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Starting up any type of business is rarely easy. Running a service based business where you are selling not only products but labour can be very challenging to manage. There are many issues that can affect efficiency, profitability and cashflow. How you manage jobs and work in progress can have a real impact on your sanity as a business owner/manager.
Here are some of the benefits of good Job and Work in Progress Management
- Job Profitability (More profit from each job)
- Cashflow Improvement (Cash comes in quicker and stays in your account longer)
- Customer Satisfaction (Because jobs are easier to manage –customers are too)
- Better Personnel Productivity (More productivity for your wages bill)
- Ease of information management (Find all paperwork relating to jobs easier)
Let’s look at each of these benefits and how they can be achieved.
Many businesses don’t measure their overall profitability on a regular basis, let alone their job profitability. No matter what type of business you are in whether it is selling products or labour, or both, you need to know which products/services are contributing profit into the business. The reason you would want to measure job profitability is so that you can see clearly which jobs are profitable and which ones are not. Once you know which is which, you are in a position to investigate why a job was not profitable. Okay it may be too late at the end of the job to do anything about turning it around, but you can learn from the experience for the future. By breaking down a job into labour and materials and setting a budget for both, you can analyse where the problem occurred to result in a loss on the job. Once you know where the problems are, you can manage the situation better in future, by improving quotes and/or efficiency.
Jobs can’t be converted to income until they are finished or completed to an agreed stage. If you don’t have good job management in place, it can be very difficult to know when is the time to invoice the job. When you have many jobs running at once it can be very difficult to manage them in your head. There can be all kinds of reasons why jobs get held up e.g. material delays, misunderstandings re labour requirements. To try and remember everything and manage it in your head, or the old fashioned way of manual job cards may be fine if you only have a couple of jobs, but if business is growing you need to find a better way of coping.
Work in Progress or not invoicing Jobs at the first opportunity equates to your working capital being tied up. That is you have money tied up in the wages, you have paid staff and for materials. If you have paid for these prior to invoicing your customers, then you have to find the funds to cover these costs until your customer pays. The longer you take to invoice customers and wait for payment, the more working capital you need to run your business. These funds may come from your own pocket as the business owner, or from an overdraft or business loans, all of which can be very expensive in interest. It makes sense then to minimise the need for loans by speeding up your invoicing of jobs. If your business is growing rapidly, this is one area you need to get organized, well in advance of taking on lots of jobs. If you ignore this and suddenly find yourself in need of extra working capital, banks take a dim view of rushing in and asking for funds yesterday. They will look at how you manage your own working capital before they will decide to lend you their money.
Unhappy customers are obviously very detrimental to your business and cashflow, as they will delay payment and give a poor account of your services to people they talk to. Service providers who turn up on time, at the right place, with the correct materials and get the job done, are much more likely to get paid and more importantly, get valuable referrals. Referrals can be a huge percentage of any business income and are often not recognised as an important form of advertising.
If your business relies on repeat business such as regular maintenance of equipment then a good job management system is vital. If you can be proactive rather than reactive about contacting customers when it’s time for services, this can have a huge impact on your business profitability. Customers will also see this as positive, as it helps them to avoid the crisis of equipment failure and subsequent loss of income if it’s an income producing piece of equipment.
When you are in a service based business the main ‘stock in trade’ you have to sell is the ‘time’ of your workforce There are two aspects to this situation – one being the hours you pay your staff and the second being the hours you sell to your customers. If you don’t keep track of the number of hours staff are spending on billable activities, as well as non billable such as travel, admin, cleaning etc., then it’s impossible to know if staff are producing a profit. In a service based business, staff need to be considered as income producing assets, just like a piece of equipment. This may sound a little cold and hard but at the end of the day you are in business to make a profit and only profitable businesses can continue to employ people. It’s in everyone’s interest to achieve ‘Personnel Productivity’.
A good job management system that tracks every hour staff are working and what they are working on, allows you to compare against the hours that you have sold. The differential can then be managed and practices improved to maximize the billable hours. E.g. a service person may be spending too many hours each week on administration. If you add up all of the hours all service people are spending on this activity and multiply that by the charge out rate, you may find that the result far outweighs the cost of employing an admin person to take over this task.
When a regular customer calls, how easy is it to retrieve information about them, previous jobs and quotes, equipment maintenance, warranty details etc. This can be a real headache if you have a manual system or no system at all. It means you must keep customers waiting either on the phone or for a call back. This is valuable time they can be calling a competitor and increases your chance of losing the work. Poor information management also gives the impression… this is how you run all aspects of your business. It doesn’t auger well if you can’t even find previous information about a customer, let alone manage the current job.
Information is the key to running a professional business. It may be fine to keep it all in your head when your business is small, but as soon as things speed up and you are handling many jobs and staff, it can very quickly cause crisis management and ultimate failure, if you don’t have access to information to run the business efficiently. A business that is run ‘by the seat of your pants’ or ‘on gut-feel’ has ‘Buckleys’ of ever being sold for a good price when you are ready to retire or move on to something else.
You can see from reading this that there are many and varied benefits of getting jobs and work in progress organized. A good job management system can equate to greatly improved profit, cashflow and peace of mind for the business owner/manager. There are many well priced job management systems available.
Ease of information management
Personnel Productivity
Customer Satisfaction
Cashflow Improvement
Job Profitability
Copyright CAD Partners
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