The Design Builder's Blog

How Remodelers Can Make More Money; If They Have Good Cash Flow

Making more money as a remodeler

As a remodeling or Design/Build business grows, managing cash flow becomes extremely important, maybe even critical to continued operations. The business owner or manager soon becomes a money manager by default. As this happens, there may be opportunities for the business to earn more money by using the money it already has in a strategic way.

Good cash flow is an assumption of my suggestions

Many Design/Build and remodeling companies put all the money collected from sales in one checking account. The funds are then used to pay for the expenses of producing projects (direct costs) as well as the operational costs of the business (overhead). Typically businesses leave any excess of money (net profit) in the same account as well.  If this is how your business is operating, meaning you actually have excess funds to contribute to profit, you have what can be referred to as good cash flow.  If this isn’t happening already at your business I suggest you stop reading this blog and read this one first.

Accrual accounting can help you predict excess funds

If the business’ financial system includes the ability to predict income and expenses on a monthly basis, the cash flow needs for that month can be easily determined in advance. Any excess of cash that would normally remain in the account could also be anticipated and create an opportunity to earn additional profits. In order to actually qualify what is excess cash over and above monthly expenses, the accounting system should be run on an accrual basis, not a cash basis. By using the accrual method of accounting, expenses are recognized as they occur, even if the expense has not yet been paid for. Income is recognized when the customer is billed, even if payment has not yet been received.  Income and expenses are then tracked by the exact day they are to be collected or are due respectively.  By tracking the income and expenses in this way, one can easily predict the money that will be owed at a certain given time as well as how much money will be available to pay for those expenses at the time the expenses become due.

You will need a second account for your money

If your accounting system predicts you will have excess funds, consider opening a second interest-bearing account where any excess monthly funds could be deposited.  The amount of interest this second account could earn depends on how long the money will stay there. Typically, the longer the commitment to leaving the money in the account without having to access it, the higher the interest rate a bank would offer. Interest rates on these account types may seem low, especially in the current market, but over the course of a year a significant amount of money you wouldn’t otherwise earn could be added to your bottom line.

I also suggest that this second account and your primary business account are with the same bank. By working with the same bank, transferring of funds between accounts can be instantaneous. There will be no need to wait for checks to clear between banks. Also, most banks now offer electronic banking using the internet. This can eliminate the need to even leave your office or the job site when making transfers between accounts. On-line banking services can be used to be sure the money is actually available in a “just in time” fashion.

A word of caution!

Before you consider using any of my suggestions, be sure they make sense for you and you understand the legal and or tax implications for you and your business.  I suggest that you always be sure to consult with your accountant, tax adviser and or other appropriate counsel before trying any new strategies, including those described in this blog.

If you have been use this or a similar strategy, be sure to share your experiences in the comment section below.  Other remodelers and Design/Builders looking to earn more money could benefit from what you have to offer!

Three Considerations for Controlling the Destiny of Your Remodeling Business

Many remodelers start their business with little real planning or consideration for the future other than to grow the business and make money.   For many this tends to work out alright, particularly during a good economy.  But the current recession has definitely exposed to remodeling business owners some of the natural consequences that come along with a lack of a long term vision for their businesses. A couple of obvious examples might include the current cost of excessive overhead accumulated when work was strong, and the overwhelming workload and responsibilities the business owner had to absorb due to staff layoffs.   However, an anticipated improvement in our economy offers an ideal time for businesses owners to rethink how they will move their businesses forward as the economy eventually improves.  Planning for the future now can definitely put you on a much better path and using what you have learned in business so far makes that planning much easier and more likely to protect your business when the next recession shows up.

This summer I will be participating in several Remodeler Summits sponsored by Marvin Windows and Doors to be held at their training center in Warroad MN.  As part of the Summits I will be presenting seminars to attendees to help them strategically grow their businesses.  Here are three things I will be asking the attendees consider about themselves and their businesses before new opportunities for business growth appear as the economy and the remodeling market improves.

(1) Are you an Entrepreneur or a Craftsperson?

