The Design Builder's Blog

How Contractors Can Make More Money, Faster and By Doing Less

With only so much time in a day, contractors need to maximize the revenue and or gross profit they earn each day in order to cover business overhead costs and contribute to their desired net profit goals.   Selling and producing more work is certainly one option to consider.  However, why not implement ways to increase the selling price and earn more gross profit without having to do any more work in the field or add anymore labor costs at the job site.

Options to consider

If you want to increase your sales volume and earned gross profit you can either produce more work or increase the selling price of your projects.  Here are a few things to consider:

• Producing more work at the job site means you will need more labor and the project will take longer.  Finding and keeping more employees busy can be challenging.    
• Increasing your selling price doesn’t have to be limited to raising the prices of what you sell.  Increasing your selling price can also be accomplished by increasing what is included in the selling price.
• Assuming you mark up everything you sell, if you find the right prospects and sell them higher price point products than you have used in the past, your average sell price goes up and the gross profit earned on each job goes up as well, without adding more labor or days to the project schedule.
• Also, consider that selling product options can be another way of increasing the sell price and earned gross profit, again without having to add any more time, do any more work or add any more labor to get the work done.

Here’s one example of what I am talking about 

At a recent Remodeler Summit event I participated in for Marvin Windows and Doors at their Warroad MN manufacturing facility, contractors learned about Marvin’s new option of prefinishing the interiors of their window and door products.   By selling this option to their customers, contractors can increase the cost of each window they sell by offering an additional service to their customers.  And, they can do so without increasing the production time of a window project and without having to add any additional on site labor to their projects.   The windows are prefinished at the factory, under controlled conditions and can either be prepainted or have a clear finish applied.   Because the prefinishing is done off site, all the mess of prepping and finishing is avoided, no extra job labor is needed and the smell of any finishing products is avoided at the job site.  Selling prefinished construction products can be a win-win, both of the contractor as well as the homeowner.  Selling prefinished products means more gross profit earned for the contractor without doing any more work.  The home owner benefits because more work is done in less time, with less mess and disturbance to their home and their daily lives.

Here’s one more example

At a tour of Reliable Truss and Components Inc., a division of National Lumber in Mansfield MA, I found out they offer prefabricated custom structures and components.  Using this service contractors can have components of their projects prebuilt and even prefinished in a controlled factory environment.  The components are then delivered to the contractor’s job site ready to install.   Partnering with a vendor who can offer this type of service helps the contractor earn more money by doing less work in several ways.  

• The contractor can earn gross profit on the labor as well as the product being provided by the vendor.
• At the same time, the contractor can be earning gross profit on the labor and the products being installed by his own crews while they get the project ready for installation of what is being built off site.
• Some vendors, including Reliable Truss, will also come prepared with the equipment needed and help your crew install the prefabricated and prefinished items at the jobsite.

It just keeps getting better!

Both examples above can help contractors earn more money in less time.   Both examples offer ways contractors can get more work done without having to add any additional talents or skills to their crews.  Both examples also eliminate or reduce the need to find and bring in sub contractors to do work the contractor’s own crews either don’t have the talents for or might not be cost effective at doing.

I bet more and more contractors will be thinking this way as the increasing costs of labor and the lack of available skilled labor puts pressures on their businesses and their profits.

To Be Successful In 2013 Create a Business Plan And Do An Estimate

For me, when I still owned my remodeling business, getting ready for business growth meant I would first need to do two things; make a plan and create a budget. 

Create your plan

First was to create a plan for what I wanted to do and how I would do it.  I considered what projects I would specialize in, who I would work for, where I wanted to work, and how I would market my business so the right people would find me.  I determined how many employees I would need as the business grew and what skills they would need now and later so I could delegate some of my current responsibilities and include the money needed to do so in my selling prices.  After determining the how, I needed to predict how much.

