Prior to 2009, things were on the up-and-up at Capital Improvements of Allen, Texas. In 2006 the company broke the $1 million ceiling; then in 2008, the company went on to bring in $2.3 million in gross sales. However, by the first quarter of 2009, reality started to set in and some hard decisions had to be made.
“Looking back, by the end of 2008, we were running hard and fast,” says Paul J. Zuch, CR, CGB, president of Capital Improvements and NARI. “I think because we ramped up our volume over those couple of years we had really started to lose our grip over controlling our job costs. In 2008 we saw our job costs at 75 percent — and that was a pretty serious problem.”
Once the size of Capital Improvements’ jobs started to shrink, the company knew its market was changing. Before, the company’s average job size ranged from between $250,000 and $750,000; suddenly, it dropped down to between $100,000 and $150,000.
"If you don’t have a handle on [costs], and you get to the end of the year and you’re off — you’re toast."
“One thing that I learned in this new economy is that I couldn’t up-sell clients,” explains Zuch.
“Reflecting back, what really jumped out at me was that in 2008 we did $2.3 million in gross sales with a 25 percent gross profit,” says Zuch. “In 2009, our sales were off 52 percent, but our job costs were down 66 percent and our gross profit was up to 34 percent.”
The best way to identify looming problems and revenue shortfalls is to objectively look at your budget and address issues before it’s too late. Figure out a budget and know what those numbers need to be — particularly percentage of gross sales — determine what the job cost percentage needs to be; what the target gross and net profit will be.
“Waiting six months or until the third quarter to figure out where you stand is probably too late,” says Zuch. “If you don’t have a handle on that, and you get to the end of the year and you’re off — you’re toast.
“We got as lean as we possibly could to control our overhead and we really watched what we were doing,” Zuch says. “
Zuch also suggests being upfront and transparent with employees about the business numbers. Employees already have an idea of what is going on and will appreciate the honesty.
One of most difficult decisions for any business owner during a downturn is cutting key staff. A lot of those people may have been around for years and may be considered family, but it doesn’t do anybody any good if employees are retained too long and there’s no company around to support them when things do turn around.
“One of the mistakes I made during (the early days of the recession) was hanging onto a couple of key people for too long, just kind of betting on jobs coming in and that Pollyanna attitude,” explains Zuch. “I thought our longevity, our great reputation and our clientele, who largely were unaffected by what is going on in the economy, would keep us going. That was a huge mistake.”
In 2009, another initiative on Capital Improvements’ agenda was to focus on producing every job at or under budget. Although it was difficult to handle the greater amount of jobs, Zuch told his crew that it was really important to make sure they controlled the job costs if the company was going to survive. The net result was that Capital Improvements did $1.1 million less in volume in 2009, but the gross profit was the same.
Remodelers should seek to tap into the outside resources or a third party who can help them through this process or to look at your company with a fresh set of eyes.
Certainly trade magazines are a great way to find information at no cost to the remodeler. In addition, being part of trade associations such as NARI is a great way to exchange information with contractors about what’s really going on in your market.
“Now more than ever, it’s important to be a part of something more than yourself,” says Zuch. “Join a trade association and business networks to share information amongst peers and keep your business running. We can’t afford to be out on an island by ourselves.”