1. If You Can’t Measure it,You Can’t Manage it Daniel S. Gordon, CPA

2. Overview Can We SURVIVE this economy? Let’s Grow Our Business – What Resources are Required? Let’s Measure: Financial Performance Marketing Performance Sales Performance Operational Performance Case Study: Pricing your Pest Program for Profit Your Next Steps

3. Can we survive this economy? Major events of 2008 Stock Market Collapse Housing Crisis Record Prices at the Pump Implosion of the Auto Industry Meltdown of Financial Services Exodus of Manufacturing Our Great Nation is involved with 2 wars

4. Can we survive this economy? But hold on – NOT SO FAST!!! We can still succeed… America is the strongest economy in the world! Spending doesn’t stop because we don’t have money We go into debt to get what we want. It’s not good for the long term but it will help to pull us out short term We are a nation of spenders helping to keep the economy moving Most of the rest of the world are savers Contd…

6. Never Count out The U.S. Consumer!!

7. Can’t afford a vacation home? Carve one up… buy a time share

8. Can’t afford to buy a car? Lease one

10. Can we survive this economy? Can we survive? YES… and the strong companies will emerge STRONGER! Is it going to be tough? Yes Is it going to take a long time? Possibly Is time going to pass no matter what we do? Yes, so we should get to work!

11. How do we weather the storm? PREPARE for the recession to be long and deep and then build flexibility to adjust when needed Make sure you have TIGHT ROUTES. You may not be able to raise prices but tight routing has the same effect as raising prices NEVER SELL UNPROFITABLE WORK on the basis of “its steady work”… Shrink your business if you have to. Make sure you have an accounting system that gives you accurate and timely INFORMATION

13. Increase your COLLECTION efforts – make sure you’re A/R is healthy and collectable

14. Tighten your CREDIT TERMS – shut customers off if needed

15. Increase your SALES & MARKETING effort – be effective!!

18. Increase Salaries & Benefits

19. Create Job Security

21. Let’s Grow Our Business The Customer List (Your most Valued Asset) Long Term – Can be compared to machinery in a manufacturing business: Must be “well oiled” by providing great Service Routes must be tight allowing for the greatest output from this machine Short Term - Can be compared to a life insurance Salesman setting up a book of renewable policies that generate current income.

22. Let’s Grow Our Business You need a Plan…The plan must focus on growing your customer list as well as selling more to existing customersThis is the Asset that will spit out the profits. Remember- The PCO business is not a high margin business. Rather it is a moderate margin business where you generate high profits from customers that use your service on a scheduled recurring business

24. Cost To Acquire 1 New Customer (average): $250.00

25. Expansion Goals: Double Revenues over 4 Yrs (20% per Yr)

27. Through Financing (i.e Bank, Finance Companies, etc.)

29. Financial Performance What Are Financial Statements? Financial Statements are the Box Scores in the game of Business. They are the culmination of the accounting process. They are used to convey a concise picture of the profitability and financial position of your company.

30. A well-designed Pest Control Profit & Loss Statement includes: Revenue - Broken up by department with Recurring & Non- Recurring Revenue accurately displayed Direct Costs - All cost associated with putting a truck on the road & performing service Gross Margin - Revenue minus Direct Cost Sales & Marketing - All cost associated with sales and marketing function

31. A well-designed Pest Control Profit & Lossalso includes !! G & A Expenses - The cost associated with running the office. Usually these costs are fixed with regard to transacting business up to a certain level EBITA - Earnings before Interest taxes & Amortization IADT - Interest, Amortization, Depreciation & Taxes Net Income - Net Performance of the Business

33. Technician Labor cost as a percentage of revenue

34. Chemical Cost as a percentage of revenue

35. Selling Cost as a percentage of revenue

36. Office Labor as a percentage of revenue

38. It allows us to isolate revenue types that will add to the value of our business

41. Accounts Receivable

42. Equipment

43. Credit Line & Loan Balances

44. Accounts Payable

48. Drilling down into a Balance Sheet Current Ratio= (Cash plus AR)/current liabilities So the rows colored in grey are healthy as the ratio is 1.0 or greater than 1.0

49. Marketing Math for the PCO

50. Marketing Math for the PCO We want Growth How Much? Over What Period of Time? What Resources Will We Need? Equipment, People, Money? Where Will the Growth Come From? New Customers, or More Business from Existing Customers? Is Our Current House in Order to Achieve this Growth?

51. Marketing Math for the PCO Define Growth – Set Goals Example of a Goal I want to take my Business from $500,000 in Annual Revenue to $1,000,000 in Annual Revenue over the next 4 Years, increasing my profit margin from 12% to 20% for the same period. Not an example of a Goal I want to get Bigger.

