Count on these tested survival strategies
to keep your business in the black.
Know your numbers. Price smart.
Plan ahead.
You hear the hard and fast rules of business
management at every turn, but do you follow them? Or
do you find yourself — especially during these
heady times — looking for shortcuts to a healthy
bottom line?
Whether you’re ready to prime your
company for growth or immunize it against failure,
follow these 15 business basics to keep your company
on the straight and narrow.
1. GET WITH
THE PLAN: You wouldn’t drive in
an unfamiliar area without a road map. You can’t
run a business without one, either. First write
a mission statement that describes your company’s
goals. Follow up with a business plan to accomplish
them.
Think macro and micro. With a financial
target in mind, outline the volume, profit, sales,
staffing, and spending required to hit the mark. Determine
what needs to change. Perhaps you want to reduce your
overhead, snare more leads, and increase your close
ratio. Maybe this is the year you bring your drywall
work in house. Break each smaller goal into specific
tasks. Include a timeline, too, so you can monitor
progress.
Don’t let your business plan become
static. This document governs your operations, which
are sure to change from time to time. Evaluate and
update it regularly to keep your company focused on
its goals.
2. BE PICKY: If
you took every job that came your way, you wouldn’t
turn a profit. Certain projects can end up costing—not
making—the company money. It pays to be discerning.
Besides, in this boom market, you can’t
do every job that comes along. Chances are you don’t
have the staff to handle them — at least not well.
So don’t oversell. Defer a job if you can’t
complete it on time.
That old saw, “Don’t start
what you can’t finish,” holds especially
true for remodelers. “If you know a contractor
who will do a good job for the clients, recommend him
or her. It will come back to you,” says Wes Neu
of Neu Construction Services, St. Louis.
When you get down to choosing, pick the
profitable jobs. Walk away from ones people want for
free.
How do you know which ones will make
money? John Gallagher, owner of Exterior Design, Naperville,
Ill., prequalifies clients over the phone. “If
someone says, ‘This is a free estimate, right?’ I
probably won’t sell to them,” says Gallagher,
who specializes in exterior replacement.
Be just as selective about your clients
as you are your jobs. Stay away from clients who want
to control the project or who want to use their own
subs.
A good way to head off problematic clients
is to simply say you’re too busy to take on the
job. No one can argue with a packed schedule.
3. MANAGE YOUR
MONEY: Tracking accounts receivable
and accounts payable is key to staying on top of
your numbers. Michael Sweeney sums up business
survival in two words: “Get paid!”
To keep collections as current as possible,
Sweeney, owner of Sweeney Construction Corp., a full-service
firm in Madison, Wis., explains to customers up front
how his billing and draws work, even though it’s
already spelled out in the contract. Before mailing
bills, Sweeney calls his customers to remind them that
invoices will arrive shortly.
Of course, you have to pay bills, too.
To make sure you have enough cash on hand, don’t
spend money that isn’t yours.
Most of the money you’re holding
belongs to your subs and suppliers. You are simply
holding it in trust until they have completed their
work.
“Know what your share of the pie
is,” says Patrick Benkowski, co-owner of Custom
Design Associates, Greendale, Wis. “If you take
too large a portion for yourself, the pies will stop
coming, and you will literally go hungry.”
4. WATCH YOUR
OVERHEAD: Think before you spend. When
contemplating a purchase, ask yourself if the expense
supports your company’s mission. In other
words, be conservative.
When times are good, it’s tempting
to buy another truck or copier. But unplanned purchases
become a liability if you don’t have the work
to justify them.
Discipline is especially crucial as you
increase volume. Diversified Construction, a $3 million
remodeling company in Minneapolis, doesn’t buy
anything on impulse. Instead, the company structures
payment plans to take advantage of discounts and often
pays bills on presentation to keep down costs.
“We’re probably a salesperson’s
worst nightmare,” says Brian Petersen, Diversified
Construction’s chief operating officer. “We
pass on a lot of deals and one-time offers because
the expense isn’t right for us at the time. We
tie all spending to our business plan.”
