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20 | Kitchen & Bath Design News | July 2015 O ver the past several years, most of us have gone through a period of belt tightening and taking care to watch our "pen- nies" in order to survive the recession. Now that the economy seems to be returning to normal and – in some parts of the country – actually boom- ing, there is a tendency for kitchen and bath dealers and designers to relax. Too often, we stop paying close atten- tion to the small decisions that come our way. This month, we'll take a look at three areas where failure to pay at- tention to these decisions can add up to some long-term harmful results. PERSONNEL As your staf shrank to ft a reduced revenue base, those remaining were faced with a somewhat reduced work load and were willing to take on added responsibilities in order to help your business survive. As business picks up, the work load will increase for those same individuals. At some point, there will be a need to supplement your staf to handle the additional work. In addition, those who stuck with your business through the tough times will expect to share in the improving fnancial situation. If your business has survived the recession, you have likely developed many efciencies, allowing fewer peo- ple to accomplish more. Be careful that an improving business climate does not cause you to abandon these things. If yours is not a large frm, the de- cision to add to your staf will come with many challenges. Usually it in- volves dividing the duties of one or more individuals and assigning them to the new employee. Is the current employee willing to give up some of his or her responsibilities? How long will it take the new employee to catch on to the work? Does the new employ- ee ft into the culture of your frm? Before you bring on a new hire, discuss this with the current employ- ees who will be impacted and make sure they're on board with how you plan to proceed. Another truth about personnel is that it's always easier to add payroll than to reduce it. There are several rea- sons why this is so. Once this work is vested in the new position, re-consol- idating it back into fewer employees becomes very difcult. It's also true that as tasks are divided and delegated, more time is devoted to communica- tion among employees as opposed to actually working on the tasks at hand. Great care should be taken when making personnel decisions. It's usu- ally best to hold of adding permanent employees until there is certainty that their need is real and permanent. When you do add to your work force, do not settle for the proverbial "warm body," but make every attempt to fnd the right person for the job. JOB COSTS One of the areas that's often over- looked is the many, seemingly small choices and decisions that are made, either in the ofce or in the feld, that can add up to signifcant amounts. When we sell a project, our con- tract is based on estimates of the various costs involved. We then per- form the job, attempting to contain our costs within the estimates with which we started. The following are some examples of things that can add up to make or break your job cost: » » Finally, there are services that can be used to perform background checks on individuals, and utiliz- ing these should be considered to get a more comprehensive picture. » » Left items of your estimate – job cost with no associated revenue. » » Failed to order materials on time – job stops or temporary measures needed to keep it moving. » » Didn't order correct amount of mate- rial – shortage requires trip to pick up additional material, or excess material is not returned for credit. » » Incorrect manning on the project; too many people means people wind up standing around, while too few means the job cannot get done properly or someone gets hurt. » » Inadequate protection of client premises – you pay for cleaning or repairs. » » Extra trips to the job by feld per- sonnel due to lack of material, incorrect tools at job or access not arranged – lost time. » » Underqualifed people performing work they don't understand – re- sults in rework. These things taken by themselves may not cost a huge amount, but they will add up. If there are 10 such oc- currences on a job where your gross proft is supposed to be $25,000 and each of these "mistakes" result in in- creased cost of just $100, your gross proft has been reduced by 4%. Another area where small things can add up on job costs is that of ex- tras. For most of us, it's important that our clients do not feel that we are "nickel and diming" them by ask- ing for a change order for seemingly minor changes such as touching up the paint on a downspout or hauling a little of their garage debris to the dump. On the other hand, these things have real costs and it's important that you take them into account when you are pricing your projects. It's also use- ful to track these favors by utilizing a log or separate job-cost category. OVERHEAD Many overhead costs and decisions would not be considered small, such as ofce space, vehicles or large equip- ment. On the other hand, others are not major and usually have some discre- tion as to whether they are incurred. Do you provide uniforms or t-shirts for your feld employees? Free soda for employees? How about the company picnic? Does each employee get their own laptop? There are compelling rea- sons for all of these, but most would not be considered necessities. A reality about overhead is that it is much easier to increase it than to cut it back. When times are fush, it's easy to okay any number of ques- tionable expenditures that would have seemed frivolous or unnecessary in more normal times. The problem is that your staf will quickly come to view these luxuries as necessities, and trying to eliminate them will have a negative impact on employee morale. Finally, general and administrative overhead functions tend to grow to fll the available staf time. That's why your staf will still seem extremely busy, even when the volume of business drops. The point to keep in mind is that each and every decision you, or your management team, makes will have an impact on your bottom line. While any one of these may seem trivial, the cumulative efect can be substantial. If you make it a practice to approach each of these in a conservative and frugal manner, the positive impact on your proft picture can be impressive. To Stay Proftable, Do Sweat the Small Things Failing to pay attention to the relatively small expenses in the areas of personnel, job costs and overhead can add up to signifcant costs. Business Management { Bruce Kelleran, CKD, CPA } Read past columns and features and send us your comments about this article and others by logging onto our Web site: ForResidentialPros.com "Each and every decision you make will have an impact on your bottom line, and the cumulative efect of these can be substantial."