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Schmieler creates customized cost accounting system

April 1st, 2009 / By: / Awnings & Shades, Feature, Management, Marketing, Perspective

Greg Schmieler’s system maximizes profit for his awning business.

“Creating a cost accounting system changed my whole career life,” says Greg Schmieler, vice president of Laurel Awning Co. in Pittsburgh, Pa. “It changed the way the company is run. We now know what our profit is, what our costs are, and what we need to charge on every job.” And that’s no small accomplishment, considering that Schmieler, his sister and his parents bought the company in 2001 with virtually no awning experience.

Schmieler works to turn awning business around

What Schmieler did have was a degree in accounting; his father was a CPA, and the family had experience in property management. It was rough going at first. Schmieler remembers attending the PAMA (Professional Awning Manufacturers Association) meeting at IFAI Expo in Orlando in 2000, shortly before finalizing the purchase of the business. “My dad stands up and says, ‘hey, we’re two guys from Pittsburgh and we’re looking at buying this awning company, and it has 3,880 storage customers,’” Schmieler says. “‘Do you guys have any advice for us?’” The collective response was laughter and one lone voice: “You’re screwed.” Still, they bought the company, and garnered advice and support from the members of PAMA.

“We refer to 2001 as the unspeakable struggle,” Schmieler says. “My predecessor grew a large awning company but there were no policies, no procedures in place. It was like grabbing a running freight train with one hand and loading it with the other, while it was moving.” That first year, Schmieler and his family worked endless hours keeping up with business, developing policies and procedures, placing guidelines and establishing sales contracts. “The year 2002 was better, 2003 we hit the ground running—building sales, and 2004 was a good controlled year,” he says. “But when we hit 2005, life changed.”

Working the numbers

What changed was Schmieler’s development of a customized cost accounting system for the business. Toward the end of 2004, some of the company’s sales staff were struggling with pricing out jobs. The pricing system that had been in place when the Schmielers purchased the company was mathematically intense, and errors in pricing were not uncommon. In an effort to understand how they could address the problem, Schmieler’s father rode along with one of the sales people for a week. He returned with an opinion—and an offer. “My dad came back saying—this is too complicated a system,” Schmieler recalls. “He and my mom offered to take over some of my duties if I would lock myself in the closet and get this thing solved.”

And that’s what Schmieler did. He sat in his office with an Excel spreadsheet open and did an in-depth mathematical relationship analysis of geometric shapes by size and product, and applied the principles of cost accounting. “Now, my sales people have a kit that they can use to quote a price based off of five measurements,” he says. “If it doesn’t fit, they can’t quote it, and it has to come to me as a work-in-process request for proposal.” It took him two months to put the system together, but because of it he can now determine what kind of margin he needs on each job to ensure profit.

The basic concept of cost accounting (also known as job costing) is simple, according to Schmieler. You need to figure your direct costs that relate to the job, which include costs for labor, materials and travel. “However, you don’t throw overhead into product costs,” he says. “A lot of people do that, but I think it skews the accuracy. You need to look at product cost and then determine the margin you need to run your business.”

The reality of setting up a cost accounting program for an awning company is not so simple—though it’s worth the effort. “The mainstay issue is that no one makes awnings the same,” Schmieler says. “Every company has its own limitations.” Additionally, the geography of each area needs to be taken into account. “In Pittsburgh, it’s hilly and you may have to cross a river or go through a tunnel,” he says. “You have to add time to the job to account for those variances.” Schmieler also wrote the program to accommodate changes in costs such as gas prices. When gas prices go up, as they frequently do, he just plugs the new price into the program and it automatically runs the outcome factoring in the new information.

Schmieler holds passion for business, industry and numbers

There is a limit to how detailed a cost accounting program should be, however. It’s necessary to make cost accounting decisions based on the cost benefit rule. “For instance, you’re not going to sit down and figure out the cost of every lag screw,” he says. “You just throw in a miscellaneous column that is $50 for the whole job, and that covers caulking, lag screws, cement plugs and things like that.”

Schmieler’s passion for his business, the industry—and even for numbers—is contagious. He often speaks on the subject of cost accounting. “There’s always someone in the crowd who sells a window awning for $250 when it takes about $300 to make,” he says. “They just don’t understand their costs and it hurts the industry.” Schmieler doesn’t mind sharing some of his ideas, although he points out that he’s not going to give away his program. “But I do want to help people think about how to best do this job,” he says.

On July 31, 2009, Schmieler will host a PAMA workshop at Laurel Awnings in Pittsburgh at which he’ll conduct a roundtable session on cost accounting. Visit www.awninginfo.com for more information on the session.

Sigrid Tornquist is a freelance author and editor based in St. Paul, Minn.

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