Adventures with Lyrical: Buying a Business (REPOST)

Cad_sl said:

Well ok, but expanding is a dangerous time. You could expand and add a good crew that makes you money, or you could expand and add a guy that runs a little kid down with your truck and costs you 5 million bucks. You never know. If your current guys are good then anybody you add is a risk.

But it sounds like you've thought about what you want to do, so go for it.

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To be fair, that risk is always there anyway. But I've turned down several guys in the last couple of weeks that other companies would have hired. In my industry, every worker knows everybody else.

So this is messed up, call volume is down by 15%, but approvals are up 450% (residential and commercial). 40 calls a week, over the last five years, has on average, generated 12k in sales. Over the last six to eight weeks, it's been 25-30k for residential for that number of calls (I'm putting commercial in a different category).

Tmac47_sl said:

The state of the economy could explain volume. Marketing efforts could explain approvals.

Test your price point!

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I was going to take your advice, but that was your 666th post.

Anyway, Marketing probably does help, as I'm trying to convey trust and build the brand. We are winning more bids away from the guys that are unprofessional. I keep thinking I need to advertise more, but if we are still generating lots of sales, why bother? We've had 12 calls in the last two days, but picked up 16k in approvals in that same time. In previous years, we would have had needed 40 calls to generate that amount of approvals.

Tmac47_sl said:

You've said it yourself. People view companies with billboards as more reputable. Couple that with TV ads and you've a compounding effect around the reputation of your company. Therefore, they view you as they guy, the man, the bees knees and they're willing to give you all their monies.

You've branded your company and people are buying in.

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It's just weird, because if I look at a ten year history, if I'm getting this many calls, I'd be shitting the bricks at the lack of revenue generated. I'm just going to let it ride for now. I did some forecasts that show if we continue to raise 15k a week, I can keep everyone employed until Spring. Most companies in my industry layoff from now until April. Over the last two years, we raised 10k a week in offpeak times, we need another 5k a week, and I'm hoping we continue to do that with my ad budget being 100% higher than last year.

I can tweak our Internet strategy for a month or two without really spending any money. Tomorrow I meet with a Lawyer for trademarking. The guy I bought the business from never trademarked it. A friend of mine in the industry saw half of his business disappear when a new company popped up in town with a similar name. They acted like they were his business, and went around collecting payments from customers up front (at the time of the bid), and then never actually did the work. It killed his reputation. He had to rebrand the business and it took years to bounce back. In the past, I've had two Managers go up and down the street, telling people they still worked for me and trying to get jobs, and I've had other companies try to steal our colors that we use in advertising, even down to our uniform color. No one owns the trademark right now, so we should be good.

So we filed the trademark today, I tell my Estimator about that, and then he tells me that he heard of a company using a variant of my company name. I go on the Internet, find whose hosting that company, and had them yanked in 20 minutes for trademark infringement. Apparently, they just popped up in the last month or so. We must be doing something right that we get at least one impersonator a year. That stuff never works, most of them can't fool people. But I'm going to start being more aggressive now that the mark is filed, and no one else in the country has filed it. We can enforce it already.

It amazes me that people would rather resort to this stuff then to take care of their own customers. They screw over their customers and don't have any left.

Now that we are one month away from year end, and based on backlog, I can forecast the calendar year numbers. Sales will be 791k, profit will be 229k. The goal for this year was 750k in sales, so we surpassed that. Sales are up over 50% in the last two years, and it was the second best year we've had. We had one year where there was so much emergency work that really skewed the numbers. So factoring out emergency work, it was the best year in the last ten years of financials.

Advertising pushed those numbers, this year I spent $118k through November in Marketing. My first year in business, we spent $339 a month in average LOL. I'm spending double that monthly spend every day ($613 a day). It sounds like a lot, but we made $880 in profit a day (business days). So, in a nutshell, I'm making in a day what my weekly check was working for a Fortune 500 company in a Junior Executive role (sad I know, but I got pimped hard).

We left a lot of room on the table, I was conservative about staffing up until March. Then I couldn't find additional workers worth a shit until May. They didn't work well until June. Total production jumped from $2.5k a day to 4kish a day starting in June, as the guys figured out what the best workflow for them as a team was. We had two engine rebuilds that were about 20k last month.

800k in service fees is pretty good, but the goal is over $1 million next year. I believe it's very rare for a service company to get to that level. I think the number being bandied about is that 5% of service companies will ever do that once. We can do it, if we can keep the team together. Last year, towards the end of the year, I didn't layoff, but I didn't replace people that left through natural attrition. So if a guy didn't show up to work and didn't call, when he was cut, I didn't replace. One guy spent his Winter living with his family across country. I'm going to try to stay fully staffed in 2014. So that brings to mind the question of revenue generation. The answer is that we are leveraging lower ad rates to get more spots in Q1. I was able to negotiate 20 spots in January more in coveted morning show by maintaining my same budget. I'm also moving to another network, that AC Nielsen shows to have three times the ratings, starting in January. TV has been great, as the one channel has been generating 6-10k in service fees a week. If Nielsen is correct, using the same ad timeslots should bring 18-30k in service fees. It would also mean that I'd need to add one to two crews next year.I'm probably not going to do that, but I'm going to add more people to existing crews, get a 40k piece of equipment and redirect workflows once again to try to increase total daily production by 15%.I'm thinking we should make 350k next year with all of this. Also, I'm having the website redone to be more professional, and have a plan to dominate the net for my industry in the area. Now that I'm really monitoring it, good old Google adwords is one my lowest cost to obtain a customer (followed by newspaper). I know what to do, I just need more budget. I'm out of clicks by 1 pm with a monthly budget of $500 a month. Also, I'm buying feature ads in every major online directory. Total ad expenditures in Q1 are going to jump to 20k a month, which is a lot, but we lose more if we have to sit at home (3.5k a day).

Long term, I believe I can grow the company another 100%, based on census results and income levels in the area. This may take another few years to do.

Min/maxing your business is way more fun that min/maxing your toon in an MMO, that's for sure.

P.S.: Our run rate for December is such that we'll make $0, which is great, since we've lost probably 25k in December. We usually run out of work in December, but are booked into January. Unless we get snowed/iced out, we should be up 100% over last December, and that was our best December on record.

Eomer_sl said:

I want your margins.

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I remembered a lesson from Microeconomics, about how companies with different cost structures perform (fixed vs variable). A company with high fixed costs and low variable costs makes a great margin once it gets past break even. So the kiss of death is when we run out of work. A missed day is a $4k loss to the bottom line. Miss two or three days and you are talking more than a 10k+ loss. So I spend a ton of money to make sure this doesn't happen. What happens is that over a revenue range, my margins are shitty, but the higher the revenue range, the higher the margin. At 40k in sales for the month, our margins are miniscule. At 50k, it's probably 10%, at 150k in a month (which we've done twice), we netted 60-70k. If we had more of a variable structure, the margin change wouldn't be so dramatic. So while most companies in my industry turtle up when things get slow, I spend more, because I understand my cost structure. One year, when we were doing 40k a month on average, it was pretty tight, margins sucked. And some Decembers (which is usually the worst month of the year), we've lost 32k in profit, compared to us breaking even this month. With my cost structure, sometimes an inordinate amount of Marketing dollars will save you. I'm pretty sure I'm outspending GM or Ford in my market (considering I used to work for one of those automakers and know what they spend per month). But I'd rather spend 20k in a month in advertising then to lose 20k in profits. It's taken me awhile to figure this out.

Who'd have thunk there was something to book learnin'.