How do companies figure the cost of doing business? The answer is complicated for electrical contractors (ECs) to track and mitigate, as the environment most operate in has shifted from a few big construction jobs to a variety of contracts and providing a plethora of services. Managing the costs of a few large construction projects used to be front and center for ECs. Today, however, money gets spent or wasted in more ways, often without the necessary oversight. Savings can come from properly managing transportation, labor, insurance and safety procedures.
As a result of the construction industry’s slump in 2008 and recent revitalization, ECs have changed their structure to include smaller jobs, maintenance and other recurring revenue streams, which means expenses are often hard to track. In addition, the surge in construction over the past year or so means that companies that fell into debt or reduced their capital streams now have a cash shortfall to take on larger projects that will bring them back into the black.
Every EC pays out for labor costs, materials and overhead that includes transportation, insurance, equipment, training and advertising. Sorting through these headaches requires planning and a reassessment of the work practices and the kind of management you have in place.
There are methods for lowering costs, and some are more immediate than others. Some software companies offer a way to electronically monitor expenses. Viewpoint Construction Software is one example. The company has witnessed how much ECs have changed their business models recently.
“In the past six years, we’ve seen companies diversify,” said Scott Hegrenes, Viewpoint product manager.
Contractors who previously provided simple installations or new construction and renovations are now going into outdoor lighting, signage, etc. Some that were already involved in road construction projects have opened road-stripe departments.
“All of that brings a lot of complexity—with more small job work, more service and maintenance,” Hegrenes said. “How do you manage that? It can be hard to do without the right tool set.”
ECs who have taken on more maintenance and recurring revenue contracts may now have more company vehicles on the road and more technicians and electricians in the field on any given day.
Maintenance can be a high-profit model. In fact, ECs providing maintenance can often serve as sales reps, identifying future work with a recurring customer. But keeping track of money going out can be challenging.
The solution for some ECs is in the hands or pockets of their employees. Increasingly, mobile phones and tablets are keeping off-site workers in contact with management back at the office. Apps help these employees input details on each site, view their own schedules and better track their movements, and they reduce the need for excessive driving and better management of which customer site they are needed at next, based on location and scheduled appointment.
Maintenance staff can collect signatures and bills of sale that go straight back to the office staff, who then generate an invoice and get it to the customer the same day of service.
Those who aren’t taking advantage of the mobile devices that are already in the possession of their staff are falling behind.
“As folks in the field are getting younger, they are much more comfortable with technology,” Hegrenes said.
Those who are used to doing their planning on a mobile device adapt well to new technology.
Sometimes, by better managing appointments, the cost of hiring an extra person in the field or purchasing and insuring another vehicle can be saved.
“Many of the costs of doing business are around inefficiencies,” Hegrenes said.
Even requiring office staff to read through paper documents brought to them by electricians—that may be difficult to read—is an unnecessary cost and can lead to potential errors. By reducing the number of complaints from customers about an incorrect invoice, the contractor gains as well.
Technology that tracks each visit by each EC also enables management to do performance analysis. In many cases, there is just one electrician on-site rather than a crew based around one foreman. In this case, the technician bears the responsibility, and the electrical contractor wants to track how he or she gets the work done. The technology can even enable a contractor to put incentive programs in place, since productivity is being measured and could be rewarded.
Then, there are the change orders. Contractors should invest in a controlled process for change orders that ensures work done beyond the scope of the contract will be well-documented and approved prior to incurring additional costs.
Software solutions are plentiful. Viewpoint has two core solution suites: Vista by Viewpoint is intended for medium to larger customers, and ProContractor is for small- to mid-sized customers. Vista is a comprehensive, fully integrated solution for accounting, project management, collaboration, mobile, estimating, content management, resource management and service management. On the other hand, ProContractor is designed for a simpler end-to-end control with estimating, project management and accounting solutions, all delivered in the cloud.
Driving cost cuts
Anyone with a large vehicle fleet, or multiple technicians at different sites each day, needs to carefully study their fuel consumption, their vehicle operating policy, and their methods used for assigning and applying strategies to reduce unnecessary or excessive driving. Sell unused vehicles, replace old or inefficient vehicles, and discourage personal use of vehicles.
Any cost-cutting ideas from employees should be encouraged and rewarded; often these assets—your staff—have good ideas due to their everyday involvement.
Keeping insurance rates down Insurance costs also can affect an EC’s budget, but there are many ways premiums and claim frequency can be managed and reduced. ECs should always keep an eye on ways they may be overspending on insurance as well as ways they may be exposed to risks.
