What Keeps Us in Business

I was having drinks with a friend of mine at a convention earlier this year when he asked if he could ask me a "somewhat" personal question. With fear in my voice, I timidly said "yes". Due to the downturn in the economy and the state of government in Indiana, there are some survey companies who have gone out of business, many who have cut back on employees and hours and others who seem to be hanging on by a thread. Anyway, the question my friend asked me was this: "You and John Doe (obviously not his real name) both had companies about the same size. Both of you appeared to do roughly the same type of work. Why is it that John went out of business and you didn't?"

I actually had to stop and think about that for a minute before I answered him. There were several reasons (luck maybe not being the least) but I think there were three main differences between my firm and his.

First, I learned from a business seminar what financial ratios were important and what they needed to be to survive. At the end of every month, I compute the following:

Current ratio (assets/liabilities) and always make sure it's more than 2.5:1
Working capital (assets - liabilites) and try to keep four months operating costs. This is the hardest for us to maintain, it seems.
Debt to Worth (liabilites/owner equity) and keep it under 2:1
Return on Equity (net income/total equity) and shoot for 14% although that's been very difficult lately.
Return on Assets (net income/total assets) and try to hit 8% - also very difficult lately.
Accounts Receivable Days (accounts receivable/sales*365) and hope to be under 45 days.

Any time these are out of balance, it's time for action to bring them back in order. In addition to being a good surveyor, being a good business person is very important.

Second, our firm is not a "one-trick pony". In other words, we're diversified across nearly every area of surveying. I learned early on that subdivision design was a two-headed monster with regards to cash flow and since cash is king, we've never done any of it. Anything else related to surveying is fair game for us.

Finally, and most importantly, we try very hard not to develop clients but rather develop relationships. It never hurts to have friends when you really need a job or when you really need an overdue invoice to be paid. After all, when all is said and done in this world, relationships are really all we have. In addition to spending money and time on things, we try to spend money and time on doing things with people. Try it sometime - I think you'll be much happier.

So give these ideas a try and let me know how they work out for you. I can tell you that they've worked out very well (so far) for our company.