debt collection

[hardworkingstiff]

Sorry for the sarcasm

don't be

but many of you out there are of the opinion that there is only one way to operate a successful EC business. In fact there are many types of winning business models.

Very sage comments.

 

[satcom]

I know alot of you guys hate T&M work but in my world it is more common than bid work. This is a resort area where most of the customers are rarely even here. They call up, tell us what they want and where to pick up the key. We do the work and send the bill. More than half of my customers I have never even met face to face.

In 30 years of contracting I have probably done over 25,000 invoiced jobs and written less than 100 contracts. I almost never get burned and the few times it has happened are of so little consequece it's hardly worth mentioning.

Before all you fixed price guys pile on and tell me I'll be out of business in six months by doing T&M work; it's worked fine and profitably for 30 years.

Another thing I do that will drive you fixed price contract guys nuts is this. Frequently I will bid a job and then when we get going we'll find a much quicker and easier way to get it done. When that happens I will actually do the unthinkable and reduce the price accordingly. When the opposite happens I let the customer know about it and renegotiate a higher price. I realize that this kind of reckless folley is going to totally ruin the industry but that's why I started contrcting in the 1st place.

Sorry for the sarcasm but many of you out there are of the opinion that there is only one way to operate a successful EC business. In fact there are many types of winning business models.

The only reason we contract everything is it's the law here in Jersey, unless it's a minor job under $500 then we do not need a contact, It's you business how you operate, I just can't understand why anyone would go in contracting, then work for T&M, It makes no sense, why anyone would go in business to end up working for wages. Your happy doing what you do, and your happy with the results, but in the metro areas, working without a contract, is like fire walking with a tank of gas on your back.

Quote: "This is a resort area where most of the customers are rarely even here. They call up, tell us what they want and where to pick up the key. We do the work and send the bill. More than half of my customers I have never even met face to face."

I also worked a resort area, and every contractor, not just the electrical, had nothing but problems with payments, so you just happen to be very lucky, the Big Bear has not bit as yet!

 

[bkludecke]

Satcom: I don't work for wages per se. My hourly rate for a JW includes his wage + all the labor burden + overhead + truck charge + profit, materials are marked up to include price + shipping + tax + overhead + profit.

Think about this: isn't that how you bid a job anyway? You take all of the above factors plus some PITA factor for contingencies and come up with a price that is, hopefully, competative and will produce a profit at the end of the day.

I do very little work in the field these days and when my JWs are working I am making money.

I guess what I've experienced so far is that if I am bidding accurately I make the same on quoted jobs as I do with T&M work. Does that make any sense?

BTW the laws in CA are similar to NJ in that we're supposed to have a signed contract with a NTE price so if we go by the book T&M work would actually put me at a disadvantage w/ the customer. I just don't always go by the book.

 

[goldstar]

The only reason we contract everything is it's the law here in Jersey, unless it's a minor job under $500 then we do not need a contact,

Not that it's a bad idea to always have a (written) contract but can you please let me know where you found this law or information in NJ ?

Thanks,

Phil

 

[emahler]

Not that it's a bad idea to always have a (written) contract but can you please let me know where you found this law or information in NJ ?

Thanks,

Phil

Page 3, Line 17...C.56:8-151
this is a copy of the bill, but it was passed...if satcom doesn't post the actual law, i'm sure Celtic will...

 

[satcom]

Page 3, Line 17...C.56:8-151
this is a copy of the bill, but it was passed...if satcom doesn't post the actual law, i'm sure Celtic will...

At the 10 hour law section of the CEU's they usually read the law, and any revisions, the last CEU class there were a few guys noding off.

 

[aline]

Sorry for the sarcasm but many of you out there are of the opinion that there is only one way to operate a successful EC business. In fact there are many types of winning business models.

Another thing to consider is that success means different things to different people.

For some success means the ability to go trout fishing on Sundays.

Others may want more.

So really it comes down to what one would consider successful.

 

[bkludecke]

aline: That's a very good point. Satisfaction and contentment most certainly take on many forms.

For me I want to retire in about ten years or so and in such a way that I can do a little traveling and persue some hobbies such as cycling, hiking etc., maybe some teaching and consulting just to keep my brain alive.

Since I can't rely on any inheritance I must fund my own retirement by including that in my overhead.

Also included in overhead is funding our health insurance plan. I see many ECs relying on their wife's insurance and that is fine unless she looses her job for some reason. Since my wife is my office manager we are basically what I call a stand-alone EC. If the our company doesn't earn it, we don't or won't have it.

What annoys me the most is people who only recognize their way of doing things as the correct way and the rest of us as idiots who are going to fail at any moment.

