*Originally published on CommercialIntegrator.com*
This column is for enthusiastic business professionals leading smaller integration companies. If you represent a larger firm, well, there are plenty of articles for you.
There’s nothing more inspiring than a young, start-up integrator or entrepreneur who’s just getting started: They’re excited for the future and are filled with ideas. We see it in this industry, too: A young professional develops a love for what they do and wants to start a shop of his or her own, offering the services and solutions they know best.
In a perfect world, everyone who has a solid business idea and plan would be able to make it a success. Unfortunately, that’s not how things work. (Sometimes an incredible foreman doesn’t make a great CEO.)
This blog is written just for these entrepreneurs: The young, start-up integrators who are just getting a business off the ground. We don’t want to see them fail—we want them to succeed!
If you’re a hungry tradesman and brave entrepreneur—someone who has maybe taken out a second mortgage on your house, borrowed from your in-laws, and sold a few trusted coworkers on your dream of owning your own shop—then this advice is for you.
If you know someone who’s headed down this path, then be sure to share this advice with them.
The Habits Worth Repeating for Start-Up Integrators
It’s not often that someone starting a business has all the skills they need to make it succeed. For example, you may know installation and customer service, but you may not possess a great deal of financial knowledge or have the luxury of an in-house accountant.
Does this mean you’re doomed to wander cluelessly through the business landscape until unforeseen financial calamities eradicate your dream (and your savings)? No! There’s hope for you. And plenty of resources to help you get started.
These five simple habits to achieve success as a start-up integrator can keep that wolf at your door from entering. Like all good habits, they must be repeated faithfully and consistently.
- Always personally review monthly bank statements
- Personally call your 10 largest outstanding invoices
- Conduct a quick analysis of your monthly income statement
- Never surprise your vendor or banker
- Phone a friend
To the seasoned industry veteran, these habits probably seem like obvious common sense. To a less-schooled start-up integrator, however, these habits may make the difference between an inspiring rags-to-riches story and a cautionary tale of “another one bites the dust.”
Habit No. 1: Always Personally Review Monthly Bank Statements
This may sound obvious, but you would be shocked to know how many fledgling entrepreneurs fail to perform this most basic chore. Not only does reviewing monthly bank statements allow the integrator to see the cash-in and cash-out for the month, but it also alerts them to cash that should have been received (and wasn’t) or cash that was disbursed (and wasn’t planned for). While having a spouse or clerk handle this task saves time, there is no substitute for personally reviewing the cash situation monthly. Trust, but verify.
Habit No. 2: Personally Call Your 10 Largest Outstanding Invoices
This again is another dose of obvious, but it’s a habit that’s also overlooked. Who wouldn’t rather install equipment instead of nagging someone for payment? It’s easier for your customers to tell someone other than the owner that they can’t pay right now.
Incidentally, this habit requires you to prepare a list of the largest outstanding invoices if you don’t have such a list available within your accounting system. Successfully selling new work can rapidly create a cash drain nightmare unless you routinely call your biggest debtors monthly.
Habit No. 3: Conduct a Quick Analysis of Your Monthly Income Statement
How close are the revenues shown on the income statement to the cash deposits you reviewed on the bank statement? How close are the expenses shown on the income statement to the cash disbursements you reviewed on your bank statement? If you show more revenue on the income statement than cash received, then this may indicate a problem with accounts receivable. More cash disbursements on the bank statement than expenses on the income statement may indicate a leverage problem, such as monthly requirements to pay down bank debt.
A quick monthly analysis of your expenses is always required. Your direct costs (materials, labor, and equipment costs) should normally be a fairly consistent percentage of revenue from month to month. Your fixed operating expenses (sales, office, and administrative expenses) should normally be a fairly even dollar amount from month to month. If expenses don’t follow these “normal patterns,” then more investigation is absolutely required by the owner. It’s the owner’s neck on the chopping block.
Driving with only your fog lights on is preferable to driving with no lights at all. If you don’t use an automated accounting system, then prepare a bare-bones income statement. Add up all your billing invoices for the month: This is your revenue. Add up all the checks cut and credit card charges for the month: These are your expenses. While this excludes all the accounting nuances (such as depreciation, accruals, and deferrals), it still provides valuable information regarding profitability each month. Remember, unsophisticated information is still better than no information.
Habit No. 4: Never Surprise Your Vendor or Banker
Many start-up integrators often run out of money before they run out of month. While your new operation always seems cash starved, it’s better to know how deep the water is before you step into the pond.
Bankers and vendors become skittish if you surprise them. Advanced warning of future cash needs is critical. Even if you don’t prepare a sophisticated cash forecast, at least jot down what the next eight weeks of payroll will run, along with a rough estimate of vendor invoices coming due during the same time period.
You may need your materials vendor to extend more credit before you can finish your current project. It’s much better to make additional credit requests of a vendor while you’re still paying them rather than waiting until you’re tapped out. The same holds true with your banker. You shouldn’t ask the banker for a credit line (or line extension) after the cash well runs dry. This approach tells the banker that you’re managing by the “knee-jerk” method, and you never planned for any shortfalls.
Habit No. 5: Phone a Friend
Everyone starts their careers without all the required knowledge and experience necessary to be successful right away.
Fortunately, we can learn from those who have been where we plan to go. There’s an old adage that says: “We can’t possibly live long enough to make all the mistakes ourselves, so we must learn from others.”
We get better by doing and learning from our mistakes, but we can also learn from others. The start-up integrator needs to regularly check in with individuals who can act as a sounding board. This includes other trade contractors, your banker, your vendor, and your CPA firm. You may not have all these individuals at your disposal, but you at least have someone you can call to help you see your blind spots.
Seek Out Guidance When You Need It
Here’s a final piece of advice for the start-up integrator: Don’t kill the messenger. You can only be successful if you continue to learn and correct your oversights. Take advice constructively. If you have an unplanned outcome (this sounds better than saying a “mistake,” right?), then ask yourself these two questions:
- What needs to be done to correct the immediate situation?
- What will I do differently to prevent this occurrence from happening again?
You’ll be pleasantly surprised at how helpful advisors can be when you ask them to help you prepare workable responses to these two questions.
If you need some guidance, don’t forget that NSCA is here as your resource and trusted advisor. If you’re not sure how to approach something, question what your numbers should look like, or just need some advice, then send them a note.
Being young, fearless, and bold is admirable. Being young, fearless, bold, and clueless is not. Use these five habits of successful start-up integrators to propel you on your journey to becoming an industry leader—and someone to be admired.
Eric Morris is CFO at Wayne Automatic Fire Sprinklers, Inc. He’s a member of NSCA’s Financial Leadership Council.