This should be your first consideration.  Be honest with yourself.  Do you really want to be a business owner running and growing a business where your role is to develop your business so it creates the opportunity for employees and subs to perform the work, or is your love for the tools and craftsmanship what motivates you to go to work each day?  Either one can be a good choice, but the business you build will be dramatically different depending on your choice.  If you choose the craftsman route be sure to consider your age and health; now and in the future.   Will your body be able to handle the work type your business sells as you get closer to retirement age?   Also, as you age, will you be able to maintain the productivity required to earn the money you need to live and eventually retire?

(2) Will you hire to complement your skills or to maintain your authority?

Regardless of your choice to the consideration above, few business owners can know and or do everything needed to run a profitable business and still have a life outside work.   When seeking to add new employees, consider how you chose your previous employees.   Did you hire people who required constant supervision and instruction, or did you hire people who added skills and knowledge to your business that you didn’t have yourself?   Who you hire going forward will make a big difference in regards to what you will have to do yourself and how much of your time will be spent where.

(3) Will yours be a Practice or a  Growing Business?

A business that is a practice depends on the participation and the skills of the owner every day.  If the owner is on vacation or can’t come to work for any reason the business stops operating very quickly.  If you plan to run your business as a practice keep this reality in mind.   Your ability, as well as your employees’ abilities, to pay the mortgage and feed the kids can quickly become compromised.   Be sure to consider options like disability insurance and a reserve fund to protect yourself.  If you plan on growing your business be sure to take the two considerations above very seriously.  Also, make sure you choose employees with the cognitive abilities and desire to grow with your business.

There are two schools of thought regarding destiny

Destiny is often seen as either a fixed sequence of events that is inevitable and unchangeable, or that individuals choose their own destiny by choosing different paths throughout their life.  Marvin Windows and Doors is helping contractors shape the destiny of their businesses.   How about you:

Will you let destiny happen for you and your business?

Are you shaping your destiny on your own?

Are you getting help shaping your destiny, and if so, who's helping you?

Please share your comments and thoughts.   Other contractors looking for options could benefit from what you have to offer!

Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

Benefits of Rethinking Your Estimating and Job Costing Approach 

What functions should an estimate serve on a fixed/contract price job?

Pricing
The cost of the job determines the price of the job, so knowing the costs allows you to generate a sale price.

Job Costing
The estimate can function like a budget for both time and costs.

In order to price and job cost accurately, the estimate needs a lot of detail. If you (oops!) forget to include windows or a toilet, your only choices are (a) go back to the customer, admit your mistake, and hope he accepts the revised price or (b) eat the cost.

Also, sharing a highly detailed estimate with the project’s lead carpenter can help limit questions from the field back to the office.

But the same high level of detail that can save you when pricing and producing the job can get in your way if you attempt to job cost at that same level of detail. As a QuickBooks ProAdvisor working with literally hundreds of contractors, I have seen two common categories of errors:

Job costing at too high a level of detail can be a problem

Contractors who try to job cost inside QuickBooks at the level of 2x6’s and specific products (Kohler faucet K-13490-CP) produce three problems:

1. Your project manager and bookkeeper will waste time coding out every little line item on a vendor’s bill.
2. The more opportunity for choice, the more likelihood of misclassifying things. Highly detailed job cost reports actually have a greater chance of being inaccurate on a category-by-category basis.
3. Your job cost reports will be so lengthy and complex that you’ll lose the forest for the trees.

Job costing using apples and oranges?

Contractors who continually add job-specific line items in QuickBooks invoices (ex: “repair Jones front porch step”, “Replace damaged shower tile”, “Add backsplash”) produce these two problems:

1. They create a disconnect between the categories used for estimating (apples) and those use for job costing (oranges), making it virtually impossible to compare common estimated and actual categories
2. They create an ever-increasing list of job-specific categories inside QuickBooks with single-use history   

How to do it right

Instead, estimate at a high level of detail but create a way to subtotal these into categories that you use consistently, will be relatively simple to code, and will produce reports that allow you to perform a side-by-side comparison of estimated and actual costs.

