Managing by the numbers

Running by the Numbers…..How Else Would You Run a

Pest Control Firm?Daniel S. Gordon, CPA

How To Run a Successful Pest Control Firm Why Are We in Business? Today’s Economic Environment How to Grow a Pest Control Company Key Success Factors in Growing a Pest Control Business Accounting 101 for the PMP Conclusion

Agenda

The Pest Management Business is Simple (Not Easy But Simple)

We are in a Service Business and Sell our Time.

The time that we charge for includes: Diagnosing the Problem Providing a solution Setting the Customer up on a Service Contract Doing the Same thing Over and over until you have

built a route or several routes.

How to Run a Successful Pest Control Company

The Concept of Selling Time:

How to Run a Successful Pest Control Company

Time is a Perishable Commodity

Once it is gone, you can’t resell it

If you route your calls effectively you will be able to maximize the amount of time that you can sell.

To maximize the value of Our Business…. Period !

There is no other reason !!

Why are we in Business?

In Maximizing the value of our business we:

Create a great Place to Work

Increase Salaries & Benefits

Create Job Security

Do business in a Socially Responsible Manner

Why are we in Business?

Today’s Economic Environment

Stock Market Collapse

Housing Crisis

Record Prices at the Pump

Implosion of the Auto Industry

Meltdown of Financial Services

Exodus of Manufacturing

Major Devastating Events of 2008 & 2009

Stock Market Recovery (The psychological wealth effect)

Housing has shown signs of bottoming and speculators are

now posturing for the upturn

Prices at the Pump dropped to a level that demonstrated no

excess demand in the economy and have now equalized at

prerecession levels

Auto Industry has been rescued (for now)Contd…

Major Events that have provided opportunity for growth in 2009


Because of the Fed’s easing of Interest rates the banks are again making record profits on the spreads between their borrowing and their lending

Say what you about the total irresponsibility of the banking industry (and there is a lot to say), but without a strong banking sector the U.S. economy cannot be strong. And it is currently on the mend

Exodus of Manufacturing – The U.S. is painfully becoming a

service economy

Painful for those in Manufacturing

Tremendous Opportunity for those in Service like us PCOs


Major Events that have provided opportunity for growth in 2009

How to grow a Pest Control Business

You need a Plan. The plan must focus on growing your customer list.

This is the Asset that will spit out the profits.

Remember- The PMP business is not a high margin business. Rather it is a moderate margin business where you generate high profits from customers that use your service on a scheduled recurring business

How to grow a Pest Control Business

Service Contracts vs One Shots

Consider that it costs anywhere from $80.00 to $200.00 to generate a lead from the phone book

Which is better a one shot at $150.00 or a ongoing service agreement at $75.00 per quarter?

Key Success Factors

Key Success Factors of succeeding in the Pest Management business:

The key success characteristic that is common to all successful operations can be summed up in one word…. MANAGEMENT.

Management Assets & Liabilities

Management of People

Management of Information

Management of Money

In pest control, successful management is characterized by four categories:

Key Success Factors

Management of Assets and Liabilities


The Customer List (Your most Valued Asset)

Long Term – Can be compared to machinery in a manufacturing business:

Must be “well oiled” by providing great Service Routes must be tight allowing for the greatest output from

this machine

Short Term - Can be compared to a life insurance salesman setting up a book of renewable policies that generate current income.

Accounts Receivable - Should be aged, and customers should be held to the terms of the agreement.

Firm credit policies should be established in order to prevent write offs (after all write offs are an expense that needs to be minimized)


All Other Assets (i.e. trucks, equipment, furniture and fixtures) need to be well maintained.

Systems need to be set up to track their usage and maintenance schedules need to be adhered to.


Accounts Payable should be managed prudently and tracked so that payment is made within Vendor terms.

Credit Lines - Pest Management is seasonal in most areas of the country. Credit Lines can be useful in meeting operational obligations during the slow season.

Never use a credit line as a substitute for long term financing (i.e. purchase of a truck, real estate or anything else that may have a useful life of more than one year).


Loans Payable – There is nothing wrong with debt as long as it is secured by an asset that has a useful life of more than one year and the terms are manageable and they are adhered to.

Many folks believe that they are judged by how they keep their word. In business you are judged by how high your credit rating is!



As your organization grows, you will have to manage technicians, sales people, and office staff. Good people are your greatest asset in pest control. You see, we are in a service business. We don’t offer a product. We offer our people and their expertise to our customers.

Whereas a company that offers a good product can sometimes be successful with marginal people based on the merits of the product alone, we as PMP’s can’t.

Our Product is our People.

So how do we attract and keep good people?

Pest Control is not a glamour business (to most people). However, if we can demonstrate:

Pest control provides a good living; A pleasant work environment; The ability to grow both professionally and financially

We will attract good people. By the way, this is much easier said than done.


We do know that people want to earn a decent wage. We also know that in order to attract good people, they require benefits such as:


401K (retirement) and family health insurance

technical training for their job function

financial incentives such as performance based commissions and bonuses

Systems must be in place to manage work flow along with accurate accounting of employee incentive based compensation.

