea of where we want it to come from,? Kesselring says. ?Do we want to become more efficient in some way ? with routing, for example? Do we want to raise our prices? Do we want to take a closer look at lot times outside the norm to see if we can make it up there??

Why job costing = success

Vitale says understanding job costs is essential to success in the market ? and in winning profitable bids. He says once a contractor knows the cost of goods sold (which in his case includes brooms, fuel, tires ? anything that?s required to run a sweeper), the contractor can combine that with the labor rate, overhead, and the profit margin he wants to make to form the basis of a solid bid.

?You put it all together and establish a price,? he says. ?If your price is too high all the time and you?re losing bids you need to take a look and see why you are too high and what you can do about it. If you?re too high in profit you can shave that, but if you?re too high in costs how can you fix that? If you don?t have numbers to look at you can?t make an intelligent decision.

?The exciting part is that, with a business plan in place, you really know if you hit your numbers throughout the year, and you don?t have to wait until the end of the year to find out if you made any money. And if along the way you are missing your targets you can try to figure out why and make adjustments so you can fix it and still make money the rest of the year.?

Vitale says the ability to share this information with someone in the industry who understands it has been a key to their job costing efforts. ?You can hire a CPA - and companies do need to do that - but CPAs aren?t looking forward, they look back at what?s happened,? Vitale says. ?Running a business based on what your CPA tells you your numbers show is like driving a car forward while looking in the rearview mirror. Working with Gerry helps keep both of us looking ahead.?