Managing by the numbers

Running by the Numbers…..
How Else Would You Run a
Pest Control Firm?
Daniel S. Gordon, CPA

 How To Run a Successful Pest Control Firm
 Why Are We in Business?
 Today’s Economic Environment
 How to Grow a Pest Control Company
 Key Success Factors in Growing a Pest Control Business
 Accounting 101 for the PMP
 Conclusion
Agenda

 The Pest Management Business is Simple
(Not Easy But Simple)
 We are in a Service Business and Sell our Time.
The time that we charge for includes:
 Diagnosing the Problem
 Providing a solution
 Setting the Customer up on a Service Contract
 Doing the Same thing Over and over until you have
built a route or several routes.
How to Run a Successful Pest Control Company

 The Concept of Selling Time:
How to Run a Successful Pest Control Company
 Time is a Perishable Commodity
 Once it is gone, you can’t resell it
 If you route your calls effectively
you will be able to maximize the
amount of time that you can sell.

To maximize the value of Our
Business…. Period !
There is no other reason !!
Why are we in Business?

In Maximizing the value of our business we:
Create a great Place to Work
Increase Salaries & Benefits
Create Job Security
Do business in a Socially Responsible Manner
Why are we in Business?

Today’s Economic Environment
 Stock Market Collapse
 Housing Crisis
 Record Prices at the Pump
 Implosion of the Auto Industry
 Meltdown of Financial Services
 Exodus of Manufacturing
Major Devastating Events of 2008 & 2009

 Stock Market Recovery (The psychological wealth effect)
 Housing has shown signs of bottoming and speculators are
now posturing for the upturn
 Prices at the Pump dropped to a level that demonstrated no
excess demand in the economy and have now equalized at
prerecession levels
 Auto Industry has been rescued (for now)
Contd…
Major Events that have provided opportunity for
growth in 2009

 Because of the Fed’s easing of Interest rates the banks are
again making record profits on the spreads between their
borrowing and their lending
 Say what you about the total irresponsibility of the banking
industry (and there is a lot to say), but without a strong
banking sector the U.S. economy cannot be strong. And it
is currently on the mend
 Exodus of Manufacturing – The U.S. is painfully becoming a
service economy
 Painful for those in Manufacturing
 Tremendous Opportunity for those in Service like us PCOs
Major Events that have provided opportunity for
growth in 2009

How to grow a Pest Control Business
 You need a Plan.
The plan must focus on growing your customer list.
This is the Asset that will spit out the profits.
 Remember- The PMP 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

How to grow a Pest Control Business
 Service Contracts vs One Shots
 Consider that it costs anywhere from $80.00 to $200.00
to generate a lead from the phone book
 Which is better a one shot at $150.00 or a ongoing service
agreement at $75.00 per quarter?

Key Success Factors
Key Success Factors of succeeding in the Pest
Management business:
The key success characteristic that is common to
all successful operations can be summed up in
one word…. MANAGEMENT.

 Management Assets &
Liabilities
 Management of People
 Management of Information
 Management of Money
In pest control, successful management is characterized
by four categories:
Key Success Factors

Management of
Assets and Liabilities

Management of Assets and Liabilities
 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.

 Accounts Receivable - Should be aged, and customers
should be held to the terms of the agreement.
 Firm credit policies should be established in order to
prevent write offs (after all write offs are an expense that
needs to be minimized)

All Other Assets (i.e. trucks, equipment, furniture and
fixtures) need to be well maintained.
Systems need to be set up to track their usage and
maintenance schedules need to be adhered to.

 Accounts Payable should be managed prudently and
tracked so that payment is made within Vendor terms.
 Credit Lines - Pest Management is seasonal in
most areas of the country. Credit Lines can be useful in
meeting operational obligations during the slow season.
 Never use a credit line as a substitute for long term
financing (i.e. purchase of a truck, real estate or anything
else that may have a useful life of more than one year).

 Loans Payable – There is nothing wrong with debt as
long as it is secured by an asset that has a useful life of
more than one year and the terms are manageable and
they are adhered to.
 Many folks believe that they are judged by how they
keep their word. In business you are judged by
how high your credit rating is!

Management of People
 As your organization grows, you will have to manage
technicians, sales people, and office staff.
Good people are your greatest asset in pest
control. You see, we are in a service business. We
don’t offer a product. We offer our people and their
expertise to our customers.
 Whereas a company that offers a good product can
sometimes be successful with marginal people based
on the merits of the product alone, we as PMP’s can’t.
Our Product is our People.

So how do we attract and keep good people?
 Pest Control is not a glamour business (to most people).
However, if we can demonstrate:
 Pest control provides a good living;
 A pleasant work environment;
 The ability to grow both professionally and financially
We will attract good people. By the way, this is much
easier said than done.

 We do know that people want to earn a decent wage. We
also know that in order to attract good people, they
require benefits such as:
 401K (retirement) and family health insurance
 technical training for their job function
 financial incentives such as performance
based commissions and bonuses

 Systems must be in place to manage work flow along with
accurate accounting of employee incentive based
compensation.
 Nothing is more demoralizing to an employee than
the promise of the above mentioned work environment
and incentives and when the employee starts work,
he finds a dysfunctional work force and no systems
in place to accurately calculate incentive based pay
programs.

