Tuesday Morning Coffee
Tuesday Morning Coffee
|Posted on June 3, 2015 at 12:50 AM|
What If the Industry Had Standards?
Some years ago, one of the presenting dealers at the CE Pro Top 100 Summit asked to talk with me. We sat down following his presentation and he confided, “It’s embarrassing to be up there talking like I’m some kind of whiz business manager. My business is a mess.” When I looked at his financials, I learned just what a mess it was.
His company was invited to the summit because of its sales volume. While you might think annual revenues is a “standard” way for quantifying sales volume, the fact is there is no standard for how Custom Integrators recognize revenue. Some recognize customer payments as revenue. Others book a sale when they ask for customer payments. Still others defer all revenue until a project is finally complete.
Nor are their standards for how companies measure gross profits and margins. And, as my recent blog at CEPro.com explains, we can’t even agree on what is, and is not, included in labor cost.
These widely-diverse ways of “counting the money” mean no two companies in our industry can be readily compared. The only meaningful benchmark is net operating profits – 10% of sales is good, 20% is really good – but even this metric varies based on the multiple ways companies record owner’s income.
If the industry had accepted standards, companies could better ascertain how their performance stacked up. Companies could quantify the improvement needed to become a top performer in a specific area. They could seek out companies who were top performers, and look to their methods as a model for their own. The CE Pro Top 100 could become a far more meaningful gathering, recognizing companies for not just revenue production, but also Gross Margins, labor efficiency, compensation management, and customer deposit coverage.
VITAL Management has developed a very standardized financial management system, and regularly compares results between companies.
This helps each company to work on specific areas promising the most gain. It all starts with a standard Chart of Accounts. If you’d like to see ours, click here.
Link to CE Pro blog…
link to download accounts from dropbox…
Categories: VITAL QUESTIONS