For the first six or seven years of business, Brandon Bailey and his partner Jon Steimel, owners of Bailey Remodeling & Construction, in Louisville, Ky., worked hard while they lived in what Bailey calls “break-even world.” “We had no concept of profitability or building equity in the company,” he says.

Recently the company was, as Bailey puts it, “stuck in ‘stage 2’ of our business growth—and this limited us in how much we could make.” He was referring to the Harvard Business Review’s “ The Five Stages of Small Business Growth.” The article includes this description of a “Stage 2” business: “[Owners earn] marginal returns on invested time and capital, and eventually go out of business when the owner gives up or retires.”

Bailey and Steimel knew that they had to hire someone if they wanted to maintain their quality and not risk their company’s hard-won reputation. While grappling with this decision, they were approached by an experienced lead carpenter looking for something new. Bailey and Steimel brought him on part-time, worried that they might not be able to keep him busy enough for 40 hours a week. But they soon realized that the more they delegated to him, the more they could focus on selling, and the more they sold, the more money they brought into the business.

Gaining Equity

Now that the owners understood employees were a key element in making money, they focused on building equity. “Equity is power,” Bailey says. “With money in the bank, we could avoid taking on low-margin work because we needed it so badly. Instead, we can turn away unprofitable work and focus on the right clients and the right jobs.”

Today Bailey Remodeling & Construction sells jobs at a price that allows the company to generate a strong net profit. And Bailey and Steimel are conservative with their expenditures. “To us, profit is much more important because that is securing our future,” Bailey says. This focused approach has helped the owners build a strong financial safety net. “Our financial goal: Money to cover six months of overhead stashed in the bank,” Bailey says. “Now that’s power.”

Victoria Downing  is president of  Remodelers Advantage , dedicated to helping remodelers build profitable businesses.