Some remodelers lose sleep because they're losing money; others lose sleep because they just don't know how to tell if they're losing money. Either way, it's a problem, especially for the remodeling business owners I talk with who think they're successful — right up until the moment when their checks start to bounce.
The truth is they don't know how to follow the cash flow of their operation. In fact, many remodelers admit to getting overwhelmed by the financial side of the business. But instead of learning how to read the numbers, they focus on booking more jobs as the solution that will take care of everything. But the difference between a good business and a great business is often as simple as the difference between a remodeler who knows how to book jobs and a remodeler who knows how to make money.
Owner's Manual Booking more and more work almost always leads to a crushing workload; worse, it sometimes leads to bankruptcy. To set goals and drive a company toward financial prosperity, an owner has to see the big picture. That means tracking money on a regular basis.
Overall, you should have a broad perspective of the money coming in and money going out. This gives a true picture of the business and eliminates any surprises come payday. It also pinpoints where a company needs fine-tuning and gives you time to make a correction before things take a turn for the worse.
I wasn't a math genius when I owned my own remodeling business. But the potential for sleepless nights wondering if I was going to make payroll, let alone cover my own mortgage, was enough motivation for me to figure out a few things. So I defined three areas of the company that had to provide accurate hard numbers every week: sales, production, and accounts receivable or cash flow.
I asked questions and looked to the numbers for answers. Is the sales team trying too hard to undercut the competition on estimates? Is the production team exceeding deadlines or wasting raw materials that drain from projected profits? Are enough projects booked for the months ahead? Is accounting tracking down timely payments? Because I could answer all of these questions every week, I slept amazingly well at night.
The Profit Bandwagon It's not enough to answer these questions for yourself; you also have to know how to put the answers to use to inform and motivate your employees. By establishing my weekly reporting system via sales, production, and accounts receivable, I systematically taught and empowered my employees to see and understand the true numbers as well. They knew when and where we were making money and, more importantly, how their performance affected the company's bottom line. The reports explained why we needed to sell our services at a certain price, why we needed to meet projected deadlines, and why collecting money in a timely manner was necessary to the business. Not only did my financial footwork help me succeed, it helped my entire team.
My motto is: Grow a business and grow employee loyalty. If you have a passion for profit-sharing and team collaboration, this is the surest way to get everyone working toward the same goal of company success. Employees respect the owner whose transparent accounting shows he works hard, covers a lot of overhead, affords people good jobs, delivers quality services, and provides the chance for everyone to grow alongside a thriving business.
Conversely, employee loyalty is hard to find for the owner who buries his head in the sand rather than keeping an eye on the books. Much like jumping off a sinking ship, these employees will migrate to a competitor where employees have the opportunity to flourish along with a healthy bottom line.
The choice is yours: Learn to do the math for your business, grow a loyal staff in the process, and work as a team toward profitability, or go down with the ship. Try sleeping on that.
—Shawn McCadden, CR, CLC, recently sold his Arlington, Mass.–based employee-managed design/build remodeling business. In his second career, he is director of education for DreamMaker Bath & Kitchen by Worldwide; email@example.com.