Are Gushing Repair Costs Your Biggest Profit Leak?

$145,000 in profit was lost to rising equipment costs for the average company in 2013.

You did it. You survived the downturn and now you’re riding along “recovery road,” no longer afraid you won’t generate enough sales to survive. In fact, you fear the exact opposite. Demand is up, building staff is challenging and your equipment is working at maximum capacity. The high demand on equipment means keeping it in good working order has become one of your biggest profit leaks—and it shows on your P&L.

If you’re struggling to control equipment and vehicle repairs and maintenance, you’re not alone. A whopping 71 percent of the companies that participated in a recent ACPA study saw equipment repairs and operating expenses increase in 2013. And with revenues continuing to climb, 2014 is likely to bring similar results.

“This is the issue I’m asked about most often,” says Barbara Nuss, CPA and author of the ACPA financial benchmark study, referring to rising operating supplies, repairs and maintenance costs. To find answers, ACPA members may request a one-onone consultation with Barb to help interpret the confidential financial assessment they receive for participating in the study. Many who benefited from this year’s consultations clearly saw the need get a better handle on repair and maintenance costs.

“Direct labor, including taxes and benefits, is the largest expense and typically runs around 30 percent of sales,” says Nuss. The next three largest costs are fuel; depreciation on revenue equipment; and equipment operating supplies, repairs and maintenance expenses. And while labor cost as a percent of sales stayed fairly constant between 2012 and 2013, average equipment operating supplies, repairs and maintenance increased from 8.7 percent of concrete pumping revenue in 2012 to 12.0 percent in 2013. Apply the 3.3 percent difference to the mid-sized study participant (with pumping revenue of $4.4 million) and you’ll discover that $145,000 in profit was lost to rising equipment costs for the average company in 2013. Depreciation and fuel costs declined slightly in 2013.

Members cited a variety of reasons for the rising costs, including traveling longer distances to job sites and inexperienced operators whose bad habits are hard on equipment. Some members experienced a strong growth in commercial jobs that require larger equipment that is more costly to maintain. Combine all this with playing catch-up on deferred maintenance and delaying replacements to avoid taking on new debt and many members say they have the highest equipment repair burdens in recent memory.

Every concrete pumper should nominate managing fleet costs as a business priority, backed with high-visibility strategic initiatives and action plans aimed at providing equipment capacity at the lowest possible overall cost. Keep track of the causes of problems and brainstorm with your team about systemic solutions. Getting ahead of the issue could put a stop to your biggest profit leak.

Strategic initiatives and action plans aimed at these factors can help turn the corner on increasing costs.

• Reduce travel distances by using satellite yards or focusing on targeted geographic markets. Develop
the plan that most efficiently serves your defined geographic market/territory.

• Raise the standard of equipment care through training, communication and incentive programs. Assume new employees need both knowledge and motivation to take better care of equipment. Setting the expectation for the expense budget, monitoring results and giving appropriate feedback are critical to making this work.

• Stick to routine maintenance and replacement schedules to avoid costly breakdowns and downtime.

• Start now on your long-range equipment and borrowing plan. This can save money by creating the framework and timing for good decisions, as compared to solving problems while in crisis mode.

Barbara Nuss is president and founder of Profit Soup, ACPA’s financial benchmarking partner. Her main focus is on helping clients gather and use information to build value in their business. Barb’s management and CPA background along with her years of experience working with industry leaders have enabled her to build and implement maximum value benchmark initiatives. She is especially skilled at analyzing and presenting financial information so her clients can use it to learn from the past to set direction for the future.

Barb will be presenting two sessions “Dashboard GPS – By the Numbers for a Non-number Person” and “Measure, Understand, GET IT DONE” at the upcoming ACPA Education Conference to be held in San Antonio, Texas on April 10-11, 2015. She can be reached at barbara.nuss[at]profitsoup[dot]com or at 206.282.3888.