What's Your Biggest Business Problem Costing You?Apr 22, 2022
That begs the question, doesn’t it, do you know what your biggest problem is?
The next question is “Why?” Why do you think that’s your biggest problem. What is the cost of that problem going unsolved when compared to the other problems on your list?
Expert diagnosis is the difference between spinning your wheels and super-charging your business.
In a case discussed below we’re talking about discovering a $279,000 year improvement in a $2,000,000/year business.
If you’ve ever had a nightmare experience with a vehicle repair or a health issue, problems can occur during treatment, but first the diagnosis has to be right. A few years back the dashboard on my Toyota 4Runner was lit up like a Christmas tree. Turned out one of the catalytic converters was bad - out of warranty - $1,243 repair bill.
Two months ago - same thing with the dashboard lit up. $39 gas cap.
What do the two situations have in common? Diagnosis.
Businesses are complex systems like vehicles and the human body.
Here’s the simple approach I’ve used over and over again to identify and fix businesses biggest problems freeing up 100’s of thousands of dollars in cash EACH YEAR.
Depending on the skills available within the company, much of this can be done on your own.
It’s based upon one simple principle. DIAGNOSE FIRST THEN SOLVE.
Business owners tend to be “doers.” Your business probably wouldn’t even be off the ground if you weren’t used to continually taking massive action every single day. The advantages you gain as you embrace DIAGNOSIS is that instead of trying a bunch of different solutions, getting varying results, and then trying something else - you may have heard this called “shiny object syndrome” - you prioritize and focus on one thing at a time, starting with solving the problem that’s going to have the biggest financial impact.
You’ll have the opportunity below to download 3 of these tools for free.
- Adjusted Profit and Loss (also called “Income”) statement. *
- Breakeven analysis.*
- Sales trend analysis. *
- Point of sale system information.
- Labor study.
- 80/20 customer review.
- 80/20 product review.
- Vendor review.
- Operations observations.
- Employee interviews and surveys.
- Customer surveys.
Here’s an example of an actual client I worked with - a truck repair company.
Joe originally brought the company I was working for at the time in to hire an operations manager. He was overworked, and although he didn’t realize how much, he was leaving a lot of money on the table with his billing. He REALLY needed some help. The problem was, proven candidates were already earning close to 6 figures. That expense was a stretch based upon the current financial condition of the company.
We needed to find some money somewhere in the operation and so here’s what we did.
We listed out every single possible problem we could think of up on the whiteboard in his classroom. When we ran out of space we started using those giant size sticky notes. (I love those things.)
We also dug into his financial systems to see what kind of information we could pull out. The company was profitable every year. They always had at least around $150,000 in the bank. So they weren’t in dire straits like many of our clients. Not financially anyway. One thing that was obvious is that the owner was super stressed.
When you’re working IN your business, trying different things outside serving your customers, getting work, getting paid and so on takes time and energy. And it’s a particular kind of energy, isn’t it? Does it take you the same energy to answer the phone as it does solve a payroll or legal issue? Obviously not. Fixing business problems is often outside your comfort zone is more taxing.
Here’s a list of potential problems/opportunities we were looking into
-Not charging enough for small parts.
-Quoting too much for more expensive parts. (lost sales.)
-Taking too long to get the shop started in the morning.
-Zero overtime policy (overtime could be used to get more work out.)
-Workers not working fast enough.
-Too many workers?
-Not enough new customers.
-Billing falling behind.
-Add on sales/more detailed vehicle inspections.
-Not enough profit.
I could go on - but you weren’t there so it wouldn’t necessarily mean much to you.
The point is we could have just started at the top and worked our way down the list one by one. By the end of the project, we did address all these items. And we also hired an operations manager.
I’d like to stop and make two points here:
- We didn’t start solving the first problem we discovered and then move to the next.
- Even after we made the list, we continued on with our diagnostic phase analyze and prioritize vs jumping right in.
You’re about to find out why this is so important. There was one item that amounted to 100’s of thousands of dollars each year and was relatively simple to fix.
There were 6 techs in the shop each working 40 hours/week. That’s a total of 240 available hours. They had only been billing about 125 hours/week or 52%. That’s 115 unbilled hours each week. 115 x $125/hour = $14,375/week x 52 weeks/year = $747,500.
It turned out that the techs were putting their hours on their sheets, and a brief description of what they did. The work in this shop was custom work. They specialized in commercial fleet maintenance on trucks with hydraulics. They did typical vehicle repairs but they also did what are called “upfits.” If a special fixture was needed on the vehicle, usually a truck, they would design and fabricate a solution. If they were going to bill a customer 12 hours for a job, they needed a detailed explanation to justify it so the bill didn’t get kicked back.
Since Joe was busy and behind, if he didn’t have a solid enough story to back up the hours, what he was doing was writing it down to what he thought he could explain, or so that the customer wouldn’t question the bill.
This was obviously a problem worth solving and was our top priority. We scheduled a meeting with the techs right away - and followed that up with a letter summarizing what we had discussed. We also came up with a tiered incentive plan where the techs had the opportunity to earn a bonus starting at billing 28 hours/week.
They never got to 100% - but they did stay consistently above 70%. That’s 168 hours vs 125 hours or 43 hours/week x $125/hour $5,375/week x 52 weeks/year = $279,500 annually.
This could be a good place to stop this post - but there’s another side of diagnostic work and that’s what you DON’T end up doing.
If we hadn’t done our homework we could have concluded the workers weren’t working fast enough. Or that we had too many. We did start having one tech come in a little early to get all of the vehicles where they belonged so when the rest of the techs arrived, their vehicles were in their bay ready to be worked on, and the others were out of the way.
This step would possibly give us a bit more capacity and serve customers a little faster, but it still wouldn’t necessarily put more money in the bank because we would need more vehicles to work on for it to mean much. Or to mean anything actually. You see, a lot of actions can be taken to improve efficiency with the intent to reduce expenses that really don’t do anything financially.
This subject would be a great one for a stand alone chapter or blog post. Most of the time for improved efficiency to improve profitability you need more sales. And yes, I will save that for later.
We could have focused on getting more sales. I love working on sales - it’s one of my main super powers. But can you see how silly this would have been to start off working on sales when Joe’s team wasn’t even billing for the work they were already doing?
Expert diagnosis REALLY is the difference between spinning your wheels and super-charging your business.