THE CLIENT:
The company was located in a mid-sized college town. It had four separate divisions: two were interconnected, and the other two were related but stood alone. The first was a rental division that managed and leased apartments and homes from their owners to college students. The second was a maintenance division that provided minor repairs to those apartments and homes. The third was a division that did mostly home re-models or additions: it was referred to as the “construction division.” The fourth was a relatively new venture that provided management to the Home Owners Associations for both condominiums and single-family associations. As part of their services, they maintained the minutes, kept the books, and advised the HOA on routine matters. The father was both the owner and founder of these organizations, and he desired to have his son buy the enterprises from him so that he could retire.
The son had been recently overseeing and directing the maintenance crews, adding the HOA business to his responsibilities. He was not aware of any of the company financials, which meant he had no idea what the profit levels were. The father and the accountants had continually moved revenue from one company to the other to keep their taxes at the lowest possible rate.
THE SITUATION:
Upon arrival, we discovered that QuickBooks was being used for the repair and maintenance side of the business, but the Chart of Accounts was not set-up correctly. In addition, the books were not being submitted on a timely basis. For example, an entry may not be completed for months at a time. The reasoning behind this negligence being, “that no one ever looked at them.” Moreover, nobody asked to view the P&L, so there was no urgency to enter the information.
The property management and construction sides of the business were being handled in a separate set of books using a system called Property Boss. Their fiscal year-end was also different in comparison to the repair and maintenance. Moreover, the date was set at the end of February instead of December.
The company was often cited for poor customer service in online reviews. The main reason being that the company was often unclear on both the tenant’s responsibilities and those of the management company, especially when it came to returning deposits. Additionally, the response times for repairs were not as quick as they could have been. On frequent occasions, work orders were often misplaced, and there was a lack of follow-up to ensure that repairs were completed.
The repair and maintenance employees were almost always working less than 40 hours a week. We were assured that there was enough work available to keep them busy, but they invariably took extra time off. This left us with almost $80,000 in unbilled revenue due to the underutilization of those employees.
Within the office, there were contrasting policies concerning whether or not a student qualified to rent a property. The property managers each required different levels of income. Furthermore, there was no established policy explaining when the property managers were expected to show a property themselves or if they could just give the keys to someone, so that potential customers could view it themselves.
With that being said, communication within the company was not good. There was little coordination between property managers and the repair team.
Moreover, few properties were actually listed, and there were no activities, like paying the rent, that could be done online. The number of properties listed under management had dropped from 580 to 534, and very little was being done to find new properties to replace them.
The construction side of the business was found to be way behind in its billing process; in some cases, the dates went as far back as six months. Thus, not only did this lead to confusion and create disputes as to what was really being done on the job, but also it affected cash flow. The construction side of the company was also found to have bid work that was well below what was necessary to maintain our Overhead Recovery rate and labor burden.
THE SOLUTIONS:
The implementation of our solutions was divided into two categories: organizational and financial:
One of the first things that we insisted on was a weekly staff meeting. We needed to have an agenda, and we needed to address the issues that were holding the company back. Therefore, we formed committees that would tackle a particular issue: move-in simplification, improve the company image, and introducing online services. Employees volunteered to work on the committees under the impression that they would be in charge of implementing the solutions if they had something to say about the planning. The committees were given deadlines to develop the reports they would discuss during the weekly staff meeting.
As part of our committee findings, we discovered that Property Boss could be set-up to take rent online, and the website already had a map feature for finding apartment locations, but no one knew how to access it. This was then taught to everyone.
It was also discovered that Property Boss had a free module that allowed us to email using the service. This would help both invoice customers and send emails to HOA members.
We brought in trainers from Property Boss to show the company how to utilize the service better. We found that many of the service’s features were not being used. Yet, these features could be used to facilitate improvements in customer services.
We set up one computer with the ability to email directly to the owners from Property Boss.
We then agreed to use Property Boss’s online portal to create automatic deductions from the tenant’s checking accounts. This led to the installation of a program that enabled tenants to pay their rent online as well.
We also determined that Property Boss provided a service that enabled us to direct deposit our client’s proceeds from their rentals into their accounts, thereby bypassing the need and expense in writing checks and mailing them to the clients.
As part of the organizational work, we developed extensive job descriptions for key personnel. This helps prevent two people from doing the same job or prevents someone from having two bosses.
We also asked that the maintenance people call the office once they completed tasks. This allowed the company to know which repairs had been addressed and enabled them to re-schedule anything that had become an “emergency.” Additionally, we had tags printed for the employees to fill out and leave at the apartment, so that tenants knew both when someone had been there and whether or not the item had been repaired. Both solutions helped improve customer service a great deal.
Financial
Since the divisions shared several personnel and office space, we needed to review how these expenses were allocated amongst the divisions. In some cases, maintenance was getting charged with expenses that were out of proportion to its size. Both the father and the son needed to come to an agreement concerning the proper allocation. This had to be accomplished before the Overhead could be calculated.
Moreover, we had to tweak the Chart of Accounts in QuickBooks so that we could determine the actual amount of Overhead and how to recover it. After making these adjustments, we calculated the Overhead Rate and found that it was 70% once we included the proper allocations. This was valuable for the bid process as well.
We then did the Labor Burden for the repair and maintenance employees followed by the construction side.
We found that, between the Overhead Recovery and the Burdened Labor Rates, we needed to implement some pricing changes for our services. We found that we needed to be in the $45-$65 range for the billing process. The son agreed, but he also wanted to phase them in gradually so that his customers would not have “sticker shock.”
We developed a simplified Excel-based spreadsheet for estimating the maintenance and construction.
Finally, a Budget was developed for the repair and maintenance side of the business, using the expected expenditures for vehicles and equipment and any increases using the fixed expenses. This enabled the company to set a sales goal for the year and ensure that all the expenses were covered so that they could clear a profit.
THE RESULTS:
This project ran for six weeks during the winter months. However, this is not the busiest time of the year. The company continued to enforce its committees and weekly staff meetings. Most of the changes dictated in Property Boss were implemented, and customer service seemed to improve slowly. When the next “move-in” period came, the organization was better prepared to handle the influx of students in comparison to previous years.
The Property Managers were still weak in getting new listings.
Since the owner and the accountants frequently moved revenue around, we needed to wait for their final say on the profits for all divisions. We are quite confident that the financial changes implemented will result in increased earnings in both maintenance and construction.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
