Sunday, September 8, 2013


Pay Me Now, Pay Me Later – Eliminating Fire-Fighting in Business

One of the biggest causes of frustration for business owners is constant “fire-fighting.”  Things go wrong unexpectedly and much effort is required to take care of the issues.  These problems suck up cash, resources, and time and business owners have to delay positive efforts, limiting growth and reducing customer satisfaction.  To these owners, it seems that when one fire is put out, another one rises. This cycle seems endless. 

I have found that in most cases, prevention of the problems takes a bit of foresight and planning upfront that will eliminate chaos and tons of wasted effort solving the problems.  Warning:  The “fix” is not new ideas or technology!  The fix just is not used as often as it should be.

As an example, recently, I was asked to help Michelangelo’s Flood and Fire Repair, a $5.1 million restoration company who ran into a cash shortage situation.  The first place I always look when cash is tight is Accounts Receivable – who owes money for completed work.  In the case with Michelangelo’s Construction, very few customers were late paying and the amount overdue was not appreciable. Working back from their there, the owner and I looked at jobs in progress.  We saw that multiple projects were expected to close within the next two weeks and would result in about $837,000 in revenue.  At $5.1 million in revenue, the revenue run-rate for Michelangelo Flood and Fire repair should be close to $100,000 per week.  The $837,000 that could be collected in the next two weeks should be about eight weeks of revenue, which means that Michelangelo’s Flood and Fire Repair projects had fallen about six weeks behind.

To understand why the company project portfolio was six weeks behind required digging into each project to find out where things were taking longer than plan.  In the case of Michelangelo’s, projects involved an insurance company and some, but not all, of the issues that caused projects to fall behind involved paperwork requirements of the insurance industry. 

1.       Custom ordered materials (doors, windows, cabinets, countertops, carpet) were late or had to be returned and reordered because they were damaged or not correct.  Issues with late materials typically results in multiple phone calls and trips to the supplier, and often, an upset customer.

2.       Cannot connect with the customer to obtain a signature on the insurance form to denote that the project has been completed satisfactorily.  The result is making multiple phone calls and sometimes multiple visits to the customer.

3.       Insurance company has not completed the final review of the paperwork prior to releasing a check to the customer.  Multiple phone calls need to be made to find out when the review will be complete.

4.       The insurance check requires multiple signatures – a bank, other parties who co-own the property, etc.  Often, the customer is placed in charge of this, meaning extra effort for them.

As it turns out, these four areas of concern are common to many project and fall late in the project timing.  A slip in any of them, in almost all cases, directly impacts the completion of the project and collection of payment.  However, for all of them, a little additional effort up front can minimize or prevent issues at the end.  For instance:

Custom Ordered Material

1.       When ordering custom material, spending an extra hour with the supplier to understand his design processes and implementing checks and approvals at critical steps to make sure the design drawings are accurate minimizes chance of receiving incorrect material.  Setting up dates when these checkpoints should occur helps to stay on top of the situation. 

2.       Reviewing shipping and packing procedures of the supplier to make sure damage won’t occur helps to minimize the change of damage during shipment.

Customer Signature  

1.       Setting up an initial walk-through procedure with the customer helps to identify any issues prior to completion of the project.   

2.       Remedying identified issues and conducting a final walk-through with the customer to verify everything is correct ensures customer satisfaction.

3.       At the final walk-through, obtaining the customer signature on the insurance form provides an ending to the project.

Insurance Company Review

1.       Obtaining a promise date from the reviewer sets expectations.

2.       At that time, ask the reviewer if it’s OK to call to verify the review has been completed keeps everyone on the same timeline.

3.       Additionally, asking the review what you should do to obtain confirmation if, when you call, the reviewer does not answer the phone drives agreement to a next step if required.

Multiple Signatures Required

1.       Verifying at time of service start the parties who have to sign the check allows for scheduling necessary activities.

2.       For multiple owners, explaining the process and negotiating an agreement on how best to get everyone’s signature sets expectations.

3.       If a bank is involved, identifying the bank employee responsible for review and signature, and what the person needs to see to sign sets expectations.  Negotiating with that bank employee how best to deliver the material needed and gain the signature puts everyone on the same timeline.

Implementing these preventative activities into the standard work flow has greatly improved project (and cash) flow and reduced project effort required.  Notice that in every case, a little forethought with just a small bit of effort upfront – planning ahead – can prevent weeks of delays and extra effort, and increases customer satisfaction in the end.  I have found that this philosophy works well in almost any business spending significant time and effort on fire-fighting.  Is this revolutionary thought?  No.  But given the frequency of companies in a continual fire fight, implementation of the process is rare.  Common sense?  Apparently not so common. 

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