Contractors: price your service work to make the profit you need to survive. (Mechanical Service Contractors of America's convention)

Contractors: Price your service work to make the profit you need to survive

PHOENIX -- "The number one reason businesses fail is poor paperwork," according to consultant Thomas Grandy, of Grandy & Associates. "It can take two to four years to find out if you are in trouble. We're masters at stealing from Peter to pay Paul."

Grandy spoke during a seminar at the Mechanical Service Contractors of America's (formerly SMB) annual convention here.

According to Grandy, "Your company is changing; it's not the same as it was six months ago, and its not the same as it will be six months from now. You need a budget to help establish the right labor rate.

"A budget also will make you look at your business in detail. It provides accountability, helps you plan for growth, and provides information to base economic decisions. A budget will not solve all your problems, but it won't be of any use if you don't use it.

"You should have a monthly budget," Grandy said. "You'll be able to determine cash flow, especially during your historically slow months. You'll know when you project to make a profit and will be better prepared to talk to your banker and raise his confidence level."

The key to effective pricing is knowing your company's estimated revenue, expenses, and desired profit. You must know current and projected costs of overhead, estimated material sales, and field labor hours at the proper labor rate.