Any industry consultant will tell you that most small remodeling companies are undercapitalized. When they fail, the experts tell us, it's not from lack of profit, but from lack of cash. I won't argue with the lack-of-cash theory. It's easy to fall behind in receivables and have no money in the bank to cover payroll and big supplier invoices. The misguided solution is to use deposits and early payments from new work to settle payables from ongoing and completed projects.
As for lack of profit, I don't need a theory. I know that plenty of remodelers, big and small, either don't charge enough or don't earn enough profit. Some just aren't doing the math correctly. (I've been in seminars where nine out of 10 working remodelers in the room were using the wrong formula to calculate their selling price.) Others build a comfortable net profit into their price, but let it slip as the job progresses.
So, is it lack of profit or lack of cash? If you ask me, it's neither. Behind both, the root cause is high overhead -- not the dollars-and-cents kind, but the emotional kind. The emotional investment of some remodelers is so strong it defines them in both their personal and business lives. They take everything personally, which ultimately leads them to confuse their priorities.
You want examples? No problem. Take change orders. Remodelers lose thousands of dollars every year because they don't collect extra money for additional work. It's not because they don't have the paperwork systems in place; it's because they're emotionally committed to the idea of being a problem-solver for their clients.
The same emotional over-investment makes it difficult for remodelers to turn down work. Saying "No" to a potential customer is easy when it's a business decision. But it's almost impossible for a company owner whose sense of personal competence overflows into his or her company's mission. The result is that too many remodelers take on work that is not a good fit for their company's expertise.
Need another example? How about inability to delegate? The identity crisis first crops up for most company owners when they become so overworked in the office that they have to take off their tool belt and hire someone to replace them in the field. To them, their craft is their company, and it's tough to let go. (In fact, many never actually let go, and they continue to estimate labor as if they were still doing the work themselves.)
Later, the identity crisis reoccurs for more established company owners, only this time it's not production management at stake but sales and estimating. For an over-invested company owner to admit that selling skills can be taught is tantamount to declaring themselves obsolete. If I am the company, they reason, then where is the company when I am no longer doing everything?
Remodelers can be forgiven for their deep personal attachment to their businesses. After all, in the early going, most companies survive through the sheer force of the company owner's personality. That same enthusiasm and personal touch is essential to establishing a company mission, and it sets the tone for company culture.
Forgiveness is harder to come by, however, when remodelers allow self-image and business-purpose to intermingle. Remodeling has strong personal elements, but it's just a business. It's a difficult business, to be sure, but it's made that much harder when your bottom line has to cover the cost of your emotional overhead.
Sal Alfano, Editor-in-Chief