Ellen Rohr
Contributing Writer
Bare Bones Biz

Part One…

My hero Oprah was on the Dave Letterman show not long go. Touted as “The Super Bowl of Love”, it was Oprah’s first appearance on the show since May of 1986. Dave claims that his people had been contacting Oprah’s people every week for every one of those sixteen years.

“No, no, no, no, no”, they said.

Finally, Oprah said, “Yes,” and made her way to the Ed Sullivan Theater. I imagine that Oprah – smart chick that she is – took into account the opportunity to promote the opening night of her Broadway production of the musical “The Color Purple.” Oprah arrived and Dave conducted a thoughtful and interesting interview.

At one point, Dave was trying to uncover Oprah’s reason for coming on the show. Was it his unrelenting pursuit? Did she just succumb to the pressure?

Oprah, in perfect icon fashion, instructed, “No, I wanted to come on the show. I am at the point in my life that I just don’t do anything I don’t want to do.”

Nice.

Me, too. I’ve made a decision that I won’t do anything I don’t want to do. If I am going to do something, I consciously chose to do it. In some cases, the shift is a subtle one from “have to” to “chose to.” I am finding that this is a good boundary to set…a liberating discipline.

One of the things I don’t want to do anymore: Argue about selling prices. No need to argue about that. We are not going to flog the dead horse of “T&M vs. Flat Rate.” We are not going to argue about whether or not you can make money in new construction. No arguments for us!

Now, if you ask me, I will be happy to help you get to and operate from a KFP – Known Financial Position. You want to put together a budget and establish a reasonable selling price based on your goals and data? You want to know what jobs are winning or losing and do effective job cost accounting. I am here to serve.

One of the things I know for sure: Convince a man against his will…he’s of the same opinion still. I also know that there are lots of ways to make and lose money. The only way to know if you are making or losing money is to keep score. I will help you do that. It is my pleasure and my professional purpose to help you do that.

So, instead of arguing, let’s discuss the data. In order to do that, we need sound, simple data arranged in such a way that we can understand it. And to do that, we can utilize the Divisions and Job costing features in your accounting program. Cost of Goods Sold, Overhead Expenses… how to track expenses

In your accounting program, create Divisions that reflect YOUR company. Customize your chart of accounts. Create Sales Divisions and corresponding Direct Costs per Division.

For example…
Sales – Residential Service
Sales – Remodeling
Direct Cost Labor – Residential Service
Direct Cost Materials – Residential Service
Direct Cost Labor – Remodeling
Direct Cost Materials – Remodeling

Aim for a chart of accounts strikes the right balance between too much and too little detail. In order to comply with Uncle Sam, you don’t need much more than Sales – Expenses = Profit (or Loss). In order to make good financial decisions, you may choose to pour the financial information into a few more buckets.

Just don’t over do it. Don’t bother creating Divisions for overhead expenses (operating expenses) unless you are going to USE the data to make better, faster, more profitable decisions. If you have multiple Divisions, you could go through the painstaking process of determining how much of each box of paperclips should be assigned to each department. OR, you could make an executive decision and assign a percentage of overhead expense to be born by each Division. I prefer the second method.

Focus on the “Big Rock” numbers – Labor and Materials. If you are not making enough money, look to Labor and Materials. There are only two ways to make more money: Increase the top line, or decrease expenses. Raise your selling prices or figure out how to be more efficient with your time and expenses. Business is easy. Those are your only options.

Yes, overhead expenses are a significant dollar amount. Look at your overhead expense accounts and note that the non-billable/office Labor is a “Big Rock” item in overhead expenses. Making money is a result of charging more than it costs. Price according to what you want to spend on those “Big Rock” items. How much do you want to pay yourself and your hardworking team? It is up to you.

By tracking the “Big Rocks” of Labor and Materials per Division, you can determine which Divisions are winning or losing. Are you getting closer to your Goals? The Goals come from the Budget. Simple! You can identify which “Big Rock” number is out of line and there is ALWAYS something you can DO to improve the score. Job cost tracking ties in here.

Once the Chart of Accounts is squared away, make sure that the data entry team is on board. Follow the path of information flow. Are the Sales invoices being coded to the right Sales accounts? How does the data get from the timecards and the supply house invoices into the right accounts? Think of putting the “Big Rocks” into the proper “Buckets.” You don’t have to be an accounting ace to get this concept. We are looking for the patterns…compare “like” items. Your team will get this idea and help you make sure the data collection and entry goes into the right “Buckets.”

Next step… how to job cost