No one seems to have a good idea about how 2003 will shape up from a business standpoint. The stock market's up one day, down the next. As I write, the jury's out on whether there will be a war with Iraq. Remember the devastation the Gulf War wreaked on the remodeling market? I do.
Let's hope your business planning's not nearly so unclear. Across the country, remodelers report ups and downs in volume. There's a trend toward smaller jobs and there seems to be less urgency on the part of consumers.
I hope you've done careful, realistic planning for 2003 and that you have a backup plan.
Here's what I recommend to my clients.
Revenue and expenses
Develop at least two budgets for the year: one for what you realistically think you'll achieve in revenue and expenses and another for 25% less revenue than the first. The first projection should show an 8% to 10% net profit after owner's compensation, so you may have to go back to the drawing board more than once. The second may well be a 2% to 3% net profit, or a break even.
The second budget will undoubtedly require cutting personnel expenses. Think how and who you'll cut. Or decide instead to ask your employees if they'd prefer a 10% across-the-board temporary pay cut (and that includes yourself), or if everyone would take two weeks of unpaid leave in a scattered schedule.
If you're a budgeting pro, the next step is to project how the annual expenses will fall month by month and compare that to how you expect your revenue to come in month by month. That will prepare you for any likely cash flow shortfalls.
Track everything in the pipeline -- calls, leads, first appointments, design contracts, dollar volume of estimates. Compare them to 2002 to see if any drop-off's coming.
Track your job backlog (work signed but not started) and the gross profit in that backlog. Track gross profit remaining in the work you've started but not completed. Figure out how many months of overhead your backlog will cover. Six months overhead paid for in backlog may enable you to ride out short-term economic bumps.
These are the times that make percentage of completion accounting the gold standard for managing remodeling companies. Talk to your accountant if you're a full-service remodeler and you're not yet on this accrual method.
Nailing down new business
On the marketing front, this is not the time to cut back. Include 2% to 3% of revenues, minimum, in your budget for marketing. For full-line remodelers, marketing could well go to 4% or 5%; for single-line contractors, it could be 10% to 12%. It's likely you'll have to do more marketing this year to achieve the same number of leads. Be proactive. Remember that your past clients and friends of the company are the place to start. They should hear from you six times in 2003, with varied tactics -- newsletters, cards, direct mail, and the like.
Develop a plan for spending the dollars you've budgeted for marketing and work up a calendar showing what goes where and when. On that calendar remind yourself of the preparatory steps for each tactic (for example, contract for home show booth, order poinsettias for clients, and so on).
Once the plan, budget, and calendar for marketing are complete, appoint someone in your company to see that whatever's planned for gets carried through to completion.
One good way to dispel some of the uncertainty is to talk regularly with your banker, accountant, manufacturer's reps, suppliers, and subs to check how the market seems to be behaving. They have more data than you and can keep you up to date -- but only if you ask.
May this be an outstandingly abundant year for you, personally and professionally. --Linda Case, CRA, is founder of Remodelers Advantage Inc. in Fulton, Md., a company providing business solutions through a network of experts and peers. (301) 490-5620; email@example.com; www.remodelersadvantage.com.