Profitability is challenging in today’s integration market. It’s time to prioritize ways to make the right financial decisions.
Making tough financial decisions is part of running an integration company. Establishing control measures and business rules is just as important as providing customers with innovative AV, UCC, security, and life safety solutions.
That has always been true for NSCA member integrators, but it’s perhaps even more vital as we approach 2024. Although supply chain challenges have dissipated, there are still obstacles to navigate related to product availability, labor issues, inflation, and more. Put simply, it’s hard for integrators to be profitable these days. The smartest integration company leaders in the NSCA Community seem to empower their financial leaders and allow them to put in place rules to keep spending and efficiency in check.
NSCA Board of Directors President Dan Schmidtendorff offers a few key financial rules to assist in financial decisions to improve profitability, operations, and culture. Before you can apply these rules, it’s important to have solid financial statements in place, along with a financial model for future revenue forecasting, gross margin, and EBITDA (earnings before interest, taxes, depreciation, and amortization).
1. Understand Your Profitability
“Break down the company’s revenue by categories and understand where the profit sits,” Schmidtendorff suggests. “Know what areas of your business return the margins you need to hit financial goals and create continued growth. Focus your efforts here. What area has the highest gross margin, and how can you create more of it?”
2. Recognize Labor Efficiencies
“As an integrator, direct labor is the most vulnerable area of our business,” he says. “Labor slides due to factors that are in your control and outside your control are the highest risk within each project you manage. Maximizing labor efficiencies leads to increased gross margins and creates opportunity for growth in additional revenue.”
Schmidtendorff advises integrators to set metrics to forecast and track labor knowing utilization vs. realization.
3. Increase Cash Flow
Creating cash within your organization drives growth, so Schmidtendorff suggests focusing on areas that will increase cashflow. When it comes to collections, “know the current days in billing and set new goals to lower the days cash is tied up,” he says. “Negotiate payment terms for customers and vendors. If possible, eliminate inventory and put rules in place to prevent purchasing outside of service stock and for projects. Celebrate the wins and set new goals. Accounting rarely gets to celebrate the wins, so effort here will only have a positive impact and help create the culture you want.”
Dan Schmidtendorff is president and CEO of Communications Company and president of NSCA’s Board of Directors.
3 Tips to Increase Cash Flow
1. Pricing power: Find where gross margin sits.
2. Maximize direct labor: Improving labor efficiency increases margins and earned revenue.
3. Collect faster: This can happen through upfront deposit checks, shorter terms/proactive collections, and making sure inventory is billed ASAP.