 There is no faster way to loose a good employee than to
cheat him out of pay either intentionally or unintentionally
due to lack of systems to properly calculate and pay those
commissions and bonuses promised to him.
 A good computer and
accounting system can be used
as a tool to help in many aspects
of people management.

Management of Information
 The hope of any owner or manager is to grow a
business by increasing sales. Sales comes from adding
new customers or providing new services to existing
customers. Sounds easy…Right?
 Well with this increase of sales we need a method of
maintaining customer information such as:

 Customer Contact Info
 ******* E mail Addresses *******.
 Date and Place of Services Performed,
Application method and chemicals used.
 Amount Charged, Amount Paid, Amount Receivable
outstanding.
 When Periodic service is to be performed and which
technician will perform the service.

 Type of advertising that led the customer to our
company.
 Proximity of customer to other customers for effective
routing.
 Time spent at the customer’s house and Dollars
Charged per hour worked.
 And all this needs to be tracked for thousands of
customers in a uniform manner!

External Accounting Function
Prepares Tax Returns to comply with state,
local and federal Reporting Requirements
Prepares Financial statements for bankers,
investors and creditors
Internal Accounting Function
Help Set up and Maintain a system to record and evaluate
the results of all functional areas of your business
Accounting Function – Management of the Money

 How Much Money You Made?
 How much Termite work you did last Year?
 What Your Labor Percentage Was?
 What Your Chemical Percentage Was?
 How Much You Spent on Sales & Advertising?
 What Your Gross & Net Margins Were?
At The Click of a Button Can You Tell on a Monthly Basis:

Before We Can Improve the Financial Performance
of Our Company, We Must Understand Its
Financial Make-Up

To Get This Information We Need
Financial Statements

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.

The Profit and Loss (P/L) & The Balance Sheet (B/S)
The P/L shows how much profit or loss your firm made
for a given period. But more importantly it shows how
that profit or loss was derived by category of expense
and revenue.
Using The P/L we are able to assess the results of our efforts by
benchmarking certain items and measuring our results against these
benchmarks.
The B/S shows what we have in terms of cumulative
P/Ls plus financing activities. But more importantly it
shows the financial strength of the firm.
Using the B/S we can determine if we have the resources to expand our
business and if not, how much we will need for expansion.

Within the Profit and Loss Statement we can define our
benchmarks:
 Direct Labor
 Chemical Costs
 Vehicle Costs
 Sales Costs
 Office Costs
 Etc., Etc.
Define Our Benchmarks

These Benchmarks Can Be Measured as:
 Percentage of Sales
 Actual To Budget
 Actual To Prior Period
 Actual vs. Industry Comps.

In Order To Derive Useful Information from the
Financials, They Must be based on an Industry Specific,
Company Specific Chart of Accounts.

The Chart of Accounts
The entire accounting process revolves around a
General ledger Chart of Accounts.
A Chart of Accounts is nothing more than a list of categories
that define how we record our revenues, expenses, assets,
liabilities and net worth.

 One of the areas that I’ve noticed with small Pest Control
Companies (Small being defined as those with less than
$5,000,000 in sales) is that their accounting system is
designed for their accountant to prepare a tax return in
the simplest manner possible.
This is because the accountant is an outside consultant
that the PMP usually meets with a few times a year for
the sole purpose of preparing taxes.

Why is this a poor approach?
 Accounting is the language of business.
 Taxes are only a small aspect of accounting. Accounting
can be and should be a road map that shows where your
business has been, where it currently is, and where it’s
going.
 Accounting is a tool that allows you to make period to
period comparisons of revenue and expense types

You see in the generic chart your ability to make
comparisons is severely limited. If you wanted to find
technician labor as a percentage of revenue you could
not.
You may only be able to find total wages paid in the
entire company as a percentage of sales.
Breaking out wages by department is not required for the
external accounting function.

 Using the Pest Control chart of revenue and expense
accounts you can analyze your company from many
different aspects.
 You will be able to ask an answer what if questions.
Such as:
“What if I reduced my Direct Labor cost by 1%?
How much extra profit would that translate into?”

 If you look at the big players in the pest control
industry they all have similar charts of accounts. If
you don’t, your company is at a distinct
management disadvantage.
 In order to convert to a pest control chart of accounts
you will need your accountant’s help.
 Remember most outside accountants will resist this
change unless their objective is to help with the
management as well as tax return preparation.

Effective Routing Is The Oil That Drives The Machine.
How Many of You:
 Have established routes?
 Manage schedules if and when the work comes in?
 Have established routes that are tweaked each and
every day?
Preview of Tomorrow

Conclusion
The most important concept in growing any service
business is to understand that WE SELL TIME:
Time is Perishable
If we don’t maximize the sale of this time because we
are inefficient, that time is gone forever and we can
never sell it again
We need to maximize the time that we sell by
optimizing our routes and adding service contracts
Anything we do to become more efficient allows us to
sell more time and therefore more profitable.

Managing by the numbers

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