Sign Companies: Monitor Your Financials Monthly

I WAS JUST THINKING, Rick and I have been in this business a looong time. And then realized that June 1, 2024 will mark my 40th year in business! Four decades ago I was 16 and handpainting signs out of my mom’s garage. Now, clients we still have to this day walk through our new, beautiful, 30,000-sq.-ft. facility packed with equipment, a horde of employees bustling about, and ask, “Did you ever think it was going to be this big, Dale?”

“Hell yeah,” I answer. “I just didn’t think it was going to take this damn long!” Where did all the time go?!

Yet here we are, all these years later, and you’d think Rick and I would have this whole deal down to a science… But nope, that is not the case. We still learn lessons every single day.

2023 was far from an exception. It very well could have been our worst year ever. We took on too many large projects, didn’t take care of our best clients, had employees who weren’t pulling their weight, took too long to finish jobs, and had clients flat out refuse to pay us — prompting last month’s column, “Word of 2024: NO!” (see ST, February 2024, page 41).

But saying no to loser projects was just the beginning. We had to make drastic, culture-changing decisions to fix our business. Yep, even after all the years of hard-earned experience.

A business’s one and only “job” is to turn a profit. As owners, we are merely stewards to facilitate that goal. When times are difficult and the cash is not flowing in the proper direction, you go into Panic Mode and allow less important things to fall by the wayside. Like studying your financial reports. Which is not less important, but when you’re scrambling to cover payroll, the last thing you want to do is look at how much money you are not making… We know it, so why rub it in our faces, right?

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Wrong. Your financials hold the key to success. I know you don’t want to spend the time (and risk a potential kick to the privates if things don’t look good), but they are the roadmap to business success. Unfortunately, we fell into that trap by not reviewing them weekly, as typical. So, in December we sat down, poring through them with gritted teeth. No fun, but we instantly pinpointed our issues.

Quick rundown: First, print your Profit & Loss statement with a percentages column! Massively important because percentages are what we all need to focus on. “Income” represents 100% of your loot (duh), then start subtracting… cost of goods sold (COGS), payroll, overhead, etc. I can’t speak for your company, but we traditionally had a 28% material cost: $10,000 job, we spent $2,800 on vinyl, paint, aluminum, etc., to build that sign.

Payroll is our highest cost. Shoot for 32% (although we rarely get it under 36%). Those two eat up 60-64%, leaving about 36%. Subtract your rent, insurance, taxes, loans, etc., and whatever is left is your net profit (very simplified).

What we discovered is that 2023 ate up 41% on COGS, and 41% payroll. 82%?! Way too high! We were dying!

Too high a COGS means you need to raise your prices! You’re too cheap!

Too high a payroll means you have too many employees. Gotta let some go.

We did both at the end of year, and January immediately showed 20% and 35%, respectively. Wrangling in a 30% net profit. Oh yeah!

And if this was done throughout 2023, months of anguish and heartache could have been avoided.

#StillLearningLessons

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