A business budget is kind of like a project estimate

The first budget I created was very simple.  By looking at the end of year profit and loss report, the financial history of my business from the previous year, I was able to list the majority of the expense categories I would need to consider to predict the costs of my new plan.  For anything I wasn’t sure about, I would call my accountant or another remodeler I knew at my NARI Chapter for advice.  Just like a remodeling project estimate, I listed the related expenses and then got current prices for each of them.

The Numbers Game

Creating that first budget for my plan to grow the business seemed very overwhelming.  After all, I had never done one before.  Looking back, the hardest part about doing it was actually sitting down to do it.  

Once I had become clear on the financial definitions and formulas used, the budget actually went together fairly easily.   I admit it was very time consuming that first time.  However, because I kept notes on how I had determined certain expenses and where I got the information, the second budget I did was a breeze.  I did not have to completely recreate or try to remember the entire thought process.

Planning and budgeting assumptions

As a result of living through the experience, I developed four simple assumptions, in addition to keeping notes, which helped organize the way I looked at the process.  They should be completed in the following order as well.

1. Commit to making a real profit, establish how much, and think of it as an expense that must be paid.  You only need a budget if you plan to make a profit.  
2. Be clear on how you will define and separate direct and indirect costs.   Once you identify which is which, recast your current accounting software's account list.   This requires moving misplaced accounts and costs to their proper locations as either cost of goods sold or overhead expenses.
3. Look at the big picture.  Consider your annual budget as just one project, like a whole house project that takes a year to complete.  Use your profit and loss report for the previous year as a start to estimate the coming year’s budget. Then start making adjustments for each account to reflect any price changes and or your new plans for the coming year.
4. Be sure all of your direct costs will somehow show up in your individual project estimates.   Pay particular attention to labor costs, equipment purchases and repair, and general miscellaneous supplies.  Make sure the hourly labor cost you use is burdened over and above the wage you pay employees to include all labor-related expenses and benefits.  If you own and repair your equipment, and or you use assorted hardware and supplies that do not end up as line items in your estimate, establish a percentage to add to your estimated direct costs so you will cover and include these costs before you add your markup.

Using this simple process year after year, I came to learn how important it was to my business’ success that I planned ahead for what I wanted to accomplish.  With a plan in hand, and a budget for what it would cost, I had the confidence and motivation I needed to make success a planned reality.  I also had full confidence in asking for the real price I needed to sell each project.

A Simple Strategy For Payment Schedules That Create And Protect Cash Flow

Contractors are forever complaining that they don’t have adequate cash flow when producing projects.  More times than not they blame this on their customers, citing that the customer is holding back or delaying progress payments.   If a contractor keeps working without getting paid he or she has no one to blame but themselves.

Consider these questions. 

Will Delta Airlines let you pay after you land?  Will Dell Computer let you pay for a custom computer after it’s built?   Of course they won’t!  So why do contractors find themselves financing projects for their customers and then end up waiting and even begging for their money?

Protect your cash flow before you sell the job!

On February 26^th, as part of a six workshop program, I’ll be leading a strategic estimating and proposal creation workshop for contractors titled: “Know What You’re Selling Before You Sell It!”   One of the topics I’ll be covering in that workshop is how to write a project payment schedule that creates and protects cash flow.  I’ll also be explaining how that same payment schedule, if explain correctly to a prospect, will help a contractor sell the job.

Below is a brief summary of how to do it and what I will be sharing more about with the attendees.   The attendees will then be encouraged to try the strategy when estimating and selling their next project.  They can then come to the free lunch and learn session scheduled before each next workshop for help with any questions or challenges they experience implementing the new strategy.