 

[satcom]

What annoys me the most is people who only recognize their way of doing things as the correct way and the rest of us as idiots who are going to fail at any moment.

As you say there are many ways to structure your business, but when it comes to business planning for profit, and debt collection, there is only one way, make the target profit, and collect every penny, fail at any of these and you may fail at any moment.

Profit is something you have some flex with, but accounts that are not checked, and secured with a contract, are a liability no mater what model you use.

Bob, It must be a great place where your living, but where you live is not typical of the rest of the country, customers can drive a small contractor in debt, and do every day, I think the new guys on here should understand the real risk out there, so they don't take a hit.

 

[emahler]

bob...just remember it's about averages and odds....and odds are a 1-3 man shop working residential service T&M is not going to be able the charge enough to cover those items you listed, take vacations, have nice cars and a nice house, be able send his kids to private school if he chooses, give his wife the option of staying home with the kids, etc, etc, etc..and still pay himself a decent weekly salary...let alone pay his help enough to live like human beings...so the average small EC has better odds of succeeding with a system other than T&M...

 

[satcom]

bob...just remember it's about averages and odds....and odds are a 1-3 man shop working residential service T&M is not going to be able the charge enough to cover those items you listed, take vacations, have nice cars and a nice house, be able send his kids to private school if he chooses, give his wife the option of staying home with the kids, etc, etc, etc..and still pay himself a decent weekly salary...let alone pay his help enough to live like human beings...so the average small EC has better odds of succeeding with a system other than T&M...

I agree, It appears Bob structured his T&M charges from a burden profit balance, rather then from a total cost number, but as you say most small EC shops will not do the planning or take time to build a pofitable structure.

 

[bkludecke]

I hate to belabor this (actually I love it ). But my T&M pricing has given me a comfortable living here for 30 years now. My retirement funding is on track and I have most of the things I want in life.

I've never had a business plan. I've never borrowed money to stay afloat. I've never had to tell an employee to wait for his pay and I've always paid my bills. The recessions and hard times were hard and the good times were good.

When I started out here in 1978 it was just me and my wife stayed home with the kids until they were 12ish. Then she came to work in the office which was about the time I started hiring help; worked out just right.

I have anywhere from 2 - 6 field people at any one time. Currently I've got 2 so I jump in and do service calls myself more than normal these days. We also do contract work on new construction/remodel which is usually done with unit pricing.

My question to you fixed price guys is this. What's the difference? When I bid a job I figure it with all the associated costs: materials, mark-up, labor, labor burden, overhead (which includes me and wife's salary), profit, and some "what if" money as well. This is exactly how I figure my T&M pricing. So if I bid a job accurately I would make exactly the same amount as if I did it T&M. What am I missing here?

And yes I am very fortunate to live in a small resort town with a great customer base. I have seen many ECs come here and fail and leave thinking this is the worst place on earth to try and make a living in. This just happens to be my nitch.

 

[emahler]

bob, i like to belabor it as well

here is the difference..for resi service, or order to pay for all the things mentioned, i would need to bill in excees of $100/ hr for every hour worked...it's much easier to get people to agree to a fixed price than to that rate...but additionally, on T&M I get punished for being efficient....the quicker I'm done, the less I make, the more calls i have to do....

when you drop from 6 to 2, how to you compensate for lost revenu thats needed to cover overhead? doing flat rate, we can easily change the price of jobs in order to compensate....can you say he sae about increasing your hourly rate?

 

[bkludecke]

emahler: For one thing, when I've got fewer employees my overhead is somewhat less. The first people to go are the least productive ones. Of course the fixed costs still remain and we have to tighten up here and there until the economy allows for better times.

I do see your point on the fixed price thing allowing you to not reveal your hourly rate but most of the folks I deal with around here can figure it out fairly quickly. I do fixed pricing as well and a common question I get is "how long will it take?". So I give them an idea. I've also had customers feel cheated when they think I just made $250/hr.

When times get tough (like right now) the last thing I can get away with is raising my prices. Right now the competition is lowering pricing and just trying to pay the rent. I've seen these price wars before and it ain't pretty. Fortunately I don't have alot of debt so I should be able to ride this one out just like all the ones in the past.

One thing I like about this forum is how much I learn from you folks out there. Although I may argue my point to the death, don't think for a moment that I'm not picking your collective brains and making adjustments to my operations based on what I learn here.:roll:

Peace

 

[kkwong]

One thing I like about this forum is how much I learn from you folks out there. Although I may argue my point to the death, don't think for a moment that I'm not picking your collective brains and making adjustments to my operations based on what I learn here.:roll:

Bob-

You just hit it on the head. While no one is truly going to learn someone else's business secrets, this forum is a great place to compare what you're doing to ther rest of the US. I've even stolen err...borrowed ideas from here as well.

