· Your Scalable Growth Business Model (SGBM) Instant Assessment Results are Here ·
Based on your answers to the questionnaire, we've identified your business as a multiple service operation with a seasonal down period. That means you can either follow the Down Season Business Model chart OR you can follow the Multiple Service Operation chart. One offers more detail. One offers a more broad overview. Take a look at the recommendations below, and choose which chart to follow.
Here's What's Included
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The Down Season Business
Your business model provides a combination of services but has a seasonal down period. When the down season approaches, your company starts to close down the operations of the day-to-day service side of the business. That means you probably lay off your field crew during the down season or keep on only your top team members for strategic planning and key functions that involve the up season relaunch. When the up season arrives, you begin servicing your customers again.
Because you provide more than one service, you fall into the multiple service operation blueprint.
The down season can impact a company's cash flow if cash has not been managed properly throughout the year. This area can be challenging for many businesses. During the down season, many companies support the day-to-day operations with customers' prepayments for the following season. However, those prepayments aren't the company's money until those services are delivered.
Another common issue is that prepayments are often not set up properly in the accounting system. Often, companies pay tax on prepayments because they are being received and recorded as income in the current year. Some companies even receive these funds and record them as a liability. After they record the funds, the companies spend them, counting the expenses in the current tax year. When the new year rolls around, they find that they don't have the cash flow they need to launch their season once production ramps up, and they can't claim the expenses in the new year because they already claimed them in the prior year. Meanwhile, the liability is still sitting on the balance sheet of the prior year.
Newer businesses that use this blueprint tend to overbuy equipment. Depending on your scalable business model, your overall equipment costs could range between 5% and 15% of your sales. These costs include not only direct costs but also leases, insurance, fuel, and maintenance.
In this business blueprint, the pricing of services and materials is typically incorrect. The correct and full labor burden is not identified, and the labor margins and mark-ups are not at the proper percentages to produce a high enough profit. As a result, businesses often cannot cover the costs of their day-to-day operations, including their labor costs. The inability to connect with true labor costs creates challenges in recruiting and retaining good workers. In addition, not everything that should be included in job estimates is being included, which throws off the calculations.
Crew size can be a big issue in the multiple service operation blueprint. You can start bleeding profit fast if there are too many people on a crew and the labor is not being tracked. Field labor should run between 20% and 35% of your sales. When field labor hits 30% or more of your sales, there is likely an issue with project management.
Compared to the single service operation, the multiple service operation requires two to three times as much overhead to run and manage. You need equipment for each type of service, and each of these services is seasonal. Space is required to store the equipment, in addition to insurance to cover it. For each season, you need to ensure you have a properly trained crew on hand to provide the services you offer. It's no wonder that the owners of this business blueprint sometimes feel like circus ringmasters.
You may face challenges with your cash flow due to your need for more capital resources. You may have an excellent opportunity to produce revenue in a particular year, but the following year, a fluctuation in seasonal patterns may demand capital to support expensive equipment even though it isn't producing revenue.
Consider the costs of offering snowplowing services. It can cost $80,000 to set up a snow truck for snowplowing. A truck or loader alone costs $50,000 to $80,000, and it takes two to three weeks to set up these trucks for snow. Sometimes there is little or no snow during the winter season, which means little or no revenue to support all the setup costs and generate a profit. In addition, many business owners don't budget for the wear and tear on trucks and tires, even though a snowplow business needs to plan for a new set of rims and tires each season on six-wheel trucks. Up to 25% of snowplowing revenue is needed for equipment repairs and replacement, and the life expectancy on trucks used as snowplows is cut by 30%. Taken together, all these factors can lead to a cash bleed that destroys profit.