Nothing is more demoralizing to an employee than the promise of the above mentioned work environment and incentives and when the employee starts work, he finds a dysfunctional work force and no systemsin place to accurately calculate incentive based pay programs.


There is no faster way to loose a good employee than to cheat him out of pay either intentionally or unintentionally due to lack of systems to properly calculate and pay those commissions and bonuses promised to him.


A good computer and accounting system can be used as a tool to help in many aspects of people management.


The hope of any owner or manager is to grow a business by increasing sales. Sales comes from adding new customers or providing new services to existing customers. Sounds easy…Right?

Well with this increase of sales we need a method of maintaining customer information such as:

Customer Contact Info

******* E mail Addresses *******.

Date and Place of Services Performed, Application method and chemicals used.

Amount Charged, Amount Paid, Amount Receivable outstanding.

When Periodic service is to be performed and which technician will perform the service.


Type of advertising that led the customer to our company.

Proximity of customer to other customers for effective routing.

Time spent at the customer’s house and Dollars Charged per hour worked.

And all this needs to be tracked for thousands of customers in a uniform manner!


External Accounting Function

Prepares Tax Returns to comply with state, local and federal Reporting Requirements

Prepares Financial statements for bankers, investors and creditors

Internal Accounting Function

Help Set up and Maintain a system to record and evaluate the results of all functional areas of your business

Accounting Function – Management of the Money

Accounting 101 For the PMP

How Much Money You Made?

How much Termite work you did last Year?

What Your Labor Percentage Was?

What Your Chemical Percentage Was?

How Much You Spent on Sales & Advertising?

What Your Gross & Net Margins Were?

At The Click of a Button Can You Tell on a Monthly Basis:

Before We Can Improve the Financial Performance of Our Company, We Must Understand Its

Financial Make-Up

To Get This Information We Need Financial Statements

What Are Financial Statements?

Financial Statements are the Box Scores in the game of Business.

They are the culmination of the accounting process. They are used to convey a concise picture of the profitability and financial position of your company.

The Profit and Loss (P/L) & The Balance Sheet (B/S)

The P/L shows how much profit or loss your firm made for a given period. But more importantly it shows how that profit or loss was derived by category of expense and revenue.

Using The P/L we are able to assess the results of our efforts by benchmarking certain items and measuring our results against these benchmarks.

The B/S shows what we have in terms of cumulative P/Ls plus financing activities. But more importantly it shows the financial strength of the firm.

Using the B/S we can determine if we have the resources to expand our business and if not, how much we will need for expansion.

Within the Profit and Loss Statement we can define our benchmarks:

Direct Labor

Chemical Costs

Vehicle Costs

Sales Costs

Office Costs

Etc., Etc.

Define Our Benchmarks

These Benchmarks Can Be Measured as:

Percentage of Sales

Actual To Budget

Actual To Prior Period

Actual vs. Industry Comps.

In Order To Derive Useful Information from the Financials, They Must be based on an Industry Specific,

Company Specific Chart of Accounts.

The Chart of Accounts

The entire accounting process revolves around a General ledger Chart of Accounts.

A Chart of Accounts is nothing more than a list of categories that define how we record our revenues, expenses, assets, liabilities and net worth.

One of the areas that I’ve noticed with small Pest Control Companies (Small being defined as those with less than $5,000,000 in sales) is that their accounting system is designed for their accountant to prepare a tax return in the simplest manner possible.

This is because the accountant is an outside consultant that the PMP usually meets with a few times a year for the sole purpose of preparing taxes.


Why is this a poor approach?

Accounting is the language of business.

Taxes are only a small aspect of accounting. Accounting can be and should be a road map that shows where your business has been, where it currently is, and where it’s going.

Accounting is a tool that allows you to make period to period comparisons of revenue and expense types


You see in the generic chart your ability to make comparisons is severely limited. If you wanted to find technician labor as a percentage of revenue you could not.

You may only be able to find total wages paid in the entire company as a percentage of sales.

Breaking out wages by department is not required for the external accounting function.


Using the Pest Control chart of revenue and expense accounts you can analyze your company from many different aspects.

You will be able to ask an answer what if questions.

Such as:

“What if I reduced my Direct Labor cost by 1%?

How much extra profit would that translate into?”


If you look at the big players in the pest control industry they all have similar charts of accounts. If you don’t, your company is at a distinct management disadvantage.

In order to convert to a pest control chart of accounts you will need your accountant’s help.

Remember most outside accountants will resist this change unless their objective is to help with the management as well as tax return preparation.


Effective Routing Is The Oil That Drives The Machine.

How Many of You:

Have established routes? Manage schedules if and when the work comes in? Have established routes that are tweaked each and

every day?

Preview of Tomorrow

Conclusion

The most important concept in growing any service business is to understand that WE SELL TIME:

Time is Perishable

If we don’t maximize the sale of this time because we are inefficient, that time is gone forever and we can never sell it again

We need to maximize the time that we sell by optimizing our routes and adding service contracts

Anything we do to become more efficient allows us to sell more time and therefore more profitable.

QUESTIONS

Managing by the numbers

Business

service business

pest management business

pmp business

high margin business

moderate margin business

scheduled recurring

successful pest control

service economy painful