The Mercedes Model To Operational Finance - Electrical Business Lesson
Mark Smith, a high-performance business coach, talked with me about the sole traders in the electrical industry and electrical contracting business owners. The aim of our conversation was to find out the magical number of people needed to replace your business so that it can continue to be efficient, productive, and profitable even if you decide to go away for a few days. Are you ready to find out the recipe for successful hiring, managing operational finances, and maybe retiring? Well, let’s start with our sole focus on the sole trader.
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How many people does it take to replace you?
As a sole electrical trader, it means that the more jobs you have, the more money you will make. But if you do take a break from work and go on a holiday then it means that there will be no money because the business (which is entirely run by you and hence it is YOU itself) will come to a halt. On the other hand, no money is going out of the business into funding your holiday, so it doesn’t cost your electrical business any money. However, as an electrical contracting business owner, you have got to plan your holidays (and maybe even sick days, but well, that’s out of your hand!) well, and in advance, so that it doesn’t end up costing money to the business.
If you really do have the ambition to grow your business then you have to get through the initial phase where you are doing everything yourself and get a few people on your team. So that you can finally delegate tasks that you don’t have the time to do yourself such as admin and invoicing. Now you can focus on business growth and business development tasks such as sales and marketing. You have got to build an entire system around it so that it functions on its own and also produces measurable results so that you get more phone calls and people are asking you to do their electrical work. The more calls come into your electrical business, the more volume you are generating.
To answer the question asked at the start of the article -- Well, the magic number is three. It will take 3 people to replace you, which is also the number of spokes in the Mercedes symbol.
1/3 - Wages.
The number one cost of running an electrical business, -- or any business, for that matter -- as you must already know, is wages. Since you can’t be everywhere doing everything, you have got to pay someone to do your work. Your employees also expect money in their account at the end of the week or month. Wages also include the cost of labour which is the amount most employers pay such as employee benefits and payroll taxes. It would be great to hire an Admin Expert who can manage all these tasks for you and free up your valuable time.
1/3 - Running & Operational costs.
In addition to the wages, the other taxing (and huge) cost is the day-to-day expenses. Something very basic and very small but something that accumulates to a big number at the end of every year. The running and operational costs of a successful electrical contracting business can include petrol, supplies, vans, equipment, advertising, marketing, and production costs. You should try to make sure that your company (business) is being run in the most efficient manner possible. So hire an Operations Manager who can oversee all of the above work for you.
1/3 - You.
The third part primarily constitutes of your wages, profit in the business, etc. It is a big and important chunk of your business, which should be generating itself to make sure that your cash flow stays in positive and that your business is profitable. In an inefficient model, the business allocates fifty percent to the employee wages and the other fifty percent to the operational costs. As a result of this, many electrical business owners are demotivated and they go back to being a sole trader because they are not getting any benefit. You have got to scrap this operational financing model and replace it with the above one, where it is divided into 3 parts and all aspects are taken into consideration.
Brett Mathews stresses that you have got to do the Math because it is not something that will happen immediately or overnight.
When you get someone new on your team, you have got to push to make sure that there is profit in the business as soon as possible. If you have to work in the business to earn your money then where’s the time for you to make sure that your 5 guys are being effective? So you have to have good people on your team and measure effectively!
What do you think? Will the above operational finance model work for your business? Leave us a comment and let us know. For more such awesome content, please sign up to our Electricians Success Academy.
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