One would think that now, when the market is growing stronger day by day, our problems would all be over. But over the course of the last several weeks, remodelers are coming to us with a new problem: They are growing themselves right out of business!
Rapid growth is causing severe cash flow problems, and too many remodelers lack the resources or know-how to manage these issues.
So I talked to Walt Mathieson, an accountant and president of Mathieson Consulting, in Glendale, Ariz., who shared several crucial tactics for remodelers who are beginning to feel that cash crunch:
1. Use metrics and modeling to forecast the best time to add staff. “Create a metric for the amount of production volume a production manager, a project manager or a lead carpenter can handle,” Mathieson says. “Then create your schedule with an eye toward when you will have maxed out your current staff. By using modeling and metrics, you can find the optimum time to hire the next employee–neither too soon, increasing expenses early, nor too late, when clients are unhappy.”
2. It’s critical to use client’s money to finance their project. Never borrow to produce a job, and don’t use your own money. Instead, collect as much up front as you can. Invoice frequently and be firm and insistent on collections. “If a client doesn’t pay on schedule, don’t be afraid to leave the job,” Mathieson advises.
3. Review your formula for developing your selling prices. “Growing companies often need to invest in additional support staff, additional equipment, training and more,” he says. “This means that overhead goes up–requiring additional gross profit dollars to cover it. Be sure that your pricing model works for your current overhead.”
4. Collect your receivables quickly. Mathieson’s warning: “Not collecting money that is owed to you is criminal! This money can have a huge impact on easing the strain of poor cash flow.”
5. Monitor your client’s satisfaction regularly. Unhappy clients may hold back payments. Be sure you are addressing concerns quickly.
6. Be profitable and build a cash reserve. Experts agree an “emergency” fund equal to four to six months of overhead should be on hand to help when cash flow gets tight.
Most remodelers are delighted to be in a growth market again. Just keep your eye on the cash to make sure you don’t grow yourself out of business.