39 PERCENT GROSS. 6 PERCENT NET.
A $3.1M electrical service contractor came to us running the business from fear. A partner separation had pulled six figures out of the company, and everything after that was scrambling. The numbers said the work was fine: gross profit at 39.17 percent, net at 6.07. That leaves 33 points of overhead in between, about $1.03M a year on $3.1M of revenue. She wasn't losing money on jobs at all. She was losing it on structure, and no amount of selling harder closes a hole that size.
This owner is not the usual case. She used to run a weekly profit and loss broken down by job, so she knew what good looked like. The crisis took the routine away, and once you're working from the bank balance each morning the structural problem gets no attention at all.
A $3.1M ELECTRICAL SUB. RUNNING ON THE BALANCE, NOT THE NUMBERS.
A $3.1M commercial and residential electrical service contractor. A partner separation had taken six figures out of the business, and since then decisions were being made from the morning bank balance. Real money sat frozen in an unpaid invoice and a bank error still working through resolution, receivables were stretching past 60 days, and the collections list ran 80 accounts deep with no way to rank them.
THE JOBS WERE FINE. THE STRUCTURE WAS NOT.
39.17 percent gross profit on service electrical work is a healthy number. It says the pricing is right, the technicians are productive and the work is being sold well. Then 6.07 percent net says almost none of that reaches the bottom.
Thirty three points of overhead is the whole story, and on $3.1M that is about $1.03M a year. A contractor in that position can double the sales effort and change nothing, because that cost sits outside the work.
On top of it she was carrying debt from a previous business and vehicle debt, both of which service out of the same overhead the business was already too heavy to carry.
AN 80 ACCOUNT LIST WITH NO ORDER TO IT.
The collections problem came down to sequencing, and never to diligence. Eighty accounts on one list, all of them equally urgent because nothing ranked them, and invoices going out in batches after work completed, never on completion.
The overhead problem was built the same way. $1.03M a year is not one line item, so there was nothing obvious to cut. It needed the whole cost base read against revenue before anything could be targeted, which is what turned an intimidating number into 4 identifiable points.
Four points on $3.1M is about $124,000 a year, and it moves net from 6.07 percent to roughly 10.1. That clears the 10 percent minimum we work to without selling one additional job.
WHAT CHANGED, WEEK BY WEEK.
THE NUMBERS, NOT THE FEELING.
Thirty days. The receivables move, the payables position and the payoff order are done and hold today. The 4 points of overhead are identified and not yet removed, so the 10.1 percent net is a target and not a result. That is the honest state of this engagement and it will be updated when the reduction is complete.
DOES THIS SOUND FAMILIAR?
The signature of this one is a healthy gross margin beside a thin net. If your jobs price well and your bottom line is small, that cost sits outside the work and no sales push will reach it.
The second signature is a collections list with no order. Eighty open accounts is not unusual on service work. Eighty open accounts where nobody can say which five to work this week is what turns a receivables position into a cash emergency.
The third is subtler and worth watching for. This owner knew her numbers before an event took the routine away. Capability is not the same as current visibility, and a good operator six months after a shock can be running as blind as one who never looked.
See how CFOS applies to electrical service subcontractors specifically on theElectrical Operating System page, or book a 20 minute call and bring your own numbers.
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