Avoid the Money Pits of Contracting: Areas where ECs may not know they’re losing money

Valued at some $170 billion annually and employing more than 650,000 workers across 70,000 electrical contracting firms of all sizes nationwide (pre-coronavirus), America’s electrical contracting industry is essential and sizable but by no means an easy one to operate within.

“It could take me years to share all of the stressful situations and inefficiencies that occur in the contracting business,” joked Hal Sokoloff, president of H&L Electric.

Sokoloff founded the Long Island City, N.Y.-based firm with his brother Lloyd in 1993, and it now includes his son Gregg and Lloyd’s son Harris. With their 250 employees, H&L Electric handles jobs ranging from as little as $200 to multimillion-dollar projects and spanning TV studios and hotels to museums, data centers, trading floors and iconic landmarks.

“We’re an old-school, medium-sized contractor, but have had to become very diversified in order to compete in the tight New York City/New Jersey market,” Sokoloff said of his firm.

“Customers often complain about the prices they pay, but they often don’t understand all of the factors that go into our cost,” Sokoloff said. “For instance, when we send one of our fully outfitted service trucks to a job, we have to pay to park the truck, will likely get hit with a parking ticket, and also have to gas up the truck and cover insurance.”

In addition, “For many small service calls, our contractor will have to leave to get a part that’s not there, so the job ultimately takes longer than the hour that the customer is with the contractor. You have to put a value on everything you do to remain competitive.”

Collections and cash flow are other notorious pain points in the contracting industry.

“When we start up a project, we may not receive a deposit or mobilization fee—which is critical to funding our purchase of materials, the filing of permits with the city, etc.—for 30 days, but we pay our guys every week,” Sokoloff said. “We may end up outlaying four to eight weeks of pay, which could amount to hundreds of thousands of dollars, before we receive one penny. If this process was more efficient, we could avoid the need for financing and the use of credit lines, which would enable us to reduce our costs.”

Sokoloff said that he and his management team have acknowledged the many problems and inefficiencies that challenge their business on a daily basis; the issue is how to address them.

“Each day we try to learn and become more efficient,” Sokoloff said.

For example, Sokoloff described the logistics of getting a 25-person crew up and down from their work sites in a 40-story building when there are likely other trades using the same vertical hoists. To address downtime getting to the job site, the company tried to stagger workers’ starting times.

Sokoloff said issues related to mundane needs, like bathroom breaks and mealtimes, abound.

“At lunch, people need a minimum of 30 minutes, but it could take that much time just to get up and down, so guys end up leaving early and coming back late,” he said of a reality that increases unproductive labor time and subsequent costs. “We’ve addressed that by providing lunchboxes to our people when they go up so that they don’t have to come down. Especially during the pandemic, this practice also reduces our team members’ exposure to other people (and potential transmission of COVID-19) that could occur in elevators, restaurants, restrooms, etc.”

“We need up-to-the-minute inventory control on jobs because we’re using up materials all day long,” he said. “We overorder to avoid running out and rely on our distributors to provide on-site material carts to help prevent downtime. Again, this is especially critical during the pandemic to help limit our team’s exposure to others.”

According to Sokoloff, product-related snafus represent another potential money sinkhole.

“Previously, our team came to a standstill if they didn’t understand the product, or we hit some technical obstacle, but we can now work with manufacturers remotely on our iPads to figure out problems collaboratively on the spot,” he said. “And we now request accessibility to as-builts so that we know exactly what was previously installed and the routing taken, which saves time and boosts efficiency.”

Ultimately, “there are a lot of less-than-efficient processes, and most people don’t understand how costly it is to do business in this industry,” Sokoloff said. “If you want to remain viable in the contracting field, you have to use all of the tools available to become more efficient.”

Managing the money pits

Inefficiency is a reality that Joe Rohan is intimately familiar with. As the founder of software company 360e, he understands contractors’ most pressing pain points and has designed field management software to address what he’s termed the often-hidden “money pits of contracting,” Rohan knows well the pressures that contracting firms are under to survive.