52. Marketing Math for the PCO More Business From Existing Customers Your Customers Already Know You The Cost associated with expanding your relationship is significantly less than new customer acquisition. An excellent way to guarantee yourself a predictable revenue stream while allowing your customers to do predictable expense budgeting.

53. Marketing Math for the PCO In defining your overall strategy, the MARKETING MIX concept is extremely useful. It is broken into four categories known as the Four P’sof Marketing: Product Price Place Promotion

54. Marketing Math for the PCO PRODUCT - From a marketing prospective our product is our service. We need to define: The Quality The Features The Services The Warranties etc. From a standpoint of practicality, it makes sense that as we grow our business we need to be uniform in our Service Plans. As our customer list grows, it will become extremely difficult to manage a business where every customer’s service is different. Thus, in defining our services we should design a core group of services that are standardized. All of our technicians can be trained to work using standardized methods. In addition our office staff is not faced with differing problems with each customer. STANDARDIZATION OF SERVICES IS KEY!

55. Marketing Math for the PCO PRICE Pricing is extremely important. You need to price for profit. Remember our discussion on Breakeven Analysis… Understand how high the bar is that you are trying to reach!

56. Marketing Math for the PCO PLACE Service Area Defined - In designing our business we need to define our service area. Again, if you go outside of your service area, you need to charge a lot more money in order to account for the travel time. The most profitable pest control companies have very well defined service areas. In fact, each office has sub service areas for each route. Sound routing methodology needs to be employed. At this point we should note that you should have well-defined service areas that you will not breach.

58. However, we should be able to track our advertising in our computer system and generate reports that will tell us which advertising works and which does not.

59. Promoting your company through advertising is the single most important thing that you can do to build your company.

61. Sales Performance There are many schools of thought on how a sale should be made. Some sales techniques work better depending on the personality of the sales person. Some Sales people Sell management on why Sales can’t be made The best thing about what we do as accountants, is that the numbers don’t lie - no matter which Sales technique are used.

63. Number of leads Closed

64. Number of proposals written

65. Dollars Proposed

66. Dollars Sold

67. Closing Percentages

68. Follow Up actions Including dates

69. Commission’s Earned by Sales Staff

71. Sales Performance Batting Average = # Leads Closed # Leads Received Pitch Efficiency = # Proposals written # Leads given

72. Sales Performance Sales Dollars Efficiency = # of Dollars Sold # of Dollars Proposed

74. Operational Performance

80. Operational Performance To Increase Profitability We Need to Increase Efficiency (Fit More Work into Less Time) This Increases Profitability by Increasing Total Dollars of Profit.

83. Operational Performance Using Our Technician Who is Paid Hourly This means for every $100.00 of revenue we have a profit of $85.00 (ignoring all other costs). By fitting more work into one hour we have been able to increase our profit by $50.00 per hour. Here we have increased our revenue in dollars and decreased our labor expense as a percentage of revenue.

86. Operational Performance Using Our Technician Who is Paid A Percentage Of His Route By fitting more work into one hour we have been able to increase our profit by $37.50 per hour from $37.50 to $75.00 dollars. In this case we increased the revenue by $50.00 per hour while holding our labor expense constant as a percentage of revenue at 25%.

87. Operational Performance Utilization One of the most important benchmarks in judging how efficient your routing is called Utilization. Utilization is a calculation that CPA firms and law firms use to see how productive their accountants and lawyers are at billing their time. However this calculation fits our industry perfectly. Quite simply, utilization is the following fraction:

88. Operational Performance Utilization Total Technician Hours Spent at All Stops During the Time Period _________________________________________________ Total Technician Hours Clocked in (Paid Hours) During the Time Period

95. Break-Even Analysis Fixed Costs Gross Profit per Hour. Break-Even point = in units (service hours)

96. Definition Fixed Costs Any cost that remains constant at any volume of business (i.e. Rent, Advertising, Utilities, etc.)

98. Breakeven Point in Units (Service Hours) What Is My Breakeven Point? Fixed Costs Gross Profit per hour. =

99. Example If rent, utilities and all other fixed costs are $10,000 and we useour $45.00 gross profit per hr example than our breakeven point is 222.2 hours of serviceat a $100 per hour selling price. After 222.2 hours of service we will start making a profit of $45 per hour.You see the gross profit contributes to paying the fixed costs. Once the fixed costs are paid, the gross profitcontributesto bottom line profit. This is the reason some accountants call gross profit thecontribution margin.

100. Gross Margin Break-Even Point $10,000 Fixed Costs $45.00 Per Hr Variable Costs 222.22 Hrs to Break Even =