Archive for the ‘Financial Management’ Category

PowerTip: How Much Is Your Remodeling Business Worth?

Tuesday, May 1st, 2012 by victoria

Want to Sell Your Remodeling Business Someday? Read This First.

“Sometimes the hardest part of running a business is selling it.”

WALL STREET JOURNAL

Remodelers frequently begin to think about the value of their remodeling company when they consider retirement and want the money a sale would generate to help fund their retirement lifestyle. In the majority of cases, this is too late! If you want to sell your business, you need to start early and stay focused!

Some companies are more sell-able than others. Remodeling companies that sell for high value have these things in common:

  • A management team of superstars. Top level employees are worth their weight in gold.
  • Use of systems in all aspects of their business– so that the owner is not the source of all information.
  • Increased bench strength in the sales arena. In other words, there are others selling besides the owner. If the owner is the only source of sales and the owner leaves when the business is sold, there will be a gaping hole in the sales department.

for-sale-sign

If you have worked hard to build a sell-able company and have these elements in place, the first step in moving forward is to hire a business valuation expert to help you determine the value of your business.

In actuality, there are a number of other occasions that also call for an accurate, objective, third-party evaluation of your company, like:

1. Settling divorce distributions

2. Breaking up a partnership

3. Buying insurance to fund a buy-sell agreement

4. Planning your estate

5. Buying a shareholder’s interest in the company

6. Establishing value incase of disaster

7. Applying for a loan

8. Learning what changes you should make to the company before putting it on the market

So, if you’re facing one of these occasions, here are some things to consider:

Is Selling My Remodeling Company a Viable Goal?

Yes and no. Certainly sales of small companies do happen but they don’t happen frequently or easily.  I’ve been in the business for over 20 years and can still count on my fingers the number of remodeling companies that have been sold successfully (I’m not counting family businesses which sell to second or third generations for pennies.)

Several years ago, INC. Magazine noted that

“It may be that if, and when, many small companies do sell, the reason is not the state of the economy but the companies’ success in managing to track down a buyer who’s a lot like the seller, with the same goals and interests but just a little more money to invest and a few more years to go until retirement.”

However, by carefully preparing your company for sale, and by understanding the business marketplace, you will increase your chances of selling your company for top dollar.

How Will I Know What the Selling Price Should Be?

Nine hundred ninety-nine remodelers out of 1000 don’t know the worth of their business. If forced to guess, most (if they follow the pattern of entrepreneurs in general) would guess too high and some would guess too low a value. Yet they’ll spend 60 hours a week, 52 weeks a year for 30 years investing money and sweat in the business without thinking whether they are building value for the future. As you begin to think about selling your company, find an objective expert to help you value it. There are many factors and lots of expertise that go into setting a price.

Where Do I Find the Right Valuation Expert?

Valuations have lots of uses including helping you to target weak areas in your company. By making changes to strengthen those weak areas you can add significantly to company value. For this reason experts advise starting to prepare your company for sale 3-5 years before it goes on the market. A major part of this preparation is finding and hiring an expert in valuation to analyze the company and advise you. Start by asking your accountant, banker and lawyer. They may know an expert with whom they have worked in the past. Look into the organizations that certify Business Valuation experts. Keep searching until you find someone with experience valuing entrepreneurial businesses—preferably remodeling companies!

Can I Value My Company Myself?

Not really. Unless you are very experienced in valuing businesses, we strongly recommend that you use an outside third party to help you maximize the value you will receive.

However, for a fun, totally non-scientific look at the value of your business, download this simplified (in fact dangerously simplified!) worksheet based on methods used by experts. This will give you a very rough idea of the value of your remodeling business.

For another resource, here is a great article from the Wall Street Journal.

Next time, we’ll talk about actions you can take now to add more value—and sell-ability—to your remodeling company.

Posted in Business Management, Financial Management, Leadership | No Comments »

PowerTip: Characteristics of Successful Companies

Tuesday, October 18th, 2011 by victoria

Even though we have several weeks still in October, it’s time to begin planning for 2012. We believe strongly that the companies who plan are the companies who are most successful. Just like planning and preparation are the keys to bringing a job in on time and on budget, so are they the keys to a successful company.

Remodelers Advantage founder, Linda Case, and I just completed a seminar on Targetting Profitability at The Remodeling Show in Chicago and we highlighted several characteristics that we see in the most successful of our many members. Here’s our list.

You and all your staff are Committed to “live within the company means.” This means creating a budget and sticking to it!

You have an adequate Markup policy applied to all jobs and change orders. You’ve proven your plan on paper and are confident that your company’s pricing policy will deliver every one of the gross profit dollars your company needs in the coming year. Once you know that the plan is workable, stick to it! Understand that each time you sell a job for less Gross Profit than your plan says you need, you’re taking one step away from a successful year.

