by Anthony Noel
The beginning of a new year offers a good opportunity to review what happened during the previous year, to learn from mistakes and capitalize on successes.
Another year has passed. Hopefully, it included many jobs, new contacts and learning experiences.
For a long time, I thought of that last phrase - 'learning experience' - as code for 'unprofitable jobs.' But with experience came the understanding that every job provides chances to learn. We just feel like we learn more from the losers. Maybe we do.
Still, there is plenty to be learned from the totality of the last year. The good and the bad. And I've got a system for minimizing the odds of making the same mistake(s) twice.
Consider this for a New Year's resolution: Establish or improve your company's 'paper trail.'
Maybe you don't bother with New Year's resolutions in your personal life. I have a friend who became so disenchanted with the whole concept a few years ago that he devised a permanent remedy to the annual task.
'This year,' he said with surprising conviction, 'I'm resolving never to make any more New Year's resolutions!' So simple, yet so elegant: Even a devout resolution-maker like myself had to admire it.
Anyway, whether you are a believer in New Year's resolutions for your personal life or not, the practice of taking stock of the prior year is a good one to develop for your business.
You probably do it to some extent already, scarcely realizing it. Remember that job where you agreed to run trim in the room for which you were building a freestanding entertainment center? You estimated the trim job as part of the total contract, but it wound up taking several hours more than your estimate.
'Who would have imagined that the walls in new construction would be so inconsistent?' you kept asking, each time you reached for your block plane. After that one you decided - resolved, in fact - that running trim would be handled on a time-and-materials basis only.
Welcome to the resolution-makers club!
Throughout your development as a woodworker (I don't care if you finished at the top of your tech school or college class) you have learned from each on-the-job experience. And you have probably learned as much as you ever did in the classroom, sometimes more.
A big reason for this is that we tend to retain what we learn in the classroom until the exact moment that the test is over. Even valuable lessons gleaned in the classroom are quickly forgotten. But the lessons you learn through experience, particularly a make-or-break experience like running a business, are more readily retained.
Think of it this way. In college or trade school, the vast majority of students are working toward a degree or a diploma. But in business, there is no such end point. The goal is profitability. Not just this month or this quarter or this year, but for the long haul.
From this perspective, it becomes clear that learning from mistakes (and successes) is not optional.
Just as you and your employees learn lessons about shop processes and job installation through experience, the same opportunities exist in the office. They tend, however, to be a little tougher to discern. This is where the 'paper trail' comes in.
There is a very dangerous mindset which many shops fall into. They start it, often, without even realizing it. It says: 'We're woodworkers, not business people. As long as we do great work and charge enough for it, we will be OK.'
Tradespeople are easily seduced by this simplistic approach, because it sums up the goal of profitability. What it neglects, however, is the fact that profitability results from a very delicate juggling act, one which goes beyond doing great work and charging enough for it. Other balls which must be kept in the air include competition, employee issues, insurance, purchasing, marketing, sales - in short, all the stuff that happens outside of the shop. In a word, business...people!
Let's look back at that example of the trim installation. On its face, that experience may have seemed completely confined to the realm of woodworking, an on-the-job lesson. But was it really?
The minute you resolved that you would never again do trim work on any basis other than time and materials, you made a business decision. You might have learned it while your woodworker's hat was on, but that decision will impact you more from a sales and contracts standpoint than from a woodworking one.
While you did not have to put the reasons for that decision on paper, they likely are there anyway: Just compare your original estimate with what the job really cost you, and there you have it.
Like I said, leaving a paper trail is not as daunting a task as you might think. Just from doing business, you probably have most of the elements already in place. The trick is to organize them into a functional system. And even that trick is an easy one.
To begin, all you need is a filing cabinet and some manila folders. Assign the folders categories, like the ones listed above, from 'competition' and 'sales' to anything else you might think appropriate - accounting, taxes, legal, whatever.
I also assign a new folder to every job in the shop. I collect all the paperwork that job created in the folder, from the customer's name, address and phone number and my original estimate to materials orders and cutting lists. I even use the inside of the folder itself to enter the number of hours worked on the job as it travels through the production process.
If you do your documentation on a computer, that's fine. Just create separate files (which are often 'folders' anyway, depending on your program) as detailed above.
All you are doing, really, is making sure you have a place for everything which, of course, makes it much easier to put everything in its place.
Use your files to store everything from formal documents (filed tax returns, for example) to questions or ideas related to each category. Then, once a year (or more frequently, if you feel the need) go through your files and see what you have learned, what the past year can teach you about doing business.
In traveling along my own paper trail, the most 'lively' files, those from which I've learned the most, have been the individual job files. I think that's because, when you get right down to it, the jobs themselves encompass the most aspects of doing business: the estimate, selling the job, building and installing it and determining its profitability.
But don't sell the others short. Employee issues, marketing issues, taxes, everything you do as a part of your business impacts your success.
Establish a way to keep an eye on these many issues and you will increase your bottom line.
Anthony Noel writes, consults, and teaches woodworking and journalism, along with doing an occasional custom job in his shop in Macungie, PA.
Have a business related question? Visit WOODWEB's Business Forum. The Business Forum is co-sponsored by ISWonline and is moderated by Anthony Noel. All business topics are welcome, from sales and marketing to dealing with difficult customers.
This article is reprinted by permission of Custom Woodworking Business Magazine.
