More companies want to do water mitigation only.

In the last few years, contractors have been bragging about how profitable their water mitigation business has been for them. After asking a lot of questions, it appears that a lot of contractors do not include the cost of their equipment in their job costs. Their explanation goes along the lines of, “well you know, I’ve paid off my equipment, so that I have no cost to me for the using my paid-off equipment on future jobs.” 

That reasoning means they are not including:

  • Equipment can be rented from big box stores.
  • Dehus rent for about $70/day, fans for $25/day.

I checked with a client of mine who said his average job was approximately $2,000, and on an average job, he would need two dehumidifiers and five fans. This would generate a rental cost for three days of at least $1,020, plus tax, plus the time it takes to pick up the equipment and deliver it to the jobsite. Three days later (assuming the building is dry), another driver would need to pick-up the units at the jobsite and return them to the rental location.

I’ve discovered a lot of contractors operate differently when they are around people they do not know. It seems that the further away from home they get, the higher their dollar volume. Their memory also improves in that they can remember every detail of their accounting numbers and strangely, they also become much more profitable the further they are away from home.

 Let’s consider for a moment that they are of good memory. The person asking the question needs to realize there is more than one way for a business to set up accounting records. As a result, it is very difficult to compare one person’s account numbers with another, especially when they are explained from someone’s memory and not from seeing their financial statements. Besides, most people want to tell you the good things about what they are doing and not the bad things.

So what is my point? My point is that you need to job cost all your water losses and make sure you are including every expense in every job.

More companies are realizing Third Party Administrator work sometimes has a higher “management cost.”

Companies are feeling the need to hire an employee to specifically handle program work. This has varied from a part-time job to a full-time job. They have to be software literate, very attentive to detail and aggressive in getting needed data in a timely manner. What they’ve also determined is program work is not as always as profitable as other types of insurance work. This is due to several things. Certainly the cost of the special person to monitor and adhere to all of the program’s rules has become part of the “cost” of doing program work.

Another cost is the fee the TPA charges contractors for managing the claim for the insurance company.  An additional issue has been the TPA making quick changes that really constrict the ability of the contractor to do their job in a timely manner. An example of this has been precluding the contractor from talking to the adjuster. This has made it very difficult to get timely decisions. 

All that said, there are also clear benefits to being part of TPAs, starting with the fact that they can greatly grow your number of jobs, and therefore your profits. You perhaps simply need to learn how to work with them in a way that works for your company.

More companies are looking to sell, and other companies are looking to buy and grow.

As a company owner gets closer to retirement age, they are becoming more aware of what they have or don’t have enough in the bank to retire. A lot of company owners have a good business that has provided good wages for employees for many years. What they are discovering is they have a lifestyle business that is not a very good candidate for sale.

It’s not uncommon now for a buyer to ask the current owner to stay for five years and meet goals agreed to in the buyout proposal. A lot of company owners want to leave at the time of the sale and do not want to stay for another five years. Owners are also discovering when it comes to valuing the company, it is not worth what they thought. That has generated a difference, sometimes a large difference, between the amounts the owner needs and what the buyer is willing to pay. The owner is also shocked that there may be some tax consequences they had not thought about. As a result, owners have to seek both legal and tax advice regarding the sale of their business, and more importantly, they have to postpone their retirement for at least five years.

Wishing you a great 2017 and a 10% NET profit before taxes!