Your company has a bias toward Planning before taking major actions.  Like we said above, the companies that plan are the companies that have the most profit, are the most efficient, and have employees that are happier. It’s the thrashing around without a plan that adds stress and anxiety for everyone.

Your company has a proven ability to Implement across the company. It’s fabulous to have the ability to come up with ideas and direction but only if you can implement the tactics that actually bring an idea to life. At each meeting, wrap it up by reviewing the action items, who is reponsible, and the deadline agreed upon.

? Your culture includes Accountability for results on the part of every team member. Give responsibility to your team members and hold them accountable for making things happen. This doesn’t mean abdicating your responsibility — it means training, monitoring, and helping your top team members focus on the most important activities and meet their commitments.

You have built a company culture that embraces Continuous Improvement. One thing I’ve learned since being a business owner is that this is a journey, not a destination. We are always looking for ways that we can deliver more value to our members. You and your staff should be doing the same.

You have key Information feedback loops in place. These feedback mechanisms are typically an array of accurate and timely reports which deliver exactly the  information that helps you make the best decisions for the company. The reports you should be reviewing regularly begin with. . .

  • Profit and Loss Statement
  • Budget to Actual Reports
  • Balance Sheet
  • Marketing Statistics
  • Job Cost Report(s)

And there are many more that you may find very useful. This is just a start.  You may not have any of these available to you now but that shouldn’t stop you from getting started.  To me, the most important starting point is also the most important report you can create and that’s your Company Budget. Without this important planning document, your results will be a shadow of what’s possible.

Start today to embrace your role as a business owner and begin creating your 2012 budget (if you haven’t already).

If you’re ready to take your business to the next level — or if you’re a business owner who’s tired of working alone –it’s time to join a group of smart business owners who are facing the same challenges you are.  Whether you’ve been in the business 20+ years and want to talk business with other experienced business owners . . . or if you’re just starting and want to share with other young entrepreneurs, we have the group for you. That’s the beauty of having the industry’s largest, longest-running peer group for motivated remodeling company owners! Give us a call today to learn how you can join us. 301-490-5620 X106

Posted in Business Growth, Business Management, Financial Management, Leadership, Why Join a Peer Group | No Comments »

PowerTip: Your #1 Tool for Maximizing Profits

Tuesday, September 6th, 2011 by victoria

Judith Miller is known as the industry’s “numbers” expert.  She uses her in-depth knowledge of remodeling company operations and financial statements to help remodeling company owners “own” the numbers of their businesses and make improvements from what they find.  Judith believes that a deep understanding of company financials is the foundation for consistent, long term success. We agree.  Below, Judith shares her thoughts on how to identify priority areas for your continual improvement efforts.

Over the years of working with remodeling contractors, some simple patterns have become apparent.  One remodeler’s strong interest in people leads to success in sales.  Another’s love for design produces award-winning projects.  Both companies can enjoy a certain level of success and stability over time.

But to develop a larger company complete with beautiful office space, internal staff and consistent profitability sufficient to develop a nest egg for retirement demands an owner with another attribute – a love of numbers.

Only by digging through job cost reports, understanding financial statements and developing trend-lines for current concerns can an owner truly understand, protect and forecast company profitability. Your financial statements are truly your #1 tool for maximizing profits.

Embracing this role is not a task for the faint-hearted;  neither can it be delegated in the early stages of company development.  The owner must understand certain vital components of the business and measure them continually.

To many whose interests lie elsewhere, the task seems overwhelming.  But long-term success rests on determining not just what to measure, but when.  Some indicators, such as cash flow, merit weekly tracking, others, such as gross profit margin, are job dependent so are measured throughout the course of a project.   Monthly and quarterly tracking suffice for still others, such as accounts receivable and payable turnover ratios.

Certain problems quickly point out where you should put your focus:

  • If vendors and subs continue to hound you for payment, then maximizing cash flow should be your number one priority.
  • If your produced gross profit margin is always more than 2 or 3 points different from what was estimated (either way), then an in-depth look at estimating and production jumps to the top spot on the priority list.
  • When sales are erratic and you complete one job only to wait for the next, marketing–including the analysis of lead flow and closing ratios– bears scrutiny.

Just as the emergency room crew determines which patient to handle first, you must learn to use your financials and other performance metrics to  identify which problem should have top priority and then perform ‘triage’ on that area quickly.  Triage looks at the current situation, establishes relative importance and operates ‘first on the worst’, then moves on to the next. It’s a never ending cycle that continues the life of your business – just as one variable is stabilized, another takes on greater importance.

The result of this focus on continual improvement is company performance that improves and improves, delivering greater stability, greater profits, and greater results overall.  Treat this process with the importance it deserves and you will earn the life you deserve.

Posted in Administration and Human Resources, Business Management, Financial Management, Leadership | No Comments »