As mechanical engineers by education, David and Doug Bengtson, owners of Lighthouse Construction of North Carolina, in Greensboro, are detail-oriented by nature. Combine that trait with work experience at General Electric and Kodak, and it's little surprise that the brothers look at their business differently from many typical remodeling company owners.
Their trigger-point system, which helps the company weather a downturn while maintaining financial security, demonstrates this. “It's a worst-case contingency plan that we are ready to execute if needed,” David says. “We've seen too many peers wait too long to take action — like laying off workers or cutting overhead — when revenue and, therefore, productivity drop. This delay can force a company into debt and a losing year.”
First, the Bengtsons identified metrics that tell them when it's time to pull the trigger and take action — hopefully well before the company is losing money. Second, they developed a plan that identifies what actions will be taken when the trigger point is reached.
BREAKING EVEN The main metric driver of the trigger-point system is the company's monthly financial break-even point. “We know how much we must produce each month to cover our overhead expenses, even if it leaves little for profit,” David says. “If we do a forecast of the coming months to see what revenue is in the pipeline and see that we won't hit that break-even point, we put our action plan into place. Then our goal is to drive up productivity so that we generate the gross profit dollars we need to hit and exceed break-even.”
To drive productivity and avoid laying off employees, the Bengtsons:
- Bring work usually subcontracted, such as gutters and siding, in-house. “It might cost us a bit more because our guys aren't as efficient as our subs on that type of work, but it allows us to keep our guys producing gross profit that the company must have,” David says.
- Press project managers into doing more work themselves.
- Limit salespeople to billable hours such as helping with selections. If it's not bill-able back to the client, the task is handled by someone already on the overhead clock.
- Accelerate backlogged work to stay above break-even. “We'll put extra people on a job to get it done faster and generate the money we need faster,” David says.
The brothers understand that sometimes driving up productivity is not enough and overhead must be cut. “To really know what's going on and have our action plan fully developed, we hold a meeting each month where we forecast our revenue stream and discuss our team,” David says. “Each team member is rated based on their value to the company. If we look forward and see that we will be producing below break-even for more than two months, it's time to make a head-count decision. Those [employees] consistently rated [low] are the first to go.”
By spending time to look forward and plan, the Bengtsons hope to weather any downturns.
— Victoria Downing is president of Remodelers Advantage, helping remodelers build consistently profitable companies. www.remodelersadvantage.com; 301.490.5620.