Remodelers around the country are finding the current economic climate difficult at best; most are scrambling to find ways to maintain what they had previously thought was secure — their net profit.
Remodeling does not have the same high-profit opportunities available to technology startups (although it certainly shares the downside risk potential), but many good companies can consistently produce between 5% and 12% net profit (after owner's normalized salary — see Benchmark, August 2006).
To do that, all of a business' systems must function optimally, including marketing, sales, estimating, production, finance, administration, leadership, and resources.
Some systems are easy to measure while others are more difficult, so for simplicity's sake let's agree that the critical measurements listed in the chart below will suffice to track our ability to protect the net.
PULLING THE TRIGGER
In the current difficult economy, many of the quantitative measurements can trend downward while producing a sufficient net profit, but only if you “pull the trigger” — that is, react intelligently and quickly to any threat to your net income.
That means, for example, selling more jobs when job size decreases, sending employees home when work slows, or cutting overhead when gross margin declines. But the reaction depends on the stimulus, and a timely response is often crucial.
To help determine what to do and when to do it, use a “What If” scenario. The example here (lower left) focuses only on leads, sales, slippage, and overhead.
Use Trigger 1 as the first round of responses, and if you fail to meet the “desired result,” pull Trigger 2. In many cases, the milder Trigger 1 response will correct the problem; if not, the more severe Trigger 2 responses may be necessary.
For example, with respect to finances, Trigger 1 mandates overhead cuts. This may include work-week cutbacks or employee layoffs, but only at Trigger 2 do those layoffs include field employees.
Trigger 2 layoffs will be the deepest, often affecting hard-to-replace people who are important to the organization. Only by protecting the net, however, will your company survive to hire them back in a few months.
—Judith Miller is a Seattle-based construction business consultant and trainer specializing in accounting, finance, and computerization.