Staying Aware of Trends
Running a business is a very complicated and ongoing effort that is best directed by the owner. Whether owners do the right thing or not, it is generally a process that they are more interested in than any employee.
In Michael Gerber’s original book, The E Myth, his premise was that most entrepreneurs need to be able to do three things in order to be successful in their business:
- Have a high personal desire to run a business.
- Have the technical ability, or think they have the technical ability, to complete the work of the desired business.
- Have the ability to operate as a business and in a business manner.
Most new business owners usually have the ability to do 1 and 2, but not 3. This has resulted in about two-thirds of all businesses going out of business within their first five years. Starting and running a successful business is a very time- and money-consuming effort. It is also difficult to maintain a business and make it work as an ongoing effort. The major reason is that the only constant in business is change. The owner needs to be ever vigilant as to what is going on in their business arena and must also be exerting a constant effort to keep the business going in the right direction in order to keep the business moving forward, upward and profitable.
In order to be aware of what is going on in the business world, the owner needs to constantly be reading, asking and looking at everything around them as to how it may or may not affect their business. As an example of this owner requirement, I was recently reading the annual Xactware 2014 Property Report. It was packed full of statistical data that owners in the industry should be VERY aware of.
One of the industry items that are changing is the deductible amounts for policies. A major trend is that deductibles are increasing and as a result it has directly affected how policy holders respond when they have a loss. In the October 2008 economic meltdown, the construction world changed and went in directions that no one had thought possible. Deductible amounts have increased by policy holders in order to save money in the short term. An example of this is that policy holders are having deductible amounts of $1,000 and above.
In personal property, fire claims were the most expensive type of losses. In 2013 the average fire loss was $45,268, but decreased to $41,256 in 2014. (The second most expensive type of loss was theft). The third most expensive type of losses was water losses. In 2013 the water loss was $6,089 and stayed approximately the same amount in 2014. At the same time, both materials and labor have been increasing. For an owner of a company, this is a double whammy and one that has a drastic effect on a business. There are a lot more significant numbers in the Xactware Report, but I will leave it up to you to take a look at it and decide what is and is not important to you as an owner.
What this says to me is that costs are increasing, gross sales are decreasing and there is a good chance that net profit is decreasing in a lot of companies. So the question is: what can you do about the future of your business and the future of the industry? Let me suggest a few ideas to you:
- Report all your of your completed jobs through the Xactware process. Usually the first response to that idea from a contractor is that it is a waste of time. It’s easy to say, but it could not be further from the truth. Insurance companies upload every completed job and as a result their data is affecting the database much more than the contractor’s database. When a job is uploaded, Xactware checks the difference of prices between what their estimate database says to charge and what was actually charged. As a result, the database changes are driven by the prices that are submitted to Xactware. If you do not submit your completed jobs, then you are allowing others to drive the prices in an industry that you work within.
- Job cost all jobs on a weekly basis and take appropriate action to ensure that you are continuing to run a profitable business.
- Mutually negotiate job budgets prior to a job start and hold all that are involved accountable to achieve the job on time and on budget.
The future of a business is determined by a lot of things, some of them you have a say in and some you don’t. My suggestion is to figure out a way that will benefit the direction that you want your business to go. Wishing you reasonable policy holders, good business and a fair profit!