How do you pinpoint an appropriate growth target? It begins, experts say, with knowing both yourself and your company: Who are your ideal clients? What's an ideal project? Where in the region do you prefer to work?
Considering what's at stake personally also helps set parameters, says Orinda, Calif.-based financial consultant Judy Miller. “You have to determine why you want to grow,” she says.
Miller advocates a diligent analysis of both company and owner performance. Remodelers, she says, need to look at their own numbers — hours worked, change in net worth, and return on equity — and target their personal goals. Typically, Miller says, owners fail to consider how their own roles and responsibilities will be affected by company growth. If you reach the level you're aiming for, you may have to work more, work harder, delegate the responsibilities you're best at, and take on other responsibilities you'd rather not.
“A lot of people miss the sweet spot where the systems are in place and everything's working right. That's where you stop chasing volume and start chasing profits,” she says.
The next step is establishing a goal for the year. Remodelers and industry observers say that anything more than 20% annual volume growth is dangerous. Tom Avallone, owner of Cobb Hill Construction in Concord, N.H., places the ideal percentage somewhere between 5% and 10%. He knows something about growing successfully. Having diversified coming out of what was locally a devastating recession, Avallone used commercial work to grow revenues from $1.3 to $5 million between 1993 and 1997. But the company was barely profitable.
Since then, Cobb Hill has flourished, growing to become a $15 million company that runs at healthy net margins of between 9% and 10%. In determining how much to grow, Avallone says, “I create the curve first and then plot the points. If I want to be doing $20 million at 9% in 2010, where do I have to be each year to get there?”
Targeting a more precise number within that range requires constant and thorough monitoring of every aspect of Cobb Hill's performance to track how the company performs against projections, and to thoroughly understand its capacity. To that end, Cobb Hill's project managers and supervisors adjust their cost-to-complete and estimated profit statements each week. Avallone checks those numbers against another document that lays out the company's projected sales and profits six months in advance. Cobb Hill also closely monitors the dynamic relationship between its sales and its operations efforts.
“We look at each project manager and supervisor to see what job they're on, how long they're on the job, and how much time they need to close it,” Avallone says. “Then we dovetail that with projected sales and start-ups so we know not just how many people are available, but specifically who and when.”
Avallone also reads news and economic forecasts, chats up colleagues who aren't competitors, and even attends local Chamber of Commerce meetings to keep apprised of economic trends.
With all of this data in hand, Avallone then weighs his company's performance against the market's potential, to determine a specific growth target. “If you see that in the previous year you hit your goals and hit them well, and you have got good people on staff and good projects coming up and good things on the horizon,” Avallone says, “then you say, ‘This is what we could handle if we added more staff.'”