THE CLIENT:
The company was a septic tank installer in the Carolinas. It was run by two brothers who had bought it from their dad. The majority of their business involved installations in new homes and in new developments that were being constructed around town. They had two crews of four people each. However, they were having trouble keeping the crews at full strength and needed to hire some new people immediately.
One of the brothers oversaw the installation business, while the other brother supervised a concrete septic tank crew that built tanks for installation and for wholesaling to others.
The company also had two pumping trucks that could be hired to clean out a blocked, or full, existing septic tank.
The brothers operated under a verbal agreement that if one objected to a plan or idea, then it would not take place. They had to be in complete agreement with one another while operating their company.
THE SITUATION:
Just prior to our arrival at the company, the brothers had hired a part-time girl to focus on collections. There was over $200,000 in outstanding and overdue amounts. She had started calling the week before and was already getting some results.
In the beginning, the company only had one truck driver to deliver the trenching and digging equipment to the job sites. Sometimes this would present a problem because the equipment had not arrived by the time the crew was ready to start digging. Every morning the crews would arrive at their assigned jobs. They were relying on both the equipment’s preparation and that one of the brother’s had already visited the site. This was important because this visit laid out the job according to the plan outlining where the system was to go, including the depth and slope of the trenches. This consumed a great deal of the brother’s time. This in turn meant that he did not spend as much of his time invoicing for the jobs that were completed. Therefore, invoicing was behind, and in some cases, customers were billed inaccurately.
Two areas of immediate concern included the fact that more than one person was creating invoices, and this made it hard to hold anyone accountable for errors. Secondly, there was no policies in place for who got credit for doing a particular job. Moreover, how did we handle after hours work where we needed to collect for our services?
The jobs usually took about four hours to dig and put everything in place. At this time the crew was ready to move on, but the equipment needed to be moved and there was only one driver. So, we were not very efficient.
The office was staffed with only one other person to answer the phones and schedule the pump-outs in or any other work that needed to be done. She attempted to stay in contact with the pump drivers and advise them of any new jobs that needed to be done.
There was also a one-man repair crew that did small repairs and inspections required by the state. He maintained a separate schedule that required better coordination with the office. He was perpetually behind schedule, and he was often interrupted when an “emergency” repair needed to take place. In addition, we found that the emergency calls were not being screened enough to determine if it could easily be fixed or if we needed to schedule a repairman.
In reality, neither brother really understood what it cost them, in terms of labor dollars, to do the work. Their pricing model was based on how their dad’s company was priced. It was not based on the reality of their specific situation. For example, they were making concrete septic tanks but had no idea how much labor time was needed to construct these tanks. They had several different designs available, but the pricing was based on what the competition was charging, not what it actually cost to make them
They had no idea what it meant to recover their overhead and how to apply this to their pricing.
Since there was no budget or projection of business to determine the balance of the year, there were no sales goals either.
The Chart of Accounts was not in good shape. There was only one category for revenue, and the Fixed Costs were mixed with the Cost of Goods so there was no accurate way to determine the Overhead or Overhead Recovery Rate.
THE SOLUTIONS:
The implementation of the solutions was broken down into two broad categories: organizational and financial.
Organizational:
The first step was to create a Collection Procedure and encourage the part-time office person to continue calling the overdue accounts. The Collection Procedure helped her do her work in a very pleasant manner while obtaining good results.
The $200,000 overdue was a burden for this young company. The collections had been jump started by the part-timer and got off to a great start.
It was obvious that the brothers were wearing too many hats and had failed to do any delegation. Thus, bringing in the part-timer for collections became the first step.
The next was to review the policies and procedures in the office and in the field. We felt that too many people were getting invoiced for the repair, inspections, and pumping work that we were doing. To reduce this, and collect our money sooner, we equipped all of the employees who dealt with the public with a “Square Device” so that we could accept credit cards in the field. This also allowed us to have clients pre-pay over the phone with the Office Manager. Now we could take cash, checks, or credit cards and we did not have to create a bill and wait to get paid.
To address some of the missing invoicing, we created a Daily Log for the Installation Crews to complete at the end of the day. The crew were responsible for stating where they had worked and what had been completed. This was intended to be a double-check to ensure that whatever we were working on that day was billed and did not fall through the cracks.
We then implemented a process whereby the Pump Truck driver was expected to call the office when he was finished and about to leave for the next assignment. We needed to know his schedule, so that we can handle any emergencies as well as answering customers when they called the office and asked when he will be at their location. Presently we had no idea when he would arrive and could not answer intelligently. We managed to include this on his phone’s google calendar which improved communications immensely, and customer service meant a great deal as well. This was also done with the Service Technician which helped with those emergency calls.
In order to address our “help” shortage we had some banners made and placed them on the main highway passing the office and storage yard. The response was very good with over a half-dozen applying for positions. From this we were able to hire another heavy-duty truck driver. This addition allowed us to move equipment more frequently and get it to the right locations in the afternoon for the next morning’s start.
Financial:
On the financial side, we also made a recommendation to free up some of the Pump driver’s time by allowing him to be removed from the responsibility of the “de-watering” process. This should free up several hours of his time and allow us to service 2-3 more customers a day. The Pump Truck charges $235 to pump a tank. The driver estimates that he would be able to pump anywhere from two to four additional customers a day. If we assume the lowest increase of two extra customers on an average day, then he would generate $2350 EXTRA PER WEEK. Or, an extra amount of $122,200 for the year.
Next, we priced the concrete tanks that we produced. We met with the brother in charge to discuss any additional tanks that were considered important and priced them as well. Prices of the delivery costs were reviewed, and it was decided that we would price that component separately from the tanks themselves. We needed the pricing on the tanks because we wanted to sell to competitors, and we currently price the tanks with delivery included. Attempting to do this seriously erodes our margins in areas where we are making a profit. I believed that our low prices would only help our competitors bid against us. It is clear that the most popular tanks should really have a price increase, and we should consider delivery as a separate price which would enable us to gradually add fuel surcharges if needed.
We devised a package of incentives to be used for the crews and drivers. If a crew leader was capable of going to the site and laying out the tank installation and piping without the assistance of the brother, then they would receive an extra $250 dollars for laying out that job. This became a goal of the crew leaders, and they improved their skill sets while also receiving between $500-$600 extra on each paycheck.
THE RESULTS:
This Project ran for a total of six weeks. In May, when this Project started, we were having collection problems and communication problems in the office and between the office field personnel. These issues improved immensely as we started to send messages to everyone’s phones and were able to keep better track of where everyone was working. Our collections improved immensely, and we were finally able to collect all but a very small part of the $200,000 in A/R. The second half of the year went very smoothly with the Company logging a one-million-dollar profit in the six months leading up to the end of the year.
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