“Inefficiencies can derail an electrical contracting business, especially small to medium-sized ones, which can often end up managing large opportunities with a mom-and-pop-shop mentality,” Rohan said. “In many cases, these companies fail to refine their operations to support the faster pace and the additional liabilities and overhead that come with rapid growth. Mistakes become costly, labor resources become inefficient, and poor tracking can combine to create cash flow issues that leave them unable to stay afloat.”

In short, he said, “they capsize.”

“Every minute of the day is either a dollar made, or a dollar lost in the contracting business, and efficiency is the key,” Rohan said.

Like Sokoloff, he noted that there are a number of processes where money and profits are commonly lost and can easily go undetected, especially when it comes to quoting, scheduling, tracking and billing.

“Specifically, if companies have a lot of paper-based and disconnected manual processes operating independently of each other and there’s no connectivity between them, business opportunities will move faster than the company’s ability to capture them and inefficiency will eat away at their bottom line,” he said.

Rohan mentioned there are some common processes draining contractor profits.

Scheduling—If a dispatcher uses spreadsheets on their personal computer, a whiteboard to create the weekly schedule and clipboards with assigned job sheets that are written up and distributed to each worker, setting up and scheduling jobs can eat up excessive time in administrative labor.

Morning check-in—If workers report to the office each morning to pick up job sheets, schedules and materials; catch up with each other; and then drive to the job site, this process could cost a firm hundreds of thousands of dollars a year in inefficiency and wasted time. Software can send instructions to workers’ mobile devices and dispatch them directly to the job site.

Logistical mishaps—If workers arrive on-site only to discover that they have either missing or incorrect unit numbers, access codes, contact information or addresses that require a call to the main office to resolve, this could result in a delay. Field-management software can ensure that workers arrive at job sites with all work details and daily progress notes at their fingertips.

Change orders—If a worker completes a service call, ends up staying longer to make other unscheduled repairs at the customer’s request, and forgets to write them on the work-order paper, valuable billable time per week per worker will go untracked. Instead, technology enables change orders to be communicated, approved and tracked in real time.

Tracking/invoicing—If time sheets are submitted manually every week, change orders might be forgotten and some percentage of material purchases will get overlooked and go unbilled each year, resulting in invoice errors and billing delays that can cause cash flow issues. By electronically tracking, categorizing and transmitting costs in real time, invoices to go out daily and often the same day the job is completed.

Lost opportunities—Contractors with an inefficient quoting process will lose jobs to competitors with fully integrated processes. Software tools enable estimators to combine speed with accuracy and win more jobs.

Using a “hands-on” approach to understanding the EC industry and its technology needs, Rohan and his team designed 360e with quoting, scheduling, tracking and billing capabilities to help contractors streamline their operations, take charge of their projects, resources and businesses in a proactive way, and alleviate inefficiencies that—often unwittingly—erode profits.

“Today, technology that’s married to the organic work process, truly understands real life, and keeps the office and field connected and in sync with each other at all times holds the key to efficiency,” Rohan said.

Even small improvements in efficiency can yield huge increases in profitability.

Sokoloff believes that the act of identifying wasteful processes and pursuing greater efficiency through optimized processes and modern technology are endeavors that all ECs should commit to.

“We need to be efficient every day to remain competitive,” he said. “There’s not one aspect of the business that we can let slide because all of these processes are potential money sinkholes.”

“These are the days to work on your business as much as in it,” Rohan said.

The pandemic has put even more pressure on ECs to tighten up efficiency.

“It’s about understanding the organic work flow process in the contracting business and using the right technology to promote efficiency and optimize those processes to maximize profit,” he said. “The marriage between real-life work flow and thoughtfully designed technology will keep the business running smoothly and help avoid being swallowed up by the money pits.”

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