 

[goldstar]

emahler & satcom thanks for the link & info.

Regards,

Phil,
Gold Star Electric

 

[emahler]

emahler: For one thing, when I've got fewer employees my overhead is somewhat less. The first people to go are the least productive ones. Of course the fixed costs still remain and we have to tighten up here and there until the economy allows for better times.

I do see your point on the fixed price thing allowing you to not reveal your hourly rate but most of the folks I deal with around here can figure it out fairly quickly. I do fixed pricing as well and a common question I get is "how long will it take?". So I give them an idea. I've also had customers feel cheated when they think I just made $250/hr.

When times get tough (like right now) the last thing I can get away with is raising my prices. Right now the competition is lowering pricing and just trying to pay the rent. I've seen these price wars before and it ain't pretty. Fortunately I don't have alot of debt so I should be able to ride this one out just like all the ones in the past.

One thing I like about this forum is how much I learn from you folks out there. Although I may argue my point to the death, don't think for a moment that I'm not picking your collective brains and making adjustments to my operations based on what I learn here.:roll:

Peace

Bob, one thing that I think you understand, but some of the newer guys reading might not, is how your overhead is affected....

when fluctuating up and down in your labor pool, there aren't too many variable overhead items that you get to delete...you pay less in fuel, payroll and taxes aren't overhead - so they don't count..there aren't too many items that are truly variable. Employee medical is one...

truck payments still need to be made, cell phones are under contract, advertising is still under contract, etc...

For arguments sake, you have $10/hr in variable overhead (this includes company paid healthcare)

you have $5000 week in fixed overhead expenses (this includes office rent, truck payments, advertising, etc...

You have 4 vans on the road. each van has 1 mechanic (for the sake of argument)

For the sake of argument, each mechanic bills out 40 hours/week...so, you have 160 man hours billable per week...

$5000 / 120 = $31.25/man hour in fixed overhead...

$31.25 + $10 = $41.25 hr in overhead...
We pay $30/hr total package (including all burden, except healthcare)

$71.25 is our break even...we have a 20% Markup (not profit, markup)...so we bill $85.50/hr for 160 hours a week...

Now, business gets slow...so we have to lay off 2 guys...ok...that cuts approximately $1600/wk in variable overhead ($10/hr x 80 hrs/week)

but we still have $5000 in fixed payroll...but now we only have 80 billable hours a week...

our fixed overhead is now $5000/80 = $62.50/hr in the short term...remember we are still under contract for things...

So, our actual cost per man hour is $62.50 + $10 + $30= $102.50...but we're still billing $85.50...so every hour we work, we lose $17.00...or $1,360/week

My point is, the variable overhead is not as much as we like to think...many guys figure that getting rid of the payroll will save them money...but that payroll is an investment, not really an expense...

I will add, long term you can sell the vans, finish/cancel contracts, etc...and thereby lower your fixed overhead...if you own the trucks outright, work out of your house, etc, go away, i'm not talking about you...

if you are a flat rate company, it's very easy to charge $425 for a job that you normally charge $400 for...it's much more difficult to raise your hourly rate from $85.50 to $90.50 without getting questioned...

if you have enough in the bank, you can whether the loss in the short term...but then you need to replenish that fund. if you flat rate, you can raise your rates easily to break even rate, and keep the money in the bank...

am i off by much bob?

 

[hardworkingstiff]

Reading these posts makes me think of another point. During the good times, how many people actually pushed pricing and the business to the limit (on the high side)? If you had, you should be in pretty good financial shape to weather this storm. If you didn't, and you make it through this one, remember during the next gold rush to bank some gold.

 

[emahler]

that is a problem in our industry lou...it takes years of good times to get guys to raise their rates...but 3 days of slow, and they drop their pants and grab their ankles...i don't get it:shrug:

 

[bkludecke]

HWS: You got it. In the good times you stash the cash. It took awhile for me to figure it out but now I can weather the storm fairly well. Staying out of debt is another one. I've got one JW who has been hounding me for over a year to buy a new service truck. I have been seeing this slowdown coming so I get the oil changed,new rubber and a seat cover and down the road we go. I've got seven trucks and they all get good care.

EMAHLER: I hear you good brother. Your a numbers guy and your numbers are pretty right on. That's why I put some away in the good times. It's getting brutal out there these days and I can ride it out for quite awhile.