For those using a customized spreadsheet for estimating, the process might look like this:

The summarized categories with costs can then be entered in your accounting software and job costed using the same categories. Doing this will keep your cost categories consistent and provide apples to apples comparison.

Guest Blogger: Spencer Powell, Inbound Marketing Director at TMR Direct.  Spencer joined TMR Direct to spearhead their social media marketing efforts and to assist clients who want to implement social media marketing campaigns.  He also specializes in helping builders and remodelers who are frustrated with the lack of leads they are getting from their current websites.  Recently Shawn and Spencer have teamed up to help several of Shawn’s consulting clients.  First, Shawn helps remodelers strategically identify and decide their target customer(s), project type(s) and niche(s).   As an Inbound Marketing Certified Professional, Spencer and his team then help remodelers get found by their targeted prospects on the web. 

How Your Website Can Get You Involved in the Homeowner's Sales Cycle

Just think about it for a second.  That's how you find EVERYTHING today.  Yes, I'm talking about Google.  If you're looking for a product or service, there's a good chance the first place you'll go is the web.  This is where your research process begins.  Well, it's the same for homeowners who are looking to remodel their kitchen, bathroom or any other part of their home.

Helpful information is key

So, how can you ensure that you'll be a part of their research process...and how can your website help you do that?  There are a few factors that we want to look at.  First, your website needs to have lots of helpful information that your prospect might be looking for.  This could be information on the process of going through the design phase.  It could be warning signs to look out for when selecting a contractor.  It could be information on cost and why certain things cost more or less.  It could be information on change orders.  Think about it.  The more information you can provide to your prospects, the fewer questions they'll have when they contact you. 

BUT...most importantly you'll position yourself as a trusted advisor in your industry because you're the one helping them make an important decision.

Google LOVES content

In addition to becoming a trusted advisor, the more content you create on your website, the more chances you have to actually get found in search engines like Google.  Google LOVES content, so the more you create, the more you'll be found.  Just think of your website like a planet.  The more pages and articles you create, the bigger the planet gets, and the more gravitational pull it has.  So, you'll be pulling in more web visitors. 

Once you have more prospects coming to your website because of the content, you'll notice that your website actually helps you get heavily involved in the homeowner sales cycle because you're helping them with their research.  In addition, your information doesn't all have to be readily available.  It's a good idea to have and offer much more in-depth information that a visitor can download.  This might be in the form of an eBook like "10 Kitchen Design Trends for 2012".  However, in exchange for being able to download it, they need to provide their Name, Email, Phone Number and Zip Code.

Once captured, nurture those leads!

Now you're in great position to solidify your company as one of their options for helping them achieve their goal.  This is where lead nurturing comes into play.  Lead nurturing is simply sending out helpful emails with more information that helps your prospect do research.  These emails allow you to stay in touch with the prospect all the way through the sales cycle.  How to execute a lead nurturing campaign is the topic for another post, but are you starting to see how your website can really get you involved in the homeowner sales cycle?

What are YOUR thoughts on this?  Are any of you using your websites to participate in your prospects’ sales cycles?

Characteristics That Separate Successful Design/Builders From Other Business Models Include:

• An experienced Management Team that has created and follows a strategic and sustainable business plan, implements industry best practices and continuously identifies and mentors strong leadership within the team in each department.

• A strong Financial System that that predicts, tracks and analyzes the cost of doing business and producing projects, and includes an estimating system that facilitates timely and accurate "What-if" project pricing abilities during the entire design process.

• A Marketing System and Strategy that identifies and attracts targeted prospects qualified to do business with the Design/Builder and helps them discover the unique values and advantages of the Design/Build project delivery method.

• An established and tested Sales System used and or supported by all employees which prequalifies that a prospect's purpose, budget and decision making process is a match with the Design/Builder's Business model and provides a consistent approach and results for those prospects who become clients.

