The “When to Grow?” Challenge
I’ve been talking to dozens of our members over the last couple of weeks and 95% of these remodeling company owners tell me that business is up, backlog is building, and they are very optimistic about 2012. This is great news as it means personal income will rise again, profits will be generated, and new options will be available. One of the options that business owners will be considering as the market continues to improve, is whether or not to grow the company to an entirely new level.
Below, Remodelers Advantage founder, Linda Case, discusses the challenges and the opportunities that come with significant growth. Are you ready?
The “When to Grow?” Challenge
This may seem a strange question when so many remodelers have shrunk because of these economic times but there will be a time when you wonder “Should I grow my company?”
Many folks want to know the best way to grow quickly. There actually are a number of routes. You could raise your average job size, which for many companies can be the simplest and least disturbing. You could add a new profit center, increase your geographical area, or just do more of the type of work you already do. You could join forces with another company, which can work but may be the most problematic way of all to grow. You are adding the complexity of working with a new partner to the complexity of growth. Your company cultures may be quite different. Spend lots of time talking through all the issues of partnership and know that you will still be surprised when some you haven’t discussed, arise.
So the question of how to grow your company is not just by selling more but could also be by selling different or bigger. You do want to account for the distraction of trying to start a new division – it will take away from your focus on your base business and can be damaging. So be sure you have those proverbial ducks in a row, have done the requisite planning and “what if” scenarios before you head out to conquer new territory.
We get asked “What are the caution signals that would say slow down and get your house in order before you grow substantially?” If you are planning a greater than 10-15% growth in one year, make sure you’ve conquered this list of cautions:
- Your company does not consistently reach an annual net profit of 5% or more. A remodeler has to learn the recipe that leads to consistent profitability. Growing more than 15% will be disruptive (not necessarily bad) and you are unlikely to do much infrastructure improvement while experiencing fast growth so learn to make money before you head out.
- Your company has poor infrastructure. Your employees are not harnessed to work toward company goals. Accountability is weak. Systems are spotty. Many times, the company is held together by what is in the owner’s head. As you grow this will break down with an increase in errors, decrease in profitability and a dropping satisfaction level for clients.
- You do not have a strategic plan and vision for the business. You don’t know where you are going.
- You are not managing by the numbers using accurate P&L’s, balance sheets, job-cost reports, and budgets. Without these numbers, you will have difficulty spotting trends and keeping your finger on what is working and what is not.
- You are not using a professional level markup—most likely in the 50% to 67% range resulting in a 33%-40% gross profit to cover overhead and net profit. This markup is what you will need to buy the increased overhead growth will demand and allow for a net profit each year.
Many business experts feel that if you grow without getting rid of the above problems, that your “baggage” will substantially increase your risk of failure.
As your market improves or as your market share increases you are likely to begin thinking about how to expand. What are some of the signals that might give you a green light to increasing volume substantially?
- The market is signaling that it will support your growth. You have strong leads and a good backlog of work in the 3-to-6-month range. The economic outlook in your community is bright.
- Your company is thriving at its current level.
- A larger company will fit your vision both personally and professionally.
- You have staff ready to grow, willing to grow, and craving the career advancement that comes from growth.
- As owner, you can and will delegate. You will be able to see your primary role as coaching the team. You have a key management team in place that meets regularly to work on the business.
- Your business approaches each new challenge by creating a plan and looking at what the pros and cons of taking that step might be. You don’t make big impulsive moves that could put the company at risk.
Growth is an exciting adventure into new territory. Just be sure you are as prepared as you possibly can be.
If you are planning significant growth, then be a smart entrepreneur and learn from the experiences of others who have already grown successfully– and avoid the pitfalls that can cost you thousands of dollars and hours upon hours of hard, unprofitable work.
Join the dozens of savvy business owners who are a part of Remodelers Advantage Roundtables™, the remodeling industry’s largest peer group. Members of Roundtables™ drill deep into the successful practices of each company and share the best they have to offer. By analyzing hard numbers–the performance metrics of each business–members uncover best practices that drive profitable sales, build strong teams, and deliver the ultimate customer experience. Want to learn how Roundtables™ can help you? Give us a call at 301-490-5620 to learn more today. There’s no obligation so very little to lose . . . and so much to gain! www.RemodelersAdvantage.com