An electrical contracting business with $6.8m turnover and 32 staff · Business Operating Review
$275,000 a year of profit hiding in a busy business
The business was busier than ever, but the owners were working longer hours and the bank balance was not growing. They could not tell whether they needed more work, better prices or fewer costs.
Uncharged variations, slow collections and Monday overtime covering a rostering gap: $275,000 a year of profit and $210,000 of cash tied up.
Insight
Gross margin sat at 29%, below the ATO industry benchmark range for the business's size. Variations were being done and not charged, debtor days had drifted to 58, and overtime was being used to cover a rostering gap on Mondays.
Advice
Three changes: a variation and pricing review, a debtor collection routine with 30-day terms enforced, and a roster change to remove the Monday gap.
Opportunity
About $190,000 a year from pricing and variations, $85,000 a year from overtime, and $210,000 of cash released once debtor days fall to 35.
Results
Within the 90-day plan, debtor days fell to 41 and uncharged variations were being captured on every job. The Quarterly Pulse is tracking the rest.