• A Design System that properly identifies and documents the information needed by the client as well as the Design/Builder's project team and serves as a communication tool to make sure the design and final project serve the client's purposes within the agreed budget and timeline

• A Communication System and Process that uses technology to create, capture, manage, and distribute timely and accurate business and project information between team members, trade partners, design professionals and the client in a way that manages and meets established expectations.

• A Production System that produces a quality project and experience for all of the parties involved within the established budget and puts management of the project at the jobsite and in the hands of a qualified Lead Carpenter and or Project Manager.

• A Personnel System that identifies, attracts, advances, recognizes and rewards those employees who best support a true Design/Build Business model and project delivery system.

If you are looking for help or training to create or switch over to a Design/Build Business Model contact Shawn today.  Will you be ready when the economy improves and there is money to be made?

"The topics you touched on yesterday really hit home and the light bulb has gone off!
We will take this information and start to apply to our business immediately."

David Haney, Dave Haney - Custom Woodworking

Going From Carpenter to Businessman as a Remodeler

I received the follow question from a carpenter via the send a message function of my web site:

“Where is a good start for a carpenter to become a business man as a remodeler?”

Here is my reply:

Bruce:

Thanks for your question.   It’s a great one! I’m glad you are asking before you start out on your own.  That makes you very different than most. 

I suggest you find a mentor to help you get started.   Find a person who has done it before so they have the experience and knowledge to guide you.   Even if you have to pay this person it will end up being an investment that can be quickly paid off if you do your part because you will get going toward success much faster and will save a lot of money in tuition at the lumberyard school of hard knocks.

One of my current remodeler clients got his parents to finance the coaching and mentoring I am giving him to help him get going.   We prepare reports for him to share with his parents so they can see how the money is invested and so they can see how he is doing regarding actual profitability against the plans and budget I have been helping him with.  In actuality it’s the same information any business owner needs to know how the business is doing.  It’s the same information a bank would want to see if it loaned you the money.

 Thinking about and planning what you will do before you get going is critical.   

Consider this: "You can either set up what you want to have happen or you can settle for what you get."

For a good overview see if you can find the book below.  It’s an old one that is out of print, and some of it is dated, but I think if you read it you will get a lot of good info to consider before you get started.  Try Amazon to find it.

Professional Remodeling Management

By Walter Stoeppelwerth

Using the book as a guide, find out about all the legal requirements, insurances and all the overhead costs you will have before you start.   That’s what I did before I started my business.   Then, do a budget so you will know what to expect for costs and what markup to use so you don’t guess at it.

 Keep in mind, 9 out of 10 contractors will fail within 10 years.   You can beat the odds by doing your homework before getting going.

Keep me posted about how you are making out.  Let me know if I can help.

The Design/Build Remodeler’s 10 Step Plan For Long Term Success

A long time ago a remodeler in my NARI Chapter who was just starting his business asked me for advice about how he too could have a successful and profitable business.   Seeking to keep my response simple and to the point I came up with a list of nine steps.   When I was explaining my list to him he asked where he would find the time to do all these things.  He said he was already straight out trying to sell and complete work.   That’s when I added step number one to the ten step list below. 

Success won’t happen by accident.  If you are disappointed with your level of success use the list below to help identify what you need to do to get your business on the path to planned success.

Recharge Your Batteries!

Step ten might be the most important.  Unless you take time to recharge your batteries they will go dead.  My experience has shown me that business owners get a lot more done and can remain positive even during challenging times if they take the time to reward themselves for all their hard work and effort.

“To get to the next level in your life will require a higher level of thinking than the level of thinking that got you where you are”   Thomas Edison

The 10 Step Plan For Success

1. Make time to create and implement your plan.
2. Establish your criteria for personal and financial success.
3. Establish an obtainable volume of sales for the coming year.
4. Create a budget based on historic information.  Adjust as needed to achieve current goals.
5. Establish the Mark-up required to provide planned gross profit.
6. Accurately estimate project costs and mark-up as planned.
7. Find your customers and sell them projects at the price required to obtain planned gross profit.
8. Monitor production and overhead expenses.
9. Adjust business as needed to maintain path to planned net profit.
10. Enjoy planned personal and financial success.