Maximize your business’ worth by following the three Ms: manage, measure, and monitor.
By Ron Coleman
Over the last 40 years, I have reviewed hundreds of financial statements and bookkeeping systems of plumbing and HVAC contractors. For more than 20 years, I prepared annual reports on the financial statements of the Heating, Refrigeration, and Air Conditioning Institute of Canada (HRAT) contractors, focusing on management accounting.
I give over 80 per cent of these companies a failing grade for providing information that is useful to management.
Most companies use standard templates from QuickBooks or Sage, or systems designed by CPA firms that focus primarily on compliance with CRA requirements. These systems are not designed to provide information to management for improving business operations.
Many companies do not break out labour between direct labour and overhead labour, or if they do, it is often done incorrectly. Costs are frequently misclassified between direct costs and overhead. Based on my analysis of labour burden, I believe fewer than one per cent of companies use that process correctly.
Without proper management information systems, you cannot run your business effectively. You need the three Ms: measure, monitor, and manage. About 80 per cent of companies fail to provide the information required to do this.
Paying Employees
There are quick fixes to some of these issues. Some companies pay technicians only for hours that are billed out, while others use flat-rate pricing. These are two successful strategies to avoid management taking responsibility for the bottom line.
However, both systems are prone to callbacks and neither directly addresses productivity issues.