5. PRICE RIGHT: Determine
how much profit you need to manage cash flow, and then
price accordingly. Figure markup according to your
market, area of expertise, travel time, and any other
variable that will cut into your bottom line.
Is the site difficult? Is the schedule
fast-tracked? Plug such special factors into your price
and, if needed, charge more to account for your time
and resources. And don’t forget that small jobs
require a larger markup than big ones.
Jay Herbert, owner of John Herbert Inc.,
Freeland, Md., reminds remodelers not to overlook follow-up
costs when pricing, either. “Be sure to charge
enough money to be able to do your service and warranty
work,” he says.
You may occasionally have to engage in
competitive pricing to maintain market share. But be
careful. Don’t drop prices so low that you lose
your profit. Predatory pricing doesn’t work. You’re
not working for free, after all.
6. STRESS SERVICE: The
customer may not always be right, but he or she always
comes first. “You don’t have to have a master’s
degree to figure out that taking care of customers
is the main thing in business,” says Ken Moeslein
of Swing Line Windows, Pittsburgh.
The most successful retailers learned
that long ago by treating their customers like royalty.
You should, too. But that doesn’t mean you have
to be subservient, just smart. Do what you agreed to
do — and then some. Happily surprised customers
are repeat customers.
“Most people are taken aback when
I tell them we’ll be there on time because they
think contractors are always late,” says Brent
Pendleton, owner of Pendleton Builders, a design/build
firm in Draper, Utah. Pendleton enjoys a reputation
for timeliness because he schedules jobs correctly.
Being timely is especially important
for commercial projects, according to Vaughn Miyauchi,
vice president of SC Pacific Corp. Kapolei, Hawaii.
Material delivery is crucial, so Miyauchi sticks with
punctual suppliers. SC Pacific often ends up working
overtime to complete commercial jobs on schedule.
As mentioned above, be prepared to go
the extra mile for your clients. Jim St. John of FWD
Builders, Grand Prairie, Texas, is two months into
a six-month project for a client who’s four months
pregnant.
“Basically, we do whatever she wants,” he
says. She has a 1-year-old, so the crew takes extra
care to clean up thoroughly
so the toddler won’t pick up cups, nails, sawdust, and the like.
7. LISTEN UP: One
of the best ways to ensure good customer service is
to master the art of good communication — with
clients and employees alike. Listen to your clients
to determine exactly what they need, from project start
to finish.
When Tom Aleto of Aleto Construction
Co., St. Louis, first asks clients to describe what
they have in mind for a remodel, he listens carefully.
“Don’t interrupt clients during
the first flow of information,” Aleto warns. “If
you ask them a question in the middle, they’ll
lose their train of thought.” When that happens,
they’re likely to forget to mention an important
detail that’s best handled up front.
At Custom Renovation, West Des Moines,
Iowa, salespeople explain the entire remodeling process
to customers. That way, the staff can minimize surprises
when the salesperson passes the baton to the production
manager.
The field crew also keeps notebooks at
job sites so customers and production teams can jot
down questions and comments for each other.
When a face-to-face meeting isn’t
possible, don’t rely solely on the phone for effective
communication. The market’s bursting with pagers,
cell phones, hand-held radios, e-mail software, and
other communication tools that drop in price as they
increase in popularity.
But you don’t have to have the latest
high-tech gizmo to improve communications. Some tried-and-true
tools still do the job.
Richard Pagotto, president of Richland,
Roseto, Pa., makes sure his subs have fax machines. “We
send them drawings and updates,” he says. “We
can tell them not to go to Job A but go to Job B in
the morning.”
Richland even loans fax machines to homeowners
to ensure constant communication during projects.
8. CHECK THE
GAUGE: Nip communication glitches in
the bud by soliciting customer feedback and gauging
satisfaction. Don’t assume quiet clients are
happy. They may be too shy, stressed, or irritated
to tell you the bathtub came in the wrong color
or a sub drove over their lawn. And you may lose
their next job.
Be proactive throughout the process.
