Last month I worked to debunk three prevalent assumptions in our industry that I think are just plain wrong. Perhaps they’ll sound familiar to you.
If you love your work, money will come. (Oh no, it won’t.)
Professional-level markups may fly with homeowners in other markets, but not in yours. (Oh yes, they will.)
Employees are raw material that can be sculpted to fit the job openings you currently have. (Oh no, not necessarily.)
Here are six more myths that could act as stumbling blocks to your company’s success.
1. It’s right to hire family members. I can trust them, they’re available, and they need the work. More often than not, this hypothesis proves wrong. If you’re considering hiring relatives, formalize the process. Write a job description, develop metrics for success, and advertise the position externally and internally. If your relative is the absolute best choice, you’re lucky. Next step: Have a formal agreement that your business relationship with the family member is different from your personal relationship.
2. My spouse will be a great bookkeeper/office manager, etc., and will be so happy to work with me. Spouses have saved many remodeling companies, but sometimes they yearn for careers of their own. If your spouse already works with you, dig deep and really listen to his or her career ambitions. Should other fields look greener, work out a transition that keeps your business safe but shows her the light at the end of the tunnel.
3. I’m the only one who gets paid, but my spouse understands that the pay is really for both of our contributions. Accountants often recommend apportioning pay in family-owned businesses in a way that reduces a couple’s tax liability. This often leads to high pay for one and minimal pay for the other — and an underlying dissatisfaction in the latter. Moreover, what happens to her motivation for money? What happens to her earnings record?
Here’s one possible solution: Ask your accountant if the two of you can switch compensation from year to year.
Embezzling the Truth
Three more remodeling business myths:
4. I’m not good at reading financials, but my bookkeeper understands them. So we’re fine. Whoops. Bookkeeper embezzlements are way too common in remodeling. What’s more, while the majority of bookkeepers are accurate with numbers, they’re not always so savvy about interpreting what those numbers mean for your company’s present and future. As owner, you simply must understand the meaning of every major entry on your profit-and-loss statement and your balance sheet.
5. I’m careful about planning and estimating jobs, so I really don’t need a budget for my company. The truth is, every job can go beautifully and to plan, but you can still have a losing year if your volume is insufficient or your gross profit is not enough to cover your overhead and provide you with an 8% to 10% net profit. You need to estimate and monitor actual results at two levels: per job, and for the company overall.
6. When I have a hunch that a prospect will be a difficult client, I just add an extra 10% to the price. What you can make on a job is limited — but what you can lose is unlimited. A cranky client costs you money, time, and morale. I regularly hear of jobs where only the owner can finish the work because the carpenters and trade contractors are worn out or the client has banned them.
The sales process is the dating phase of remodeling, and everyone should be on their best behavior. When a prospect is unpleasant at that stage, he’s likely to be worse during the heat of construction. Commit to politely saying “Thanks, but no thanks” when the diagnosis is clear.
I hope you never step in any of these potholes. To share your own favorite business myths, please e-mail me directly.
—Linda Case is founder of Remodelers Advantage, in Laurel, Md., a company providing business solutions through a network of experts and peers. 301.490.5260; firstname.lastname@example.org; www.remodelersadvantage.com.