Money Talks: Money for Nothing Isn't a Pipe Dream

March 15, 2010
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Terry Nicholson

“Money for nothing and your chicks for free.”

Everybody knows that famous Dire Straits tune. That seems like the ultimate recipe for the good life. Money for nothing sure would be nice, especially when you’re used to slugging through challenge after challenge just to have a few dollars of cash left over at the end of the month.

But money for nothing doesn’t have to be a pipe dream. It can be a reality even for a hard-working, honest contractor.

What’s the magic money for nothing secret? It just involves making a few simple tweaks to something you do every day, maybe multiple times a day, without even thinking about it.

Today, the average contractor spends 50 percent or more of every dollar that comes into the company on buying items for the business. It could be equipment to install, tools for your technicians, office supplies, or even the simple things that go into a call like tape. Whatever it is you buy, chances are it eats up more than one-half of the revenue you work so hard to bring in.

If you want money for nothing, you simply need to employ some strategies to keep more of that money from being spent on stuff. If you can do that, even little by little, you’ll have more money left at the end of the year without putting in an extra hour of time or running an extra service call.

Here’s a simple example of the impact this can have on your pocket. Say you’re an average contractor today, and you spend 50 percent of your revenue on purchasing. If you could employ some simple strategies to get that percentage down to 45 percent the impact would be huge. How huge? For every $100 of revenue, you’d be able to keep an extra $5 of cash. Suddenly, you’re earning $50 for every $1,000 of revenue, or $500 for every $10,000 of revenue, or $50,000 for every million of revenue. Now $50,000 should get your attention!

And here’s the best part. That extra profit comes without the need to generate an additional dollar of revenue. You can boost your profits based on the volume that you already do. This is a huge advantage because if you’re a 10 percent profitable company, generating an additional $50,000 of profit the old fashioned way would require you to generate an additional $500,000 of revenue. Who wants to take on more overhead, more trucks, more employees, and the other additional headaches and challenges necessary to produce another $500,000 in revenue when you can get the same profit boost with a few simple buying tweaks?

When you cut the amount you spend, the pennies you save can add up to some serious money over the course of a year without the need to run any additional calls, and if you’re generating more than $1 million in revenue, then your savings are even higher.

How do you make it happen?

Even this money for nothing strategy takes a little work at the beginning to change your habits, but once you do, you’ll be enjoying the savings without even thinking about it. Here are four simple buy right tactics.

Grab the discount. This is the easiest strategy of which you can take advantage. After all, you just need to pay your bills on time to grab any early pay discounts that your suppliers might offer you. If you have this option, take it. That’s a bonus boost the supplier is giving you to pay your bill early. Granted, this will take some extra cash flow management, but with a little planning, you should be able to drop that extra savings to the bottom line in no time.

Work with low levels. The second strategy is to keep your stock and inventory at a low level. This has a few benefits. For starters, the fewer inventory items you have, the less you need to spend to house and maintain them. Even for that extra compressor that sits in the corner of the warehouse, there is a cost involved. Parts that you forget about in some bin of your truck can become obsolete and damaged, and that just adds on costs you shouldn’t have to worry about. Plus, and I hate to say this but it’s true, the less you have on hand, the less you have to worry about walking away. Even in the best company, parts, supplies, and equipment can disappear and every bit of shrinkage adds to your costs too.

Pass the hassle, keep the savings. The best deal in the inventory game is to have someone else deal with it altogether. If you can work with your supplier or manufacturer, you may be able to get involved in a virtual inventory management program. These are becoming more and more popular as technology evolves, and under these agreements, your supplier will manage the stocking of your trucks for you. Not only do you not have to deal with the hassles and costs of inventory, but you normally don’t even have to pay for a part until it’s used. Now that can have a serious impact on your cash flow.

Buy smarter with a little help from your friends. Here’s a big one … in fact, a revolutionary one. The biggest impact you can have on your bottom line when it comes to buying is to simply buy smarter. Buy at the lowest prices possible. If you’re a successful business owner, you might be thinking you’re already buying at the lowest prices, but I guarantee you’re not. If you’re a $1 million company, there is a $5 million guy buying at even lower prices. If you’re that $5 million guy, some $10 million guy is getting even lower prices. And even if you’re a $20-, $30- or $40-million operation, there are $400 and $500 million companies that get deals you wouldn’t believe. It all comes down to the power of numbers.

How do you really get the best deals on the items you buy every day?

The only way to do it right for the independent contractor is to band together and put the numbers in your favor, and there is a huge opportunity coming your way to do just that. No matter what size your company is today; small, medium, and large contracting companies will now have the power of the $400 and $500 million big boys.

In fact, HVAC industry insider and author John Hall called me recently to discuss this event that will lay out a new way for independent contractors to buy the items you need for your business. It’s called Focus on Your Future, and one of the main topics will be buying right, and a new alliance will be unveiled that will give you the same buying power that other powerful industries enjoy.

Today, industries as diverse as hospitals and food service suppliers to industries as close to home for contractors as homebuilders and welders have buying groups that give them buying power and advantages.

Now it’s your turn.

All of the details of this meeting and subsequent meetings of this buying alliance are still being ironed out, but this is your opportunity to tap into some real savings and start getting that money for nothing.

If you’d like information on this buying opportunity as more details are released, simply e-mail me at tnicholson@yoursgi.com with “Help Me Buy Right” in the subject line. I’ll let you know when the announcement is made and how you can be part of this revolutionary buying group that will put the purchasing power of the big box retailers into the hands of HVAC contractors.

Buying right is how you make money every day.

Publication date: 03/15/2010

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