Moeslein of Swing Line Windows visits jobs whenever
he has downtime. He tells homeowners he dropped by
to inspect the work, but he’s really there just
to chat and gauge their satisfaction.
There’s a hidden benefit, too. “They’re
really impressed when the company president shows up,” Moeslein
says.
Custom Renovation’s executive vice
president Ron Schroeder sends a three-page customer
feedback form to clients after every job. He asks them
to rate sales, production, and the company as a whole
using a 1-to-10 numeric scale.
“For everything below a 9, I call
to find out what went wrong,” Schroeder says.
He also asks if they’d recommend the firm to others.
9. KEEP GOOD
EMPLOYEES: Given the current labor
shortage, good employees are becoming increasingly
scarce. To keep the ones you already have, “pay
the daylights out of them,” says Jim Brielmaier,
owner of Michigan Building Specialties, Adrian,
Mich.
But Brielmaier, who reports little turnover
among his 40 employees, does more than offer good wages.
He also compensates his employees with vacation pay,
holiday pay, a 401(k) plan, and a profit-sharing program.
And he sends them to professional seminars, helps them
buy tools, and makes sure they have a good quality
of life.
“If I see they’re struggling
or are burned out,” Brielmaier says, “I recommend
they take a day off and go golfing or fishing or something.”
Beyond benefits, you can boost your employees’ job
satisfaction by empowering them. Share the company’s
long- and short-term goals with employees and ask for
their suggestions on how to reach those goals.
10. WORK ON YOUR RELATIONSHIPS: You
depend on subcontractors and suppliers to help you do
good work, so treat them right. Building long-term relationships
will make every sub and supplier an integral part of
your team.
But pick your partners carefully. Not
everyone deserves to be on your team.
George Kirk, Kirk Development Co., Phoenix,
uses subs who have been through rough times (“I
ask about their business experience,” he says),
so they stay with him. He pays them promptly and maintains
good relationships with them. The subs respond by keeping
their prices down, which helps Kirk control his overhead.
Lynn Motheral of Stonegate Construction,
Fort Worth, Texas, developed solid relationships with
suppliers through his participation in the local, state,
and national builders’ associations. The suppliers
keep him up-to-date on all their latest product improvements,
and Motheral passes the information on to his clients.
“This really keeps me ahead of the
competition,” he says.
“Don’t split hairs over a couple
of bucks,” advises Aleto of Aleto Construction. “If
you have a good relationship with a supplier, that’s
more important than a couple of board feet.”
11. STAY IN
TOUCH: Nurture new business by keeping
up with past clients. Every year, Herbert mails
his former customers a company Christmas card the
day after Thanksgiving.
“Clients won’t remember a company’s
holiday greeting after they’ve received 25 or
30 cards from family and friends,” Herbert says.
But the first holiday cards to show up in the mailbox
are sure to be memorable.
Or throw a referral party for your best
customers. Last year, Alure, a full-service remodeling
company in East Meadow, N.Y., invited clients and community
residents to a winter carnival, complete with musicians,
clowns, face painters, and a hot dog wagon.
The event drew 1,000 people. “It
was a good way to build relationships with feelings
and emotions,” says owner Carl Hyman.
Other ways to reach out and touch: Keep
your name front and center year-round with calendars.
Mail a newsletter or periodic press releases or clippings
of the press coverage you’ve received. And let
past clients know about the work your company donates
to charities.
From time to time, simply pick up the
phone and call former clients just to check in. Herbert
does this annually, going through his entire client
list from A to Z.
12. DON'T OVER
DO IT: Prevent burnout by making sure
your business doesn’t run your life. Like
many remodelers, you probably feel like you work
an 80-hour week. Or try to. Take the first steps
toward keeping your hours in check by charting
your time.
Phil Blosser of Blosser Electric, Blooming
Glen, Pa., tracks his time in 10-minute intervals on
a chart with task headings. Tasks on the left side
include executive duties, sales, design, and customer
relations — responsibilities Blosser must handle.
Those on the right — production, scheduling, billing,
and installation — are tasks he plans to give
his production manager.
