Odds are good that, sometime in the next few weeks, you’ll be reviewing your company’s financials for the first quarter. To kick things off, you probably will review the company budget and compare actual results with what you had forecast. If the actuals beat the forecast, you’ll smile and continue business as usual. And if the numbers fall south of the forecast, you’ll probably continue business as usual but hope for a different outcome.
This time, I’d like for you to do something different. Rather than glancing at the numbers, dig into them and look for two particular opportunities for improvement. Spotting them could save you a bit of money—or your entire business.
First, add up the total costs of the seemingly small issues in your work. Among them:
- Lost or stolen tools
- Trips to the lumberyard
- Warranty expenses
- Minor theft
- Inaccurate time keeping
- Parking tickets
- Misordered items
Individually, you might consider any one of these to be a minor and perhaps irrelevant mistake. But taken together, the costs can be substantial. Recently, a client of mine a client calculated that unnecessary trips to the lumberyard cost his company more than $100,000 per year. Years ago, I visited a consulting client who showed me a warehouse full of mis-ordered doors and windows worth, he calculated, nearly $600,000. Clearly, these aren’t minor or irrelevant dollars.
Learning how to identify and correct seemingly minor mistakes can add significant dollars, and sense of control, to projects and the company gross profit. Research your company to identify the most likely culprits, include those costs in job estimates, and track results consistently until the mistakes are reduced to an acceptable level. I’d shoot for less than 0.5% of job costs per instance. Consider boosting estimates by 2.5% to protect against such contingencies.
The second, and more dangerous, item to watch out for is simple idiocy: Thinking you and your company aren’t subject to the normal laws of the universe. Many people—myself included— have fallen prey to idiocy at one time or another as adults (and I’m not counting the idiocies that occurs before you brain matures at age 24 or 25).
Idiocy in remodeling looks like this to me:
- Attempting to grow more than 20% in any one year (15% is risky, 20% is idiocy).
- Taking a job double the size of your previous largest job.
- Hiring more than two new positions at the same time.
- Believing that you, as owner, don’t need to understand financial statements.
- Hiring fast and firing slow.
The list goes on and on. You might think that you’re smarter and quicker than the herd and can beat the odds. It might happen to somebody 1% of the time, but it probably won’t happen to you. But if you don’t plan for the unexpected, the risks can be catastrophic; companies fail more often in times of expansion than contraction.
It won’t be easy to protect yourself against unexpected risks. Entrepreneurs are a breed apart: typically ambitious, driven, fast-paced, and often more alert to signals inside their brains than advice from the outside world.
If you’re smart (and lucky) you’ll live a long life and learn valuable lessons along the way. The best way to jump-start the learning process is to engage with others in the remodeling industry and listen to their stories. Attend conferences, read magazines such as this one, as well as Inc. or Harvard Business Review, study online videos and join a local NARI or NAHB group. Go to those meetings. The fastest way—akin to drinking from a fire hose—is to join a peer review group whose members will quickly help you to protect against the danger of idiocy.
“Mistakes, I’ve made a few,” Frank Sinatra sang in “My Way.” But knowing what you now know, it’s time to make fewer. Good luck riding this year’s big wave in remodeling. Consider your options, plan for success, monitor every change until it’s routine in the company, and help your people and your company grow sustainably.