Six reasons why service companies go out of business

Marine Klein
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We don’t doubt that you pride yourself on your knowledge, skills and efficiency as an electrical, plumbing, gas or heating engineering firm. And rightly so. Unfortunately, unless you are one of the exceptions, being good at your core business doesn’t seem to be enough these days.

 You know you could be generating more revenues and higher profits. You know you are wasting too much time on non-chargeable work. You know you are missing out on great opportunities. Or alternatively, you are simply a victim of your own success. You can’t cope with the demand. This sounds very much like he most common reasons for service companies to go out of business. 

Based on our experience of working with hundreds of excellent service engineering companies, we know that the difficulties they face generally fall under one of six major headings, any one of which can spell doom if they are not brought under control:

  1. The disorganised office
  2. Revenues left on the table
  3. Upsetting customers with too much or too little communication
  4. Poor inventory & cash flow management
  5. Poor time management
  6. Coping with seasonal fluctuations

We’ll look at each of these causes of small business failure in turn – and how to deal with them – over a series of articles.

Man with a field service business overwhelmed by paperwork because does not have a job management software and a paperless business.

The disorganised office

Let’s start at the top. Often, this problem is part of the victim of your own success phenomenon. As service companies grow from being a one or two-man operations and take on new engineers to cope with the burgeoning workload, they face an identity crisis, one of the top reasons for business failure. They perhaps want to hold on to being the new guys on the block, continuing to provide a personal and friendly service to the customer base that has been painstakingly built up over the years.

Unfortunately however, once your business reaches a certain critical mass, things can’t go on exactly as they did in the past. “Everything’s in the boss’s head” no longer works. Engineers and office staff often have no idea what is going on, or where the priorities are, and things tend to get overlooked.

The difficulties filter down into just about every other aspect of the business:

  1. There is no way of knowing how good or awkward a customer is, so you can end up focusing effort and resources on unprofitable business
  2. If there is no job history and you are in dispute with a customer, you may have no choice but to take the customer’s word for it
  3. Appointments are missed
  4. Paperwork goes astray or is left sitting in the in-tray for weeks
  5. You face delays because you are waiting for parts (that perhaps have not even been ordered.
And there are many other issues that we will discuss in this series of articles. The trick is to adjust to the new reality: you are no longer simply small enough to care; you are also big enough to matter.

How you deal with this new reality will depend on how you see your business not just now but in five years, and also personalities.

People watering plants referring to managers and small business owners growing their company with the right tools.

Here are a couple of tips:

  • If you are the boss, how do you see your leadership role? Will you remain the “lead engineer” or will you transition into a general manager?

  • If you are committed to staying out in the field, you should invest in some excellent admin support, at least part time.

  • Technology is almost certainly going to be a part of the solution to the challenge of keeping track of jobs. It might start with something as simple as a spreadsheet and/or an Outlook calendar but in the long term you will probably need a powerful dedicated solution such as Commusoft. At the end of the day, job tracking is the biggest growing pain for successful service companies.

  • Of course, some jobs are simple. You get a call, you turn up, you do the job and you invoice. All done, checked every box. This is normal for a start-up company. But if you’re an established firm getting the volume of business you’d like, you can count yourself lucky if much more than half of your jobs run so smoothly. Chances are you suddenly find yourself having to deal with a mixture of challenges - tracking engineers, sending estimations, invoices - and then you will have to figure out a strategy to balance priorities.

For many entrepreneurs a sure way to fail is to try to do everything with no help whatsoever. This is when having a reliable admin system – whether manual or digital - becomes essential to the growth (and possibly even the survival) of the business you have worked so hard to establish.

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Found this article useful? You might also like: 

How Your Field Service Business Can Go Paperless Today (Well, Mostly)

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8 Reasons I Can't Run My Business Without Job Management Software

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