10 Steps to create and protect cash flow:

1. Estimate all tasks in critical path order (same order you would actually build the project)
2. Group tasks to establish easily definable (for the contractor and the property owner) project and payment milestones
3. Add up all direct costs the business will incur between milestones and include overhead and profit
4. Establish payment amounts based on the total cost of the milestone (Including overhead and profit) plus add some money to each to maintain frontloading for safety (you’ll make up for the frontloading when establishing the final payment)
5. Word payment schedules so each payment will be due prior to the start of each milestone
6. Collect the money needed to finance all of a milestone’s tasks before you start it (don’t be Wimpy on this!)
7. Get a significant amount of the outstanding balance at the second to last payment
8. Make sure the project cannot be used for its intended purpose until after the second to last payment is received.
9. Make the final payment due on “Substantial Completion”
10. Make sure the final payment is far less than your expected net profit but a comfortable amount for your prospect

Purpose of Accounting and Financial Management For Contractors

A fundamental goal of any growing business is to maximize and protect the profits.  By understanding the profit process - that is how to define it, create it, and measure it - a business owner or manager will come to better understand how fragile profits can be and the importance financial management plays in protecting it.   For many Remodelers first getting into the business, myself included, financial management skills were not necessarily part of our educational background.   However, our lack of knowledge on the subject would be a weak excuse to give our family for not being financially successful.

Try This Self Quiz To See If A Properly Setup Financial System Can Help You

Profitability is ultimately the responsibility of the business owner

There is way too much to learn about accounting and financing to cover or explain in this short blog article.  I suppose that is why it is actually a career for some people.  That’s why there are accountants, business consultants and financial advisors. For a business owner though, understanding and overseeing the process are the bare minimums.  The ultimate success and profitability of your company is typically not left to someone else; it’s the owner’s responsibility.  In order to identify what business owners need to do, I find have found it helpful to show my consulting and coaching clients a path for how it should happen. 

A simple path could be as follows

1. Make a plan for what you want to do and how you expect to do it.
2. Create a realistic budget for your plan so you will know what it will cost in total and how it breaks down into direct costs, indirect costs and profit.
3. Determine the markup percentage to add to your estimated costs, and what gross profit margin that represents so you will know if you’re on track as you complete projects.
4. Estimate your projects using qualified information for pricing assumptions, and then do job costing to track your actual results.
5. Use financial reports to monitor your actual gross margin, overhead costs and profitability.
6. Take advantage of the information you collect to make changes to your plan and or to create your next plan.

Is your accountant a historian?

With much to be learned, be sure you find the right accountant to partner with.  Do you want a historian who will collect your information and report to the government what happened while you were working?   Or, do you want a proactive partner helping you to create and protect your profits?  I tell my clients to seek referrals for someone who can answer their many questions and perhaps helps them create and understand the accounting reports needed to track business performance. 

Keep in mind this harsh truth...

If you still have a historian, it’s not his or her fault!

Contractors: Try This Self Quiz To See If A Properly Setup Financial System Can Help You:

Unfortunately, the facts show that about 85% of residential construction business have no idea what it costs to be in business and cannot properly and accurately track where they are making and or losing money.  If only these contractors had and would use a properly setup financial system they would reduce a lot of the stress related to owning and running a construction or remodeling business.

Here are my simple questions for those of you who don’t have an adequate Financial System:

Not sleeping well due to money issues and is it affecting your ability to do your job and have a life?

Would you rather go to bed at night wondering if you’re screwed, or knowing that you’re screwed?

Take this self quiz to see if a properly set up financial system would benefit you and your business:

• Do you know if you will make a profit this year? 
• Do you know how much money will pass through your company at any given time?  
• Do you always have enough money to pay monthly bills on time or meet payroll (cash flow)?  
• Do you know whether you are buying rather than selling projects? 
• Do you know how and when to predict increasing costs of doing business?
• Do you know what your options are for smart business growth?
• Are you confident about making it through the current recession?
• Will you and your business be ready to thrive when the economy turns around and the volume of work picks up?

How did you do?

If you answered no to one or more of these questions, you are definitely not alone.  For many Construction Business Owners financial management skills are not necessarily part of their educational background.  Plus, have you ever tried to get an accountant to explain this stuff to you? 

A properly designed and setup finacial system would give you the ability to answer yes to all of the above.

What are you waiting for?

If you do not have the financial system you and your business needs, ask yourself why.   If you need help setting one up, get the help you need.   If you want to work with someone who can explain things to you in a simple way, help you understand your options and get your system set up; contact me today to discuss your needs.