“If I move a task from left to right,
life gets better,” Blosser says.
As they grow and take on staff, owners
must learn how to delegate. There’s a right and
wrong way to hand off a project.
When you delegate, either refuse to check
on the progress of the project, or give the delegatee
the right to refuse your help. Don’t micromanage,
or you’ll just create more work and stress for
everybody.
In this business, you can’t eliminate
stress entirely. But once you figure out where most
of your tension comes from, you can work on reducing
it.
Try taking a mini-holiday from the office.
Mike Carey, Carey Contracting, Iron Mountain, Mich.,
periodically takes his cell phone and laptop out to
a favorite bluff in the woods. He says he gets more
done in the peaceful environment. That’s working
smart.
13. GET SMART: Constant
improvement separates professional remodelers from
the competition. Continuing education is a valuable
resource, so use it to your best advantage.
Keep up with industry trends by attending
trade shows, conferences, and seminars. Join networking
groups to learn what works — and doesn’t — from
colleagues in the know.
“Peer groups are one of the best
learning tools out there,” says Mark Scott of
Mark IV Builders, Cabin John, Md. “I learn more
there than I do anywhere else.”
And, of course, don’t neglect local,
state, and national trade associations. Not only do
these organizations represent the industry to government
legislators, they track issues of concern to contractors,
subs, suppliers, and other related professionals. They
also offer certification and professional-development
programs.
Don’t make the mistake of thinking
that you’ll somehow learn to run a business by
swinging a hammer. If you haven’t already, take
several college courses in business management and
finance.
Technical skills don’t automatically
qualify you to employ and manage other people with
those technical skills, but they’re a good background
for business education.
14. LEARN FROM
YOUR MISTAKES: Look out. The law of
averages has you pegged.
“The longer you are in business,
the more likely you are to screw up,” says Scott
of Mark IV Builders. “If you’re lucky, you’ll
survive the big screwups.”
When the smoke clears, examine mistakes
closely. Determine where you went wrong and how you
can prevent future mistakes. Here are a few simple
ways to fireproof your firm.
One sure way to size up your mistakes — before
they cost you unnecessary time or money — is to
regularly evaluate your business plan. Bill Shaw, owner
of Wm. Shaw & Associates, Houston, creates a monthly
report that shows him where he’d be if he brought
in all accounts payable, paid up all bills, and shut
the doors of his business.
If a local competitor actually does shut
down, find out why. Use the information to make sure
the same thing doesn’t happen to your company.
Put together a set of “what if” plans
by preparing for crises before they occur. Is your
office in a floodplain or your copier on its last legs?
Consider archiving your records upstairs or off site
and find out who rents office equipment.
Even if anticipated problems don’t
occur and different ones flare up instead, at least
you’ll be in the habit of preparing for the unexpected.
15. PLAN FOR
THE FUTURE: It’s hard to look above
the horizon when you’re so busy juggling your
company’s day-to-day operations, but your
survival depends on it. “One thing that tics
me off about lots of big companies in this industry
is they’re too shortsighted,” Hyman says.
You may be experiencing boom times now,
but don’t forget that business is often cyclical.
If your market’s demographics change, you must
change with it to retain market share.
Consider diversifying or starting up
a handyman division or maybe taking on commercial jobs.
Do your homework first by talking to peers who do similar
types of remodeling work. Evaluate all the pros and
cons. Work any new endeavors into your business plan
to see if they’re feasible.
If you have the resources and business
to support it, you may even want to set up a branch
office. Though best suited to large companies, owners
of small companies can also benefit from branching
out. In the process, their companies will undoubtedly
grow.
Ultimately, planning ahead often means
laying groundwork for succession — a reality far
too few remodelers plan for.
Consider now who would be best to run
the firm when you step aside. Don’t just throw
someone the reins and leave. Give your successor training
and anything else he or she needs to succeed. Properly
equipped, your firm will thrive on the foundation you’ve
laid.
(This information and more is available
on line at http://www.remodeling.hw.net) |
