Strengths, Dangers, Opportunities
At Donley Service Center, Inc., a 32- year-old, $10 million residential HVAC and plumbing business also based in Phoenix, a four-person management team meets annually. Their goal is to determine the three biggest strengths that need to be maintained and maximized, the three biggest opportunities that must be focused upon and captured, and the three biggest dangers the company faces.

“Out of those nine items, we then pick three that become our goals and objectives for the year,’” says company President Mike Donley. “We then subject ourselves to a litmus test: are we accomplishing what we set out to accomplish? We do this in on a quarterly basis with our employee council, which consists of employees from across our business groups.”

Donley says if he was to offer one piece of advice to other contractors regarding their business plans, it would be to seek out other opinions.

“Have someone you trust — your accountant, your attorney, or a peer — check your business plan, or even write it for you. Having an outside perspective can be extremely valuable,” Donley says.

Flexibility and Benchmarks
At A.O. Reed, a major commercial contractor based in San Diego, CA, Manager of Special Projects Ed Blum agrees with Hinshaw that the key to a good business plan is flexibility.

“Keep your finger on the pulse of your local market in addition to what’s happening at state and national levels,” Blum advises. “You must be prepared to modify when your market and economy changes. For example, new construction in the downtown San Diego residential and retail market has come to a screeching halt after a significant building boom. There has also been an increase in available office space as companies fail or cut back on staff in the commercial market. A good plan should be flexible enough to accomodate such change.”

Blum says the following benchmarks should be reviewed on a monthly basis. While these are based on a service department, the concepts apply to reviewing the entire company’s business plan:

• Review each line item on your financial statement. A good financial report should include the actual sales and/or expense dollars, and also a percentage for each sales or expense item. It’s sometimes easier to see a deviation in the percentage than the dollars. Examples might be shop labor increasing from 1 to 3%, or a similar increase in inventory.
• Review the number of employees in the office as compared to the field. In a pure service operation this ratio should be one person in the office (administration, sales, and management) for every 2.5 technicians in the field. This ratio might be as low as one-in to two-out in a small company. The hiring of office personnel should be somewhat based on this formula. Office growth should lag behind field growth.
• Review sales per vehicle. In a pure commercial service operation a good sales per truck would be $225,000 per year (or $18,750 per month) versus a poor sales per vehicle of $180,000 per year ($15,000 per month).

A careful review of your business plan is essential. And it seems like it would be would be downright dangerous to not close with Hinshaw’s most important advice about your business plan: Have one.