Five Great Books for Remodeling Business Owners

 I have always loved reading to learn about new subjects.  When I was first in business as a remodeler I read a lot of articles in trade magazines.  They offered great ideas, best practices and sample paperwork or forms I could put to use right away.   However, right about the time I sold my business I also started reading books on business related topics.   After reading a handful of titles I came to the realization that the articles in the magazines were helpful and offered individual solutions for a variety of typical business challenges, but the books I was reading offered much broader and more comprehensive views about big picture business strategies and opportunities. 

In many ways the books I read helped me understand how I had grown my business, what made me and my business more successful than many other remodelers and their businesses, and they helped me better understand why my business had salable value beyond just the value of the hard assets.  I quickly came to the realization that, had I read those books much earlier in my career, perhaps I could have increased the level of success I enjoyed.   I also came to realize that I would have dramatically reduced the time it took to build my business had I read those same books when I first started my business.  

The books in the list I offer below fall into the top five books I think remodelers should read if they want to grow a successful business and reduce the total time it takes to do so.   More importantly, these books can help remodelers avoid the frustrations, wasted time and wasted money that come with the trial and error approach of going it alone as a business owner.   Even if you still can’t build the business you want on your own after reading these books, you will definitely know what help you will need to get there

“The E-Myth Contractor” by Michael Gerber

This is one of several E-Myth books by Gerber.  They are all worth reading, but if you’re a contractor this one gets right to the point about what you need to do to build a contracting business that runs without you needing to do everything yourself and be there every minute of the day so things get done.   If you ever want to sell your remodeling business, or at least be able to take an extended vacation, make sure you grab this book.

“Good to Great” by Jim Collins

Many business owners are happy having good businesses.  Others decide that their businesses, when compared to other businesses, fall into the good category; a term sometimes referred to as relative success.   If you want more than just a good business Collins and his team has done the research to figure out how it’s done.  He offers some great strategies to consider as well as some great examples of companies and their leaders who made the jump from good to great.  He also shares the importance of and the type of leadership required to achieve greatness.

“The Great Game of Business” by Jack Stack

 If you would like to have an open books business that involves all employees in the creation of and sharing of company profits you should definitely read this book before you do so and well before you start creating your plan.  Not only does Stack share strategies for doing so, he lets you know the challenges to expect, how to get ready for them and how to identify employees who will never go along with the changes.  He also shares a process to use to help educate employees about business financials relative to their job positions, how profits are earned and how they can measure their individual contributions in ways that are real for them.  As I mention in my blog about profit sharing, businesses that share profits often earn more profit as a result!

“Selling the Invisible” by Harry Beckwith

Back before the September 11^th attacks my remodeling business was humming and qualified leads came in faster than we needed them.  Then, after the attacks and up through February, we had only sold about $15,000 worth of new work.   I had to do something to get the business back on track.   That’s when I found “Selling the Invisible” and it changed forever they way I looked at and did marketing.   In his book Beckwick discusses the difference between the “outside perception” people gain of your business from traditional marketing and the difference a business can enjoy if its marketing projects the “inside reality” customers who do business with you come to know.  Customers spend way more money to get something they consider different.  If your business has an inside reality that really differentiates your business from the competition you will not regret reading this book.

“Managing for Excellence” by David L. Bradford and Allan R. Cohen

There are all kinds of books available on the subject of business leadership and I’ve read at least a handful of them during my career.   In my opinion this is the best book on leadership that I know of.  If you looking to not only be a great leader yourself, but also create a whole team of leaders at your remodeling business this is the book that best describes how.  As a word of caution; if you’re afraid that one of your employees might become a better leader than you, don’t bother getting this book.  As you will learn in the book, the only way you can become a great business leader and create a great business is to create other leaders who can replace you.  If you want to sell your business someday you need to read this book.

