Steel fabrication is tough work in the shop, on the job site and in the accounting department.
Like farming, it is capital intensive and prone to stomach-churning rises in input costs and dizzying price drops when work dries up and everyone’s undercutting everyone else.
Rick Spencer has thrived in that world.
Since becoming president of Spencer Steel in 1991, he has quadrupled sales of the family business, to more than $22 million annually. He has also invested heavily in a new facility near London, Ont., and in state-of-the-art equipment to fabricate steel beams for building commercial, industrial and institutional buildings.
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Efficiency is critical, but Spencer said one of his most important technologies is advanced accounting software that lets him track every cost element in a building project, including labour, on an hourly basis.
“It’s not like I look at it every hour,” Spencer said. “But whenever I do look at it, it’s right up to date.
“Before I’d have to scramble around. Now, I can go and look, and boom, it’s right there.”
For Spencer, this is huge.
“Sure you have cranes and equipment where the costs don’t go away. But we’re very proud of having a flexible cost structure and when times are slow, we find ways to flex down costs so we can make it through the tough periods.”
There’s no one trick to cutting costs: cut overtime and return leased equipment; work smarter to save time or fuel, or to get extra life out of regularly replaced materials or equipment. Make sure clients have thought through their plans and forewarn them that you won’t be able to accommodate last-minute changes without more cost. Rethink your bidding and try to determine whether in the next six months more profit will come from cookie-cutter big-box stores or one-of-a-kind projects.
It’s a lot of little things that collectively add up to one big thing: whether you make enough money to prosper and grow.
This is not to say that Spencer is an accounting weenie who lets his spreadsheets make his decisions.
“A lot of this is gut instinct,” he said. “There’s no science that tells you when to bid cheaper or when we should go higher.
“All this system does is raise questions. It doesn’t even necessarily tell you what the issue is. But it tells you, ‘hey, something is up here and you need to find out what and figure out a way to deal with it.’ “
It’s not just knowing the numbers. It’s about developing a feel for them.
Take, for example, the decision to buy a beam line. Drilling holes in beams so they can later be bolted together on the job site once meant someone laboriously moving a portable drill press up and down the beam. But with a beam line, a computer-directed, laser-guided robotic drill deftly maneuvres along the beam, making one hole after another in rapid succession.
When Spencer decided in 2005 to buy a beam line, his company was being hammered by soaring prices for steel and fuel, and the job market was tight. His accountants said it wasn’t the time to spend $200,000 on fancy equipment, but his management team made a solid case that the equipment would provide significant long- and short-term savings.
It still came down to a gut decision, but it was an informed one.
“Years ago, when we were 15 people and doing $4 million a year in business, we had none of this,” said Spencer, who now employs 62 people. “You wouldn’t even know until the end of year if you made money or not.
“I would never, ever want to go back there. I would feel like I was running blind.
“You need to be on top of things all the time. You need to know your cash flows, you need to know when it’s crunch time, and you need to know when you can afford that piece of equipment that keeps you on the leading edge.”
These days, a lot of farmers don’t want to know the numbers because they’re depressingly bleak. Many also believe they are already doing everything they can to lower costs.
But there are others who believe, as Spencer does, that intimately knowing your costs is the best weapon when it comes to controlling them.
Glenn Cheater is editor of Canadian Farm Manager, the newsletter of the
Canadian Farm Business Management Council. The newsletter as well as archived columns can be found in the news desk
section at www.farmcentre.com.
