Qualified Remodeler Magazine

APR 2016

Qualified Remodeler helps independent remodeling firms to survive, become more professional and more profitable by providing must-have business information, namely best business practices, new product information and timely design ideas.

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change orders, (paid for when negotiated), and prompt collection of "balance due" when the job is substantially completed, it becomes more workable. Instead, we fnd numerous cases where a job is completed and a balance remains unpaid. Litigation is lengthy and costly — settlements often wipe out the proft, and the virtually uncollectable balance leads owners to pay taxes on a "re- ceivable" if "accrual" accounting is utilized. NOTE: The use of the phrase "substantial- ly completed" is a variation from the use of e x p e r i e n c e . He star ts a business with a few salespeo- ple. They do $2.5 million in their first year and end with 7 percent pre- tax net proft (that's $175,0 0 0), wh ic h means the company will spend (labor, mate- rial and operating expens- es) $2,300,000. That's over $190,000 a month, or slightly under $49,000 per week. Some companies have accomplished this with less than $10,000 as an original investment; however, the majority of companies who attempt this don't make it or continually struggle. Companies seldom grow on their cash fow accumulations. In each example, estimated net proftabil- ity was 7 percent, which would be subject to federal and state taxes where applicable. All the while, these companies are attempt- ing to grow without sufcient cash to make it workable. With efective (within the law) use of deposits, progressive payments, WHAT they have in common is that they are entrepreneurs. They make things happen and create business utilizing creativity and intuitive judgment. This often makes them comfortable, if not necessarily successful. Most owners of home improvement/re- modeling companies lack experience in structuring and managing the "back end" of the business. The majority struggle with "working capital" issues. This often started when the business was established and con- tinued as the business grew. Many companies operate at a proftable level, yet have not increased their work- ing capital to accommodate growth. Start-up companies often do so with little capital and a lot of "sweat equity." "Cash fow" can create an immediate problem. Suppose the business produces $1 million in revenue and earned 7 percent pretax net proft in the frst year. That means they spent $930,000 in labor, material and operating ex- penses. That's $77,500 per month (or slightly less than $20,000 a week). Seldom does the average entrepreneur research this "need" and create a plan to make it workable. Success can be disarming and often a costly experience. Example: an owner who came out of a sales role with some marketing Cash Flow — A Curse for Small Business The average home improvement/ remodeling company is often owned by someone who worked for another home improvement company prior to starting their own business. Many were installers. Some were in the sales and marketing role. By Dave Yoho 68 SPECIAL SECTION: HOME IMPROVEMENT PRO | April 2016 QR QualifiedRemodeler.com

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