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Poll: Contractors Cut Non-Billable Items First

December 5, 2011
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Pie Chart
Figure 1. Survey results.

During good economic times when business owners can afford to keep a few “perks” in the operating budget, it isn’t unusual to see a lot of time and money spent on meetings, training, employee benefits, and marketing. But when business is slow and things have to be trimmed back or eliminated, it is usually these same items that disappear from the operating budget. Many of these things are eliminated because they are non-billable and cannot be charged off to any job. This is not always true, but for the most part, something like attending an educational seminar cannot be directly billed to a customer.

In a recent online survey at LinkedIn.com, the question of budget-cutting drew responses from 163 people. They were asked, “You are setting next year’s budget for your business and have to make some expenditure cuts: What do you trim first?”

The survey answers were:

(a) payroll hours;

(b) employees;

(c) advertising/marketing;

(d) non-billable activities; or

(e) other.

The overwhelming majority (64 percent) said non-billable activities. The complete results are in the chart in Figure 1 on page 7.

Some of the respondents said that cutting non-billable items was preferred over other cuts because being well-staffed and well-marketed are essential to success, even in a down economy.

HVAC contractor G. Andrew Smith said, “When you have to cut expenses in a tough economy, you don’t want to cut marketing, which is the life blood of a company. Without calls you don’t need employees, and if you have the calls, you don’t have to worry about cutting the payroll hours or employees.”

Building controls business owner Jim Grindinger said that cutting costs involves a multi-pronged strategy. “I would have to analyze the productivity of each employee first and see who is not providing value or is non-productive,” he said. “I believe you have to keep marketing, keep people communicating in meetings, and cut non-billables, but there are usually some areas that are overstaffed in slow times.”

Other replies included lowering overall debt, smarter purchasing, analyzing worker productivity, or not making any cuts at all.

Since the response was so one-sided in this survey, a question was asked of several HVAC contractors: “What non-billable items would you cut from your budget?” Following are some of their comments.

Cutting/Revising Non-Billables

Butch Welsch of Welsch Heating & Cooling Co. said he knows contractors who have already taken steps to trim their budgets and listed a few things he has done recently. One of the moves involved eliminating employee positions and redirecting job responsibilities.

“I have eliminated the purchasing position and now have a commercial sales engineer doing purchasing 75 percent of the time and bidding 25 percent,” he said. “I have turned two full-time positions into part-time positions with no benefits. I began charging a fee for gas and truck usage for employees who take trucks home and live outside of a 20 mile radius from the shop. I’m holding on to trucks longer than usual, too.”

Welsch added that he has scheduled the company picnic and general meeting to alternate years and has looked at cost-cutting measures like garbage removal, which he now saves $200 per month on.

Larry Sinn of Five Star Plumbing, Heating & Cooling thinks he has too much room. “I would cut costs on the brick and mortar,” he said. “We have too much office and warehouse space — just more room to store junk. Part of the reason we have so much space is that we have right-sized and have a built-in lease that prevents us from immediately getting smaller.”

Dave Boelcke of Boelcke Heating said he has a lot of fat to trim from his budget. He is beginning by shopping for services like credit card processing, insurance, fuel, and communications devices. “I plan to eliminate spiff programs for employees and start charging them for insurance, retirement, uniforms, etc.,” he said. “I’m not allowing them to take home vehicles at night, too. I plan to eliminate the feel good advertising like the symphony program, Little League, youth soccer, high school programs, etc.”

Butch Conway of Guaranteed Comfort Air Conditioning & Heating said it is important to keep an eye on all expenditures, including buying less color printer ink since it is only necessary to use black ink, and he watches all of the paperwork that goes out of the building. “We may have to raise deductibles on health insurance and cut back on vacation and sick days, too,” he said.

Stewart Pruzansky of Pruzansky Plumbing Heating & HVAC doesn’t want to cut back employee meetings and training but understands that for now, it is necessary. “We do not do enough meetings and workshops but I see them as necessary and will have them in the future,” he said. “For now, I have cut down on our non-billable office staff. We get more done with less people having private conversations and employees that cause aggravation; it makes the day go smoother, and we are more productive.”

Alex Walter of Alex Walter Furnaces, A/C & More listed many of the same things for cost-cutting and added, “I would be very careful regarding the purchase of vehicles and/or tools. If anything is a must-have item, I might lease or rent instead of buy. I’d get really serious regarding job scheduling for efficiency. I’d schedule for minimal windshield time for every field installation and service job. If I perceived that I’ve been a little tolerant regarding the personal use of company vehicles, I might install a GPS vehicle tracking system.”

What Is Billable and Non-Billable?

Some contractors offered a different perspective on the importance of keeping non-billable items in the budget. John F. Cockerill of Exquisite Heat said there are non-billable items which should be billed to clients. “Non-billable items have to be included in the pricing structure,” he said. “Meetings and workshops are a part of cost of goods sold, because the knowledge you gain is the most important asset you bring to the table. Put the time and charges into overhead under training expenses, along with your hotel bills.

“Bill your business for your development. It adds to the good will of your business. The big problem with our accounting system is there is no real detailed line item for knowledge and experience. You have to add it to goodwill.”

Mark H. Johnson of Comfort Air Service, LLC said cutting back is not in his vocabulary right now — there are other measures to consider. “Since we monitor costs continuously there really are no proverbial corners to cut,” he said. “Instead, in our meetings and training, we emphasize customer service, marketing, etc., in an effort to drive more business or enhanced business to us. We may have to work harder to maintain, but we feel in this economy, now is not the time to cut back training or marketing.”

Publication date: 12/05/2011

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