The owners of an HVAC company hired me to do a profit improvement engagement. The company designed and installed HVAC units for commercial buildings. The company also had 25 service engineers in the field servicing heaters and air conditioners. This client had annual sales of $14 million, $4 million in new installations and $10 million in service revenue. The three owners started the company 20 years ago. They hired me because the owners believed that the business should have been more profitable. They had no idea why the company was not profitable.
Initially, I reviewed the financial statements to determine where the profit leakage may be. The accounting systems and reporting were not adequate. The financial statements did not provide the information to the management team to support the decision-making for their respective functional areas. The financial statements were prepared and distributed 45 days after the close of each month. Once I discovered this problem, I knew that it was time to replace the Controller and update the accounting systems. The Controller was an issue, but he was not the only problem.
Control Over the Paperwork.
After reviewing the billing (revenue) for the service department, I discovered that there were significant peaks and valleys each month. The company, based upon the current annual service revenue, was averaging $1.3 million per month. According to the accounting records, the range of posted service revenue was between $500,000 and $1.7 million. The company did not have control over the processing and reporting of the service revenue.
I sorted the database of the service orders by serial numbers and discovered large blocks of serial numbers missing. I also sorted the data by a service engineer. We found that two engineers had no revenue reported for the six months.
I met the next day with the two service engineers. They thought that the accounting department had their paperwork. We were lucky because they both still had copies of all the service orders missing.
When we processed the missing paperwork, it totaled $875,000! We also researched the balance of service orders from other service engineers and found an additional $80,000 of unprocessed revenue.
Finally, the company had control over the paperwork.
The owners of the company were correct; the business was not as profitable as it should have been. After invoicing the $955,000 for unprocessed service orders, the company reported a healthy profit.
I helped the client upgrade all the accounting and financial systems and implemented internal controls over all the service orders. The new procedures ensured the timely processing of all services orders within 24 hours after the completed service call. We also replaced the Controller. He should have been able to identify the problem if he was doing his job correctly.
About the Author
Robert S. (“Bob”) Curry - Bob Curry is an Author, Keynote Speaker, Seasoned Business Coach, and successful Turnaround Specialist. Earlier in his career, he served as President and CEO of three different companies, the largest with annual sales of more than $1.3 billion dollars - all which experienced successful turnarounds under his management. After turning around three companies as the President/CEO, he started his turnaround consulting firm, and for the past twenty years, he has turned around more than eighty distressed companies in many different industries helping each to establish a strong management team and become profitable. He has published three books: "From Red to Black," "The Turnaround," and “The Turnaround 2.” He resides in Fort Lauderdale, Florida, with his wife, Esther.
All three books are true stories about the turnarounds of real companies that I have turned around during my career. In each book, I shared my (“PIR’s”) Profit Improvement Recommendations which helped turnaround the companies from Losses to Profits. PIR’s help to grow sales, reduce expenses, improve cash flow, increase profits, and most noteworthy, strengthen the management teams. All three books are on sale on Amazon.com in paperback, kindle, or audio.