Three Good and One Bad Reason to Offer Profit Sharing Rather Than Bonuses

Often, employees expect to receive a bonus around Christmas time because they have in the past.  When the economy was good and businesses were making money, it was easy and felt good for the employer to give out bonuses.  And, employees typically feel if they worked hard they deserve a bonus.  The problem with that method is that in tough economic times when profits are small or even non-existent, the employees still expects bonuses.   Employers who put themselves in this position can be extremely challenged trying to explain why they are not giving out bonuses even if employees had been working really hard.  To avoid the the challenges that come with bonuses remodelers can consider offering profit sharing instead.

Employee Bonuses vs. Profit Sharing; What’s The Difference?

Profit sharing can be used and offered for a variety of reasons.  Profit-sharing plans can be a great way to improve and keep employee morale, loyalty, and retention up.  They are also a good way to motivate employees in participating in earning and protecting company profits because as part of the plan they have a vested interest in doing so.    

Three Good Reasons to offer profit sharing

Reason #1: Some profit sharing plans have to do with creating retirement plans for employees.  Remodelers who have the ability to offer such plans can take advantage of them to attract good employees.   Most remodeling businesses do not offer retirement plans, so if yours does you might be able to grab the “cream of the crop” to enhance your team.  Also, properly designed profit sharing retirement plans can even help keep employees working at the business long term by including a vesting schedule that requires the employee to be at the business for a certain amount of time before all or portions of the money shared becomes theirs.   If you would like to use this type of profit sharing plan one of your first decisions should be whether to set up the plan yourself or to consult a professional or financial institution for help with establishing and maintaining the plan.  I recommend getting help due to the complexity of legal and tax considerations.

Reason #2: A smart remodeling business owner understands that employee performance is tied directly to how vested they feel to the company they work for. Because they can be a powerful incentive for employees to work harder for the company many remodelers are now beginning to consider profit sharing plans.  By sharing profits earned the plans benefit both the business and the employees.  Employees gain a sense of satisfaction from knowing they'll all get a cut of the profits.  For the business, it's also likely that the added productivity will increase the overall financial performance of the company.  Basically, if the business earns more profit, and the amount shared back with employees is less than the extra amount earned, sharing some with employees is a no brainer.

Reason #3:  By creating and offering a profit sharing plan a business can change the culture from "let’s just get it done" to how do we get it done and maximize profits at the same time.  As long as employees have a way to understand how profits are earned and can then measure how their efforts impact the company’s bottom line, the business can create a culture where the entire team feels and believes “we are all in this together” and everyone involved is focused on profit.   An additional benefit of such a culture is that vested employees start holding other employees accountable to contributing towards profitability.

Now the bad reason...

The success of a profit sharing plan lies in the details.  Many remodeling businesses struggle to determine a good profit sharing strategy, often because the business and or the business owner don’t fully understand how to predict and or measure true profitability.  If the business or the owner doesn’t understand the profitability concept, it’s also likely that the business’ financial system is not adequately setup to accurately measure profits.  The business' financial system should also be set up to provide reporting in a simple and easy to understand format so as to help both the owner and employees determine the amounts that will be shared. 

When an inadequate financial system exist results can include:

• The owner struggles to explain the plan to employees
• Employees struggle to understand the plan
• Employees are challenged to understand how they can actually affect profits
• Employers and employees can’t reliably measure the effects of their efforts

When some or all of the above happen:

• Employees lose trust in the employer
• Employees lose motivation to participate in the plan
• Good employees looking to share in the profits leave the business.

If your business doesn't have an adequate financial system, or you and/or your managers don't understand your financial system, it might do more harm than good to offer a profit sharing incentive.  That being the case maybe its best to stick with using bonuses where the business and or the owner can decide the criteria for how often and how much an employee gets as a bonus.

Need help?

If you’re looking to start a bonus or profit sharing plan at your remodeling business give me a call or shoot me an email.   I can help you develop a plan that works for your business as well as your employees.  Businesses that share profits often earn more profit as a result!

Employee Bonuses Vs. Profit Sharing; What’s The Difference?

Every year a good number of businesses give their employees bonuses right around the first of the year, often right at Christmas time.   Other companies offer profit sharing, typically distributed around the beginning of the New Year, but after the business has had time to review their accounting and access true profits for the previous year.  It’s important for both businesses and employees to understand the difference between the two.  

