Adventures with lyrical - buying a business

Tyreny said:

Cash is king. Classic working capital/liquidity crisis.

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Yes it is. There"s nothing like bringing in 30k in sales in a week, but only receiving $300. Our customers tend to pay within 60 days, so when we really get busy, our accounts receivable balloon, expenses go through the roof, and cash on hand goes down. Within the first few months of me buying the business, we had a spike of business, and I was concerned I"d need to borrow money until customers paid us. And the phone was ringing off the hook with customers.You can go broke making money.Our customer default rate is like 1/10 of a percent of sales, so its not bad, they just pay late. There"s nothing like having one week of cash to operate on, while being owed 40-50k.

As far as an update, after addbacks, the company has probably made in the mid six figures CYTD. Its a far cry from 300k last year, but in general, its been rough for our industry. It was the coldest winter in 20 years, and people stopped going outside to see what work they needed. Factor out the worse than normal winter and its been a good year.

When we got busier in the spring, we ran some interviews for hourly laborer, and I intereviewed six other owners of companies in our industry that had gone under. I saw alot of my small to mid size competitors coming to me for jobs to make $11 an hour! They didn"t even ask for a manager spot. So we are thankful to be even a little bit profitable. All the bills are paid. One common denominator that they said why they went under was that the phone had stopped ringing.

That reminded me of Peter Drucker saying that getting customers is the most important thing, everything is detail work. Since I saw our competitor"s starving from not getting the phone to ring, I"ve doubled our advertising.I just put up my first billboard a few weeks ago.When I look at what we are billing and in two days see that there is $1800 coming from a mailer, 1300 from the internet and 790 from a newspaper, I am very thankful. These are all new initiatives I"ve put in place, and its all plus business.

Typically, December is when we start to slow down, but I am hoping that a little bit of hard work and providence will make for a not so bad winter. We"ve got our new things we are doing for advertising. We"ve taken care of every customer complaint, by either doing re-work or discounting the job to make them happy. The business is very active in the community, and I"ve given away 1-2k a month to different charities. As one customer said it, they"d spend more money with us than a competitor, because we were very reputable.

So the takeaways from this post:

1-Realize that there are ups and downs in business, and make sure you have enough working capital to go a few months. Before I bought my business, I made sure I had a 150k credit line.

2-Know your numbers.For me, since I had someone else"s history, I knew that winter could be rough, so I had to have money put back. I also know how much cash I am burning through, and where I am at profit-wise every morning (do your own books yourself if you have time - QuickBooks is a life saver).

3-Don"t downplay the importance of marketing your business.One of the main things that seperates my company from others with the same equipment is that we are more aggressive in advertising. From my time in sales, I know its all a numbers game. We are going to close 50% of the people we talk to. So the best way to increase sales is to talk to more people. The competitors I interviewed were just relying on word of mouth, that"s not enough. Find something that you do differently than the competition (and is something that customers value. For us, we"ve been around for 50 years, have a rep for treating people right, are fully insured (95% of my competitors don"t have it), and we handle alot of big and famous commercial contracts for some of the corporations in the area. In the last week, we just did a job for a Kohl"s and a Lowes. So in a pinch, I can be lower than my competitors on resedential, because we have big customers who cover our fixed costs. I know in our last update, I said we were doing 98% resedential, but our commercial customers have come back in full force. Bottom line is that name dropping doesn"t hurt when trying to close customers, and when you can say that these large local entities use you, customers see you as a cut above the competition.

Speaking of sales, if you plan on running your own business, like Robert Kiyosaki said, spend some time in a sales job.Believe me, later on, you"ll thank me for this. In your business, you are selling yourself and your business, and you need to pick up those selling skills.

4-Take care of customers, no matter what.The golden rule applies. One of my largest competitors approached me to get me to buy him out. But some of my employees have friends that work for him, and they tell me stories of the owner threatening to punch customers out if they complain LOL. At the end of the day, we try to make customers happy, even if it costs money. Most of our business still comes from repeat-referral, and I"ve had times where we fixed a customer problem, and then that guy has sent is ten customers over the course of a year. Reputation is everything.

I can"t stress these things enough, especially in this economy. You need to run very efficiently and your people do also. The competition is too willing to do jobs at a price that is below their cost (eventually that puts them under), but you do have to deal with that environment.

So as an update, Winter wasn"t so bad, we only lost 40k (compared to 100k the year before). Looking at history, the company has lost 30k on average in the Winter, and is profitable the rest of the year. March was on track to be up over 100% than last March, but we lost five days of work in the last week and a half to rain-outs. We were still up about 50% (did 23k in sales last march, 36k this year). Its just annoying that we would have done almost 50k in March, but had way more rain-outs than we wanted.

My foreman is no longer with the company. He was acting crazy, eyes were all bloodshot, and was doing things like trying to break into my Secretary"s apartment at night. From what the other guys are telling me, he was on cocaine. Apparently, he"d been using it for years, but started using it heavier. The dumbass was dumb enough to send lewd texts to the Secretary, and she could have used them as proof and sued for sexual harrassment and won half a million plus. We parted ways on Jan 3rd. Its a shame to lose an employee with 12 years experience, but he was so coked out of his mind that he couldn"t do his job. He ended up taking four guys with him to go start his own company, and is now finding out that it isn"t as easy as he thought it was. The guys aren"t getting hours under him, and he cant qualify for bigger jobs because insurance is about 30k a year. He"s also tried to steal some of my customers, but hasn"t had any success in doing that because he has no insurance or equipment. I like my new Foreman better, no substance abuse issues.

We put up a billboard in November, just to try to measure if it would add business. It is an area where 100k people drive by it a day that are our target customer (affluent people living near the lake, and right next to a private golf course). Believe it or not, sales are up 50% since the day we put up the billboard.

I am debating putting up another near where all the corporate offices in the city are, but its hard to track sales directly to billboard. People see our billboard, then go to the phone book. We ask them where they heard about us, they say the phone book. We are paying $600 a month for one board, we can only directly attribute about $2500 to the board since November. If I put up a board near the corporate offices, it will be 1k a month.

We track where all of our customers come from, and it feels impossible to try to track sales to a billboard. All I know is that calls for estimates and sales are up 50% since November. I don"t know if the economy has gotten better, and if thats had any impact.

Any ideas on a cost-benefit analysis to putting up another board at 1k a month? Its like 12k a year for the one board.