“Most contractors don’t take the time to review their policies, limits and coverage on a regular basis,” said Nathan Oland, Federated Insurance special projects manager, marketing. He said that ECs can seek help from insurance-industry professionals who will periodically compare all solutions their industry has to offer.
When it comes to workers’ compensation, premiums can be very frustrating for a contractor to manage effectively, Oland said. Those who have found the most success have risk-management programs in place that serve to reduce or eliminate preventable claims. Those claims are a sure-fire way to increase the insurance premiums. Additional proactive actions to ensure a business’s premiums reflect its exposures include reviewing the calculation of the workers’ compensation experience model for accuracy. Oland urged ECs to communicate with their insurer about open claim reserves status and to implement a managed-care program that ensures injured employees are able to return to work as soon as possible.
Auto liability insurance is another high cost for those with a fleet of vehicles. Distracted driving increases accident rates and premiums. Companies that have driving policies that prohibit mobile-device use while the vehicle is in motion average fewer accidents. Oland also said that employees should be held accountable for the driving policies to help prevent accidents.
“Successful contractors do not want direct financial losses, such as repair deductibles, and indirect losses, such as down-time or damage, to their company reputation,” he said.
ECs need to understand their risk tolerance and develop a long-term strategy.
“Larger contractors are finding that, if their business practices support a total risk-management culture from top level executives all the way down to front-line employees, nontraditional risk-financing programs can actually turn their insurance premium from an uncontrolled expense to a necessary profit center,” Oland said.
While the growth in construction is very good news for the industry, “more business generally means more claims, or what we call ‘higher frequency,’ which could affect the cost of insuring a business,” said Othello Powell, director of GEICO’s commercial lines.
Other cost factors could cause business insurance costs to rise, such as escalating medical expenses for injured workers or higher oil prices that affect the cost of transporting materials. Although these factors mean claims could very well cost more today than in prior years, business owners need to consider it seriously. They want to make sure they are adequately insured.
Powell said several loss-control measures could be helpful to business owners as they look to contain costs. For one, train and retrain your employees on safety.
“The safety of your employees and the general public should always be the top-priority,” he said. “Train your employees on how to get the job done safely by teaching best practices and reinforcing on-site rules, and then do it again.”
Contractors need supervisors to secure their work sites. First-aid kits and fire extinguishers should always be on-site, while the company should also provide written safety rules and assign safety responsibility to a single supervisor.
“Have a supervisor with proper safety training conduct periodic on-site inspections to identify and eliminate any unsafe practices,” Powell said. “After corrections are made, conduct follow-up inspections to ensure of follow-through.”
If there is an accident, contractors should conduct detailed investigations. Management should interview employees and witnesses, and it should survey the conditions and hazards involved.
“Determine why the incident happened, correct any flawed practices and retrain employees on precautions and safety measures,” he said. “Tighter policies may help reduce claims, but the most important thing for a business owner is to make sure you are properly covered. Reviewing your policy at least once a year will make sure that your coverage keeps up with your business.”
Corporate Rescue is one of several companies that offer quick loans to ECs who may need to cover initial project costs ahead of the customer’s first payment. Many of those that gain from programs such as this are smaller companies that are taking on their first large projects after several years of slower times and companies that have credit trouble in their past due to the recession.
“A lot of companies still have vapor trails from 2008,” said Robert Denton, partner, Corporate Rescue.
Companies that come to the loan provider typically have a new job to start, expenditures in materials and labor to make, and 60 days before the first paycheck.
Companies such as this find themselves asking how they will staff up without the necessary cash if they bid and win the job, said Vincent Arnette, partner, Corporate Rescue.
“I specialize in construction; I’ve seen the cycle,” he said.
Sometimes, general contractors want to work with a specific EC that doesn’t have the revenue to get started.
Contractors have been exposed to revenue reduction and then must increase cashflow in a hurry to get business back where it should be.
“They’re all coming out of the recession with opportunities, and flat broke, or with bad credit,” he said.
In some cases, they’re poised to lose a good client over a cash-flow issue.
Other customers who come to Corporate Rescue are larger or mid-sized contractors who want the advantage of supplier discounts by buying in bulk. The Corporate Rescue loans are intended to be quickly approved, with six- to 18-month terms. The interest rates can be high, so ECs need to be assured the paycheck is coming that will bring them back out of debt.
“The last thing we want to do is put a guy who’s trying to grow again back where he was,” Denton said.
By implementing strategies such as these, your business can continue to flourish in a post-recession world.