Sound Investment Practices for Contractors

Although the economy is improving and electrical contractors are experiencing more work, be it residential, commercial, and industrial projects, the recent economic downturn has provided good lessons for owners and management to better plan investments for expansion and equipment purchases.

When is it best to purchase new equipment, buy a new building or expand an existing facility, and how can one improve purchasing systems for wiring, essential materials, and tools? Should one risk borrowing money on business projections that can change on a dime?

Gordon Stewart, general manager of Joe Swartz Electric Company Houston office (the Houston office has 75 employees and its Dallas office 30) stresses how the company, which specializes in installing electrical systems in new homes, does not borrow for business investments.

“We have a policy that we don’t want any debt,” he says. “We don’t buy something unless we can pay for it. In our market, with the ups and downs, if you bought your vehicles on credit and then you have a downturn, all of a sudden you could have 60 vehicles and only enough work for 40 of them and you are still paying for those other 20 vehicles. We’ve experienced downturns and we had to park trucks at our facility in the 1980s when the oil crunch hit Houston terribly.”

The firm has nearly 60 vehicles – and each one is replaced every six years. Funds are set aside for their replacement, and the same is true for other equipment.

“The system has worked out well for us and our bottom-line profit compared to other companies like us, is pretty good,” said Stewart.

Joe Swartz Electric will soon invest around $55,000 to upgrade its IT systems in order to continue to receive essential information from clients, be it for scheduling via computers, receiving blueprints, or ordering materials.

“Last year we did around 3,000 new homes and have done as many as 7,000 in our heyday,” he says. “We need to provide precise copies of the blueprints to our electricians. We need the programs that will allow us to communicate with the builders’ software.”

Having a more efficient inventory control system is an investment that Joe Swartz Electric takes seriously because it saves money in the long-term. The firm provides material orders that print out exactly which parts an electrician needs for a job.

“A few years back we had some wire theft going on inside our building,” says Stewart, “and now, based on our material order system, every day I know exactly how much wire should have gone out and it’s inventoried every day to make sure that it balances.”

He learned through experience that buying copper wiring cables should not be done via long-term contracts. This occurred when the price was really fluctuating.

“We made a six-month commitment to buy one million pounds of cable and the price of copper went up, so it was a good deal,” he says. “I did it a second time and copper went down, and was stuck buying this cable at a higher price than my competitors were.”