Let’s define and look at some of the differences between a bonus and profit sharing. 

Employee Bonus:

Bonuses are compensation for employees for work performed; they are paid in addition to salary or wages.   Often business owners give out bonuses without any structured plan or objective method for determining the amount or even how the bonus can actually be earned.  Although typically given out around Christmas time, bonuses can be given out any time of the year.  

Bonuses are typically used and are a good way to recognize special efforts or performance by individual employees.   For example if an employee comes up with a good idea that saves the company a lot of money and or time, that employee might be given a monetary bonus as a reward.   The amount of the bonus is typically left up to the employer, but can also be based on some type of pre-established formula where the employee gets a certain percentage of the actual savings.

Bonuses are considered compensation if (per the IRS) they "arise out of an employment relationship or are associated with the performance of services." Bonuses are considered taxable to the employee and are considered an expense of doing business.  In most cases, bonuses are a tax benefit to the employer.

Profit Sharing

Profit Sharing is an arrangement between an employer and an employee in which the employer shares part of its profits with the employee. The key difference between a bonus and profit sharing is that there must be profit before any is shared with the employee.  

As payment under a profit sharing plan, employees can be given stocks or bonds, or cash (cash profit sharing plan).  If the profit-sharing dollars are part of an employee's retirement plan (deferred profit sharing plan), they are received at retirement rather than now, and depending on the retirement plan they may be tax-deductible. There can be eligibility requirements for profit-sharing plans.  For example, the employee may be required to work for the company for a certain period of time before he or she can partake in profit-sharing.

Three Good and One Bad Reason to Offer Profit Sharing Rather Than Bonuses

Other Business Considerations:

Keep in mind that depending on how a bonus or profit sharing is distributed the employer may incur additional costs over and above the dollar amount given to the individual employee.   Depending on the employment relationship the company has with the employee, the business may incur the expense of payroll related taxes, liability insurance and/or workers compensation insurance on the dollars paid to employees.   Its best to consult with your accountant regarding the total cost of offering a bonus or profit sharing plan before discussing with or offering either to employees.

Also, it’s a good idea to let employees know they too may have to pay payroll and income taxes on any bonuses or profit sharing they receive.

Need help?

If you’re looking to start a bonus or profit sharing plan at your remodeling business give me a call or shoot me an email.   I can help you develop a plan that works for your business as well as your employees.  Businesses that share profits often earn more profit as a result!

Remodelers, Make Sure To Pay All The Taxes You Can This Year.  Really?

The holiday season is now upon us.  For small business owners, in addition to celebrating the holidays with family and friends, it’s also the time of year to start making plans and doing budgeting for next year.  To increase your after taxes net profits next year you might want to consider paying more taxes this year.  Here is why.

At the end of September I posted a blog about the impending Fiscal Cliff.  In that blog I pointed out several ways the Fiscal Cliff decisions might affect remodeling businesses.  I also pointed out that how our country’s leadership ultimately decides to deal with the pending changes would depend quite a bit on who won the presidential election.  The election is over and President Obama will be our leader for the next four years.   With that in mind I suggest small business owners re-read that blog post and look into the list of possible tax changes that are now more likely to occur with President Obama remaining in office.

(Click here for a pretty good Fiscal Cliff summary by NPR)

A Few Ways You Might Be Affected:

The House Committee on Small Business has offered a chart on its web site to show the potential changes and affects on small businesses if the current Bush Era Tax Cuts are not extended.   Remodelers could be hit really hard because many of them are organized as “pass-through” entities, where their business gains or losses are reflected on their individual tax returns. Several that could really affect the after tax profitability for remodelers includes:

• An increase in capital gains from 15% to 20% (33% increase!)

• An increase in tax rates on business dividends received by individuals will be treated as ordinary income (higher rates) rather than as capital gains, currently 15%.

• Tax rates in the top four brackets will be increased to (from current rate): 39.6% (35%), 36% (33%), 31% (28%), 28% (25%)

• Small businesses with undistributed taxable income will no longer be taxed at the current rate on dividends (currently 15%), but rather will be taxed at the highest individual tax rate (up to 39.6%).

