Customers Declining, Input Costs Rising

Our input costs are rising. Gas prices are hovering around the $3 level again and metal prices have been rising albeit slowly. Then today I read the AK Steel (AKS) quarterly earnings report and find that they are warning against inflation in the manufacturing sector due to a rise in iron ore prices. Hence, prices will continue to rise throughout the year.

From MarketWatch

AK Steel said it assumes global iron ore prices to rise 30% over the January to March period. If prices go beyond that, the company said it would hurt its financial performance for the second quarter.

At the start of the year, iron ore suppliers Vale SA and BHP Billiton changed the way they structure iron ore contracts, setting prices on a short-term rather than annual basis.

This week, Credit Suisse analysts upped their average 2010 price target on iron ore by 56% to $129 per ton. Prices for raw materials are rising as the world economy slowly recovers and consumer spending on cars and appliances picks up.

The main problem with our business lately has been customers. People are hoarding their money in this area and unless the summer temperatures are sweltering, I don't feel like business will pickup significantly. The rise in input costs is just another punch to the gut. You can only cut so many costs and find ways to save money until everyday fixed costs (Rent, phones, gas, metal etc.) begin to weigh on any profits. Profits by the way that will solely contribute to a debt that was incurred during the hardest times over the last two years.

I'm crossing my fingers for an air conditioning boom summer. Something that we didn't have last year.

Is The Stock Market Telling Us Home Building Will Soon Pickup?

The stock market is a leading indicator for the future economy. The rally in the markets is a confidence in the future profits of companies and the economy as a whole.

The SPDR S&P Homebuilders Index ETF (XHB) is an index of home building, consumer durables, capital goods and retailing stocks. Some examples of stocks in the index are Toll Brothers Builders, Owens Corning, Sherwin Williams, Home Depot etc. Here is the link to the index website.

The XHB index has rallied for the majority of the year, while the physical housing market has yet to really pickup. Is this telling us that the housing market and home building markets are about to turn around? Will things in the home building industry get better soon? Being that we are in the residential heating and cooling industry, I hope so. There is a saying that the stock markets predict what will happen six months from now. If this saying holds any weight. We should see a pickup in the 4th quarter of this year.

Being a micro-business, sometimes it's hard to gauge what's going on in the local markets. You can learn a lot at the supply houses and on job sites, but you need to take that information with a grain of salt. The builders that we do business with are too small to really gauge the markets as a whole. Using as much market data as possible can help to give a time line of when things may be looking up. It may not be specific to your local market, but you can be sure that it will affect it at some point.

Receivables, Receivables, Receivables

The frustration for any micro or small business is being paid. This is our current dilemma. The slowdown in business has made us tighten on everything from driving less to not eating out with family. I feel like this would be the case for any company we deal with, if in the same dilemma. Not true.

Being a micro-business can be very tough when customers don't pay their bills. We can't afford to get a court involved and our receivables aren't large enough to pay fees for a receivables loan or something similar. You can send letters and make phone calls until your blue in the face, but you will always get the same answer...the check is in the mail. 

Our business is very small and we count on every dollar....literally! We will track down a single dollar if necessary. We as a company continue to pay our bills. We cut costs and use credit cards if possible, but we always pay or we call our vendors and are honest. They will usually be very forgiving and take whatever we can give at the time. We rarely get this courtesy. 

It can be frustrating on many levels. You provide a needed service that isn't compensated. Chasing money is not our business. Our business is metal fabrication. We fabricate, you pay...that's the deal.

The Snow Has Finally Moved North

Finally, the snow has actually come north. We were getting spoiled with all the snow staying south for so long. Although, this area is only supposed to get 3 - 5 inches. 

This looks more like a February day in Upstate New York

Always Take Measurements Directly Off The Furnace

I have been fabricating sheet metal for the HVAC industry for 11 years. I feel that over that time I have learned a few things about the business. Especially when it comes to residential installations. One thing I tell my customers is to always measure off the actual unit that you are installing. It has become a major pet peeve of mine over the years because it continues to happen.

What happens, you may ask. Well it's simple. An installer will typically give me measurements off the provided secifications sheet of the unit to be installed. Problem is, these sheets can be confusing and measurments are almost always given wrong. Which means that the installer will call me again and need a transition or plenum ASAP. This affects my time and the installers as well. Not to mention the added cost for the contractor and potentially the customer. This can prove very costly for jobs with tight profit margins.

Why do you care? You get double the business.

Although this is true, it isn't the way I want to make my money and you shouldn't either. Mistakes will happen over the course of any job. Will I make money on those mistakes, yes. However, I will make more money over time if my customers are getting jobs done faster and properly. They will be able to provide more word of mouth business for K & E Sheet Metal. The more jobs they are on and complete in a timely fashion, the more work that comes my way. Homeowners and customers can be very loyal. If you show them the respect they deserve, they will do the same for you.

The specefication sheet is helpful for many things when intstalling a furnace or air handler. Plenum sizes are not one of them. Do your fabricator a favor. Take your measurements directly from the unit. You'll save money and time in the long run.

Who Needs To Feed And Educate, When You Can Kill

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Phone Ringing Less And Less

Over the last few weeks, business has leveled out. After my last post, the phone has not been ringing as much and it is getting frustrating. Because the company is small, we are able to get by when things aren't going gangbusters. However, I have been hearing rumblings from others that things are slowing for them as well.

Most of the smaller contractors I fabricate for are looking for a decent summer season. The winter has been busy, but mild when compared to other winters. Upstate New York has seen low levels of snowfall this season. Philly, Washington, New York City are all getting clobbered with snow and nothing up this way, strange. The temperatures have been in the 20's and 30's, which is mild for this time of year. February is usually bitter cold.

In order to have a positive year after catching up from 2008 and 2009, we will need to have a quality air conditioning season, along with continued strength through the rest of the winter