When asked where most companies fall short, the veteran duo of Paul Starkey and Steve Firszt of VITAL Management say, unfortunately, the list is substantial.
Organized in 2014, the duo now coach 25 companies toward “peak performance,” which is their term for getting custom installation company owners at optimal operating condition. By immersing themselves in their clients’ business, they are able to affect standards for “counting” and put into place measures that help owners make priorities.
“The art of counting is not professed by many in this space,” head coach Firszt proclaims. “We have to lay the framework for getting good comparable numbers, and then we can pinpoint improvement areas. Noting many companies gain 3 percent to 5 percent in the first year.” Profit gains have frequently been in the $200,000 to $500,000 range, among their 25 disciples.
Starkey, who comes from a manufacturing background, quips, “The business model of the CI business is special and very attractive. It’s cash up front, high margins and evergreen nature based on design-build community relationships is often not fully understood or appreciated.”
Based on their interaction, here are the top six areas where most integrators fall short:
1. Poor counting that doesn’t align revenue and cost
Accounting or more specifically “counting” practices in custom installation seem more like 50 shades of grey with some recognizing revenue on cash received or promised to those waiting to book revenue when the project is complete. The VITAL way is when goods and services are delivered/performed. This best aligns revenue with cost and provides management opportunities.
2. Poor bid practices and un-optimized margins
Getting the equipment, parts and labor percentage right in the bids drives the bottom line. There are tried and true MIX percentages that need to be achieved to consistently show profit.
3. Misunderstanding the cash model and how to use it
Custom installation companies need to have an incredible amount of cash; cash before any goods or services are performed. Customer deposits/advanced payments generally account for more than 10 percent or sales on average creating a line of credit that most CI operators fail to optimize and manage.
4. Labor productivity and sales productivity practices that are counter-productive
Getting the most from sales people and tech, the revenue producers is paramount to being efficient. Organizing resources to make these key people productive is one of the secrets to highly effective operations.
5. Inconsistent sales management practices
As operators we tend to look at revenue as guiding the business. Sales managers need to look at bid and bookings activity. This mentality will drive larger backlogs and better futures for every company that does.
6. Poor cash accumulation practices
Leave some cash in the business. Owners often raid the cash from the business making it more difficult to weather the storms or deal with slowdowns. Accumulating retained earnings is a positive goal in these businesses.
VITAL Management’s coaching is not limited to the financial or operations sides of the business. “We engage in organizational planning, sales management, personnel and even assessment of outside services that each company can not afford to deploy. Coaching is mentoring, its relationship based and provides a sounding board on a wide array of business issues,” says Starkey.
He adds, “The addition of interchange between the owners provides a forum for cracking the secret code of success in this business. Every company we engage with, has upside potential and in many cases 50 percent to 70 percent of their upside is still untapped. We are ultra-simplifying an otherwise complex business.”