What To Do:

So, to limit your tax liability I suggest remodelers speak with their accountant ASAP to fully understand how the potential changes and ultimately any actual changes will affect you and your business.   Remember, profits can be used to reinvest back into your business, but you must pay tax on those profits first, leaving only the remaining profit available to invest.   The same holds true if you were planning to use business profits for other personal purposes such as paying for your children’s’ college education or buying a new home or RV.  Back when I owned my remodeling business my accountant helped me strategize how to claim certain revenues and profits in one year versus the other depending on my effective tax rate for each respective year.  By doing so in one year I saved over $20,000.00 the next year!

Make Sure You Have The Right Accountant:

There nothing worse than the feeling of working really hard to earn a profit only to find out that you could have reduced your total tax burden (and the amount of profit you get to keep) by taking advantage of simple and completely legal tax strategies.   A big lesson for me when I owned my remodeling business was making sure I had the right accountant and financial advice.   Saving money on an accountant’s fees might just cost you far more in taxes than the money you might save if you have chosen your accountant based on price rather than value, strategic advice and timely services. 

My second accountant cost me twice as much as my first.  It was well worth paying the difference because of the money I saved in taxes.  It still is!

How Will The Fiscal Cliff and the Elections Affect Remodelers?

The threat of a year-end perfect storm of expiring tax cuts and massive defense and domestic budget cuts could push the economy back into a recession.  A recent article on the Fiscal Times website offers some insight into this possible reality and points out that many voters are clueless about the cliff and are in for a shock.  Another article posted on Reuters warns the cuts could cause the loss of nearly 1 million jobs across the country.   Remodelers trying to work on business planning, marketing and budgeting for the New Year may also be in for a shock if they make decisions without first considering the cliff and the outcome of the elections. 

Making any business decisions in a down economy can be difficult and risky.  

Unfortunately in addition to a bad economy we also have a lot of uncertainty about what the government will or will not do.  I think the problem, at least for those who keep an eye on the economy and the political arena, is having any confidence in making long term investments and decisions.   The fiscal cliff could really challenge the economy if across the board cuts are made as planned. And because the current administration has not clarified or committed to what will be cut, we don’t know how or in what market areas the economy will be affected most.  Unfortunately, true discussion about all this by our elected leaders won’t even get started until after the elections.

The economy and remodeling could take quite a hit if our politicians can’t come to an agreement.  And, even if they do come to an agreement, what will it be and how will it affect the economy?  If it gets pushed off into the future again, it will leave all businesses including remodelers in this unconfident position for a long time.  If consumers remain unconfident, and or get laid off as a result of the cliff, they probably won’t be spending money on remodeling.

Remodelers need to be very cautious about investing in capital assets.   

If the current tax deductions for capital asset purchases go away, the cost of those assets will in effect increase.   Waiting to make such purchases is a gamble.  If remodelers invest in capital assets now before the deduction possibly goes away, the question to ask is whether they will be able to meet the payments on those assets and or actually be able to make use of them if the economy does not improve or gets worse?  If they wait to see what happens they may miss out on the tax savings if the deductions are eliminated.  Making the right decision is hard without knowing who will be elected or which party will be in control after the election.

Should remodelers consider hiring more staff if they are seeing a work backlog building up?  

In my opinion, as long as they are selling work at a price that meets their overhead costs, remodelers must decide if they will use the gross profit to hire office and management staff and reduce their workload, hours and or stress; or work all those hours and keep the gross profit as their own compensation.   On the other hand if they are not selling at prices high enough to support the overhead, hiring more staff or buying more assets are not sound financial options.  I suggest waiting to see what happens with the elections and the cliff before making any long term business investments.   If you have money you are willing to invest, I suggest using it to improve your marketing and sales skills.   Those are investments that can help a business regardless of the economy and can even give you an advantage over your competition when it comes to capturing the limited amount of work available during a down economy.