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[Editor’s Note: This is the first of a five-part series explaining how to handle a recession. The first installment helps you recession-proof your company. Future installments will focus on specific jobs including: dispatchers, accountants, technicians, service managers, and salespeople.]
It’s no secret by this point in time. Tough times are gripping the nation. Homeowners have seen their equity dry up faster than water in the Sahara, and the stock market has continued to fall lower by the day. By this point, nearly 50 percent of the wealth in the stock market has been lost. Add on top of that the fact that unemployment topped 8 percent, and the forecast just gets gloomier.
But even with doom and gloom hanging over the industry, there are strategies you can take to ensure your business survives, and the No. 1 universal law to surviving recessionary times is adjusting your business to the economy. If the revenue coming in your door doesn’t support the number of people on your team, you’ll accumulate massive amounts of debt that will become a burden on your back that you may not be able to shed even after the economy rebounds. There’s no doubt that the economy will rebound. The economy always does, but you have to be positioned to weather the storm and prosper when the economy picks up.
How do you ensure you’re around in the future? By making the tough choices today.
SURVIVE THE NOWIt’s one of the most uncomfortable responsibilities you have as a business owner. After all, you care about your people, and those families rely on you. But even though it’s regretful and unfortunate, it’s better to lay off five people and keep your company alive than to go bankrupt.
And remember, you didn’t create the economic hardship. You aren’t getting rich during these tough times. You may have even skipped a paycheck or waited until everyone’s checks cleared. You keep advertising to try to stimulate enough work to keep everyone busy. With results below normal, you may even have accumulated debt, tapped out on your credit line, taken out a second mortgage on your home, or received the dreaded “cash basis only” notice from your supply house.
Your employees will see it and feel it too. They see the stress in your face and feel the burden on the business, and as a result, their performance in the field suffers.
But the reality is that by running your own business, you’re doing all that you can to stimulate the economy. And you need to keep your business running.
To do that, it’s time to make the tough choice and implement the universal law of business survivorship during tough times and adjust your business to the economy. Employ the number of people you need to handle the amount of business coming in the door. Anything else drives you deeper into debt.
But one of the flaws that holds HVAC contractors back from taking the necessary action is the fact that you’re likely an eternal optimist - most contractors are. It’s normally a good thing, but in tough times it leaves you clinging to the hope that things will get better soon. That optimism leads you to believe that since you have good people, you need to keep them all because better times are right around the corner.
While it’s true that better times will come in the future, you need to make changes now to ensure that you’re still around to enjoy them when they get here. You need to put that optimism in your back pocket for just a minute and take a look at the here and now.
You need to worry about the cash coming into your business and react to the here and now. If you don’t survive the now, you won’t be around for the future.
ENACT THE UNIVERSAL LAWWhen the time comes for you to put the law into place and match the size of your team to the revenue coming in, here are some steps to follow:
1. Non-revenue producers go first. The office is a support function, and if you have less business coming in the door, logic says you need fewer office workers to field those fewer phone calls, to dispatch those fewer calls, and to process those fewer invoices. The first place to look is non-revenue producing employees.
2. Trainees are next. Many companies, and perhaps you, have decided it’s better to grow your own employees than to recycle employees that are set in their ways and jump from job to job over the next, “I’ll give you a $2 an hour raise.”
Obviously, it takes time to bring a trainee up to speed, and I understand the difficulty of laying them off after the time and energy you have invested, but this is survival mode. You must run a lean and productive team of producers.
3. Address your problem spots. If you still need to cut, you have to look at your revenue producers, and it’s not always the case that the lowest producer is the one to go. In recessionary times, you need team players that pull together and support each other through the tough times.
If you have individuals that are an emotional strain on you, a daily challenge to manage, or are always wanting to argue the opposite point, perhaps now is the time to send a message. This is your company. You need to say, “I am the owner and I have options on who I employ.” The Dallas Cowboys didn’t cut Terrell Owens over his lack of talent. He was cut because of his disruptive nature. If you have a disruptive force on the team, perhaps now is the time to take action.
4. Now focus on production. If you’re still not in shape, look at the lowest producing revenue employees who often have the lowest closing ratios and the lowest average invoices.
5. Beware the commission trap. Some owners allow their straight commission employees to sit around the shop in hopes that business picks up because they “don’t cost me anything.” But they aren’t free. Even if all your employees are commission employees, there are still costs such as cell phones, insurance, uniforms, and the poor attitudes they may develop. Don’t let them stay just to avoid the uncomfortable situation of facing them about layoffs.
WHAT TO EXPECTThe simple formula behind business is Sales – Expenses = Profits, but many contractors have learned the hard lesson that more sales don’t necessarily mean greater profits or any profits at all. It’s sad to see a business owner build a nice lifestyle and have a successful business and then one day be forced to close his doors because the overhead ate him up. In recessionary times, it’s not the amount of revenue that is vital. It’s the amount of profit. A leaner, stronger team will allow you to profit.
If you’re forced to layoff employees, you must communicate to your team you are disappointed that you had to make the tough decision to layoff their peers and friends. It’s already caused you many hours of pain and anguish.
Let them know that you looked at the team and decided they were the most valuable people that you wanted to build a championship team around. You are the ones that were selected either because of who you are today or the potential I see inside you.
If you employ the right type of people, you will actually gain greater support by communicating this effectively. After all, your employees’ loyalty lies with themselves and their family. They will be happier about having a job than they will be upset about their peers that were laid off. They’ll be relieved they don’t have to go home and tell their family they were laid off. Plus, they’ll be committed to helping the company turn a profit.
With your team of superstars, call conversion rates will go up. Even with fewer calls coming in, your best call taker is answering the majority of them and booking more service calls or replacement leads.
You’ll have lower expenses with no trainees, and your labor may even decrease because your technicians can work faster without taking the time to train the trainee.
By eliminating the time-consuming, high-maintenance employee, you now have more time to work on your business rather than dealing with damage control.
If you lay off lower producers, your overall revenue may actually go up since your superstars who have higher closing ratios and better selling skills are getting more of the calls.
More revenue with fewer people is a beautiful thing. When your Sales – Expenses = More Profits, you’ll know you made the right decision.
Adjusting your company to the economy is the first step you must take to ensure your company survives. But you don’t work alone, and over the next four articles, I’m going to help you further your success by giving your team action steps to recession-proof their jobs. In part two of this series, your call takers, dispatchers, and accountants will learn what they can do to recession-proof their job. In the third installment, your technicians will get their action plan. In the fourth installment, we will address your service manager’s steps, and finally, we’ll address action steps for salespeople and sales managers.
When you have every single person on your team trying to recession-proof their job, the overall company will be thriving during these recessionary times.
Follow these steps and train your employees to implement them. You will see who is committed to their success and the success of your company.
I encourage you to stay tuned for these upcoming issues because no matter what the economy, there are ways to make money every day, and with these action steps, you’ll have the plan to do it.
Publication date: 04/27/2009