Working with a remodeler client recently, I thought his business looked pretty good until we got to the financials. QuickBooks reports revealed that he had lost more than $60,000 the previous year. He was stunned. Worse, he had already sold a significant amount of work for the current year using the old pricing strategy.
I think this revelation came to him like a “two-inch heart attack.” If it has happened to you, you'll know what I mean: You're on a staging, walking sideways from one end of the building toward the other. When you step off one plank onto the next, you're startled by the two-inch drop. It feels like 30 feet because you didn't expect it. You'll never forget that feeling in your heart.
I believe this remodeler was in shock when he left our meeting. The silver lining, I tried to explain, was that the damage could have been much worse. His financial reality check was like living through a real heart attack and gaining the impetus to fix the problem and prevent it from happening again. If the problem had gone undetected, the consequences could have been more serious
Many times I have heard business owners say, “This wouldn't happen to my business.” And they are still surprised when it does happen.
DRUGS OR LIFESTYLE? If you've ever had a two-inch heart attack, I suggest you identify the root problem and make changes to your “business lifestyle,” just as you would make lifestyle changes after suffering a true heart attack.
Tackle the problem head-on. Band Aids won't fix the issue, nor will the equivalent of drugs alone. In a financial crisis, for example, you may need to establish a line of credit as a temporary fix. That's like taking drugs to keep you alive for a while by bringing your cholesterol level and blood pressure to healthier levels. If you can avoid being on drugs forever, it's probably a good idea to do so. Similarly, a line of credit is not the ultimate solution to paying bills and operating a business.
DIET AND EXERCISE Perhaps you don't watch your numbers during the year because you're so busy working. Often contractors who are losing money, and don't know why, work harder to make money faster and pay yesterday's bills. But they don't necessarily bring in more money. They pay yesterday's bills using money they'll need to pay tomorrow's bills.
The underlying problem remains. Whatever caused the cash shortfall is still there, and it's still bleeding. This is like taking up exercise while still eating the foods that are so bad for your heart.
Instead, if you're losing money or are short of cash, find out why. Perhaps you need to consume fewer calories, i.e., cut project costs or overhead. Maybe your calories are right but your timing is wrong. Look at your payment schedules: Do they provide the money for you to pay your bills as and when you need to? Maybe you have the right payment schedules, but you don't bill clients in a timely fashion.
Maybe the problem is clients, and you need new ones who pay on time. Maybe you're not charging enough because you don't know how much you should be charging!
WARM UP A final word of caution before undertaking a radically new business regimen: Warm up first.
Create a budget to predict the costs of maintaining your good business health, and plan a diet that will support that goal. Use both a profit-and-loss statement and a balance sheet and understand how they work together. You'll soon know whether you're making money, where the problems are, and when the heart attack might be coming. It should never be a surprise.
—Shawn McCadden founded, operated, and sold a successful design/build remodeling business. A co-founder of the Residential Design/Build Institute and former director of education for a national K&B remodeling franchise, Shawn frequently speaks at industry events and consults with remodeling companies. [email protected].
