Start with These Four Things
Small renovation contractors have to manage their business as well as drive nails, and this is where they often come up short. They know that marketing, lead generation, and sales are vital to securing future clients, but because they are working long hours every day without the support of a back office administrative staff, they rarely have enough time or energy to give these components the attention they deserve. Here, we’ll outline the five areas that need your attention. Then, we’ll break down what to do in each case.
- Market Your Company
In order to grow your business, you need to be marketing and promoting your business and finding new renovation opportunities beyond word of mouth. When there aren’t enough hours in the day to do this, you end up working from job to job, with little to no job security. Not knowing where the next job is coming from causes unnecessary stress and anxiety, a burden that has the potential to affect both the your personal life and work performance. In the end, the added stress indirectly prevents the company from expanding.
- Manage Your Money
If you are managing your renovation company financially by the balance in your bank account, that’s not the way to run a business. Aside from being forced to make bad decisions, you’ll never really know if your company is making any money, at least not till the end of the year.
Good companies that grow have regularly scheduled Income Statements and Balance Sheets published. Some look at them weekly, some monthly, some quarterly. However the schedule, good companies have them, which means their owners can make good decisions about every aspect of their company, all the time.
Proper financial management also means viewing each job individually, allowing you to foresee cash flow problems that can occur when taking on too many jobs or when a client falls behind on payments. More often than not, small contractors do their own bookkeeping, and since they don’t have a lot of extra time on their hands, they tend not to focus on cash flow and profitability until it is too late. This can quickly lead to financial problems. As a bare minimum, the contractor must clearly map out the client payment schedule along with the timing and amounts of money needed at every stage of the project. It is only this way contractors can remain cash flow-positive throughout a project.
Another key financial area is pricing. The contractor must understand his overhead expenses and profit targets. You must make sure that jobs are priced to not only cover labour and material costs, but to cover overhead expenses, salaries and also generate a profit.
- Understand Wages vs. Profit
Many small renovation contractors don’t understand the difference between wages and profit. As a business owner, you deserve to earn a wage for the work that you do “in” the business. You also need to make a profit so that your business generates a Return On Investment (ROI) for the time and money that you have invested as the owner. When calculating overhead expenses, you need to pay yourself a competitive wage for all of the jobs that you do-—marketing, sales, bookkeeping, site supervision, project management, sitework, etc. If you don’t pay yourself for all of these tasks, your business will never generate enough money for you to pay someone else to do them. The net result is that your business will never grow beyond its current level.
- DO NOT Compete on Price
A small renovation contractor does everything, but this isn’t the only characteristic holding them back from growth. Another downfall at this level is that renovation contractors compete on price. This focus on price means renovation contractors aren’t given an opportunity to showcase their value and workmanship, and therefore can’t use quality workmanship as a competitive advantage. It’s a scenario that greatly limits growth potential, as they rarely obtain opportunities to compete on higher-paying projects where their quality of work is a major criteria for customer decision making.
If they find it increasingly difficult to gain new customers, and if growth and profit are low, renovation contractors will quickly find themselves in a downward spiral. This is why it’s so important to work towards building the business. There are eight critical steps to building a successful business, and if one of the eight steps is missing, the business will not operate to its maximum potential.
1)Develop a marketing program that provides a consistent flow of leads.
2)Develop and implement your “Unique Selling Proposition” that provides clear differentiation in your service offering so you don’t compete as much on price.
3)Systemize your estimating for accuracy and time savings.
4)Hire a lead carpenter who can run the day-to-day aspects of the job with little or no supervision. Hire a part-time bookkeeper to handle the administration.
5)Get off the tools as quickly as possible; You can’t grow while you are physically doing the work.
6)Systemize the sales process.
7)Start systemizing the production process so you don’t have to do it all yourself.
8)Invest at least one hour per week on your personal development and skills. Your business will only be as good as you knowledge and skills. Work on yourself as much as you work on your business.
In part three of The Road to $3 million, we will dig in to how to manage your cash flow.