The call comes into the office. Someone—a potential client or an architect, most likely—is calling because of their interest in your company doing a project that is much larger than any project your company has ever done.
You are torn. Doing the project will entail risk. It will also likely be the “whale,” that bigger-than-normal job that could take your company to a higher volume than it has ever experienced and, hopefully, more gross profit dollars than what the budget for the year was projecting. What do you do?
Here are some tips from someone (me) who was periodically faced with these choices.
Think Objectively When faced with the opportunity to be involved in a big project, slow down and look at the pros and cons of doing so. This is best done with the key people in your company participating. They often have a distance, a perspective that will complement that of the go-go anything-is-possible owner.
The only way to make this conversation more likely to provide useful insights is for the owner to not tip his/her hand so that the comments from the people who work with the owner will be more likely to be honest. This is hard to do, as the owner is a powerful person in the eyes of the employees and they will often defer to the owner.
Whatever the result of this conversation, the owner should sleep on it and take some time to think about whether to proceed. Don’t rush into the breach and then end up regretting having done so.
Refer to the Company’s Business Plan What type(s) of projects does the company do well? Why? How long did it take to learn how to do them well? By focusing on a somewhat narrow spectrum of projects, a remodeling company can become expert at doing them and often reduce the company’s dependence on the owner. Why? Because the company will not engaged in a continuous stream of “learning opportunities,” otherwise known as “mistakes.”
If the company is making money by doing a few things very well, be careful about changing the business model. It might not be worth it in the long run.
Be Realistic About the True Cost When estimating a project that is bigger than any the company has done previously, the inability to do an accurate estimate must be acknowledged. Include meaningful contingencies for any aspect of the project that is being done with in-house labor and materials or with new trade contractors or vendors. Estimates of in-house labor for larger-than-usual projects classically include inadequate amounts of time for the employees of a company used to doing smaller projects.
The simple act of daily or weekly cleanup on a large project can eat up unimagined amounts of time. The time to supervise a large project is greater than a smaller version of such a project; there is just more to talk about. Logistically, the distances that debris, materials and tools are carried can chew up a lot of labor costs.
Unfamiliar trade contractors and vendors can provide unwanted surprises, as the remodeling company learns about what they automatically don’t include in their proposals. This occurs as the remodeling company’s preferred partners often do have the time and labor force to do larger projects.
The outcome is likely that the company will make less money on doing the project than it planned to or, worst case, not break even (cover the labor, materials and subcontractor cost for the job plus the company’s needed overhead dollars). Be careful!
Who Will the Company Be Working For or With? The wild card in all this is how much it will cost to work with someone who might not fit the profile of the company’s best clients. Some large projects come with clients who aren’t the easiest to work with. If an architect is involved, he/she might be the type who expects to exert a higher level of control regarding the project than the remodeling company is used to dealing with.
My experience is that misjudging the attitudes of these key players can just about put a good company out of business. Getting the actual craft work done is something the company actually can do. But if the client and/or architect feel to the remodeling company like they come from a different planet the outcome can sometimes be ending up in arbitration or in court.
So, is it possible to succeed? Yes, even when doing a bigger-than-usual project. How?
- Be productively unreasonable. Don’t agree to do things your company would not do just to get the job. Make sure to get the job on your terms, not just those of the potential clients.
- Get advice from outside the company regarding what you don’t know that you don’t know. Talk with companies that have done large projects. Asked them what they learned the first time they did such projects. Why should you have to reinvent the wheel when most contractors enjoy sharing tales of their learning experiences?
- Make sure your estimate has been reviewed carefully by others in the company and that its validity is agreed to by everyone. Be deliberate with this step, as a good estimate is the basis for making the desired profit that the company needs to be able to exist.
- Have a weekly meeting with the client and keep good notes. For any item discussed note who is responsible for what, what the deadline for getting the item taken care of is, and whether or not the costs are the responsibility of the owner (meaning a change order needs to be written) or the company (meaning an in-house change order will need to be written). Publish the notes as soon as possible. Use them along with the job binder and plans to run the job.
- Have a substantial amount of cash reserves that the company can dip into. Consider holding those cash reserves in a separate entity from that of the remodeling company just in case everything goes wrong and your company gets sued.
- Get a line of credit in place before the job starts. Again, this is just in case the company will need to pay to complete the job instead of making money doing the job.
Whatever choice you make, accept
it. Some of the jobs we were lucky enough to not get made our company a lot of
money because we did not lose all the money we would have if we did those
Some of the largest jobs we ever did were extremely profitable. Some just about took us down.
We survived the challenges, not that it was pretty or fun lively through all of them. Whether your company can or is crazy enough to take the risk is the deciding factor.