Sign Business Basics

Mastering the nitty-gritty elements of financial management is a precondition for long-term business success.
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The decision to launch a new sign business or purchase an existing company sometimes is taken without understanding some critical basics. Likewise, current sign company owners or managers may find their businesses underperforming due to insufficient focus on the key roles of cash flow and operating costs in a firm’s performance.

To examine these crucial elements, I called on the sage advice of some experienced sign-industry professionals including Kevin Stotmeister, president and CEO of Federal Heath Sign (Oceanside, CA), Steve Gerson, president of VIS Signs/Visual Information Systems (Pittsburgh), Mike Lauretano, Chairman of Lauretano Sign Group (Terryville, CT) and Steve Kieffer, retired former CEO of Kieffer & Company (Sheboygan, WI). Collectively, this group has more than 150 years of top-level management experience in the sign industry.

MONEY MATTERS
It’s surprising that some sign company owners, particularly new businesses or those with limited experience, fail to devote adequate attention to effective customer vetting and credit policies.

“You must establish a sound credit-review process and a disciplined method to carry it out,” said Stotmeister. “Define a ‘good customer’ criterion for your company that includes their ability to pay bills on time as a necessary component.” Thus, beyond the obvious need for a business to attract new customers, it’s equally crucial to attract qualified customers. “We are very selective in the customers we work with,” said Gerson. This is particularly relevant to Gerson’s firm because a majority of his business involves electronic signs, which typically entail higher costs than conventional signage. “Most of our customers are Fortune 500 corporations such as financial institutions, or schools, churches and municipalities. In almost all cases, though, we still get a 50% deposit.”

So, how do you avoid pitfalls like customers who refuse to pay, or who delay their payments? “Set terms that will net you the majority of the project before the final installation,” said Lauretano. “For example, you can ask for a 50% down payment, then 40% just prior to installation, and carry the 10% balance on a net-30-days basis with a penalty for late payment.”

Successful firms typically perform the majority of their jobs for customers having well-established credit – but not always. “For the few jobs we do for new or small businesses, we require advance deposits along with a clear understanding that we will be paid the balance on the day of completion,” said Gerson. “If a customer cannot pay the deposit, this almost always means we’ll have trouble getting paid in full.”

The key importance of customer vetting is directly reflected in a sign company’s overall image, reputation and ability to address its ongoing needs. As Kieffer said, “Don’t sell to customers who refuse to pay. Let them give your competition grief.”

JOB COSTING, INVENTORIES AND OVERHEAD
After implementing a sound vetting strategy, the next step is to account for your project costs and profitability. “Costing of jobs is absolutely critical for success in the sign industry,” said Gerson. “I find that many sign companies do not keep track of their costs on individual jobs. They might have made or lost money, but they’ve got no idea which jobs produced a profit or loss.”

Today, various types of accounting software make job-costing far less complicated. “Install and utilize a detailed cost accounting system,” said Kieffer. “In today’s computerized world, there’s no longer any valid reason for not knowing the current, variable cost of everything you produce.” Similarly, the estimate that serves as the basis for each job’s profitability has also been simplified. “Using computer-aided design [CAD] tools in your project plans translates to better estimates of material usage,” said Lauretano. “Setting productivity measurements in production ensures that the hours actually worked on a project closely mirror the estimate.”

Sign business owners also can’t ignore their inventories or the roofs over their heads. “Focus on managing inventories, knowing that maintaining large inventories of raw materials and works-in-progress probably are the biggest negatives,” said Stotmeister. Efficient inventory management also applies to coordination of labor and subcontractor expenses. “Schedule your work wisely and avoid jumping from one uncompleted job to the next,” Kieffer said.

But what about the fixed costs of your physical plant and related equipment? “It’s important to understand the overall monthly cost of operating your manufacturing plant,” said Lauretano. “The key is to allocate overhead cost on a per-unit (e.g., per sign) basis relative to your throughput, not per hour.”

By sharpening focus on these key elements of profitability, a sign company can substantially improve its prospects for long-term success.