Risk Can Really Bite

People who cover an industry as journalists can feel like they are in the business too. We attend trade shows and conferences and we learn a lot about the products and best practices that can help an industry participant succeed. We invest years to know the players and sometimes we volunteer with association work. But at the end of the day we are not typically living with the pressures of being an owner — the gut-turning risks that keep entrepreneurs up at night. We’ve got our own pressures, but they are not of this variety.

Over breakfast recently, came the story of a highly reputable remodeler who had lost a very big job — over $2 million. Contracts were signed. Design work had commenced. Staff time and resources had been slotted to handle the project. Other jobs had been turned away to make room for it. Then, at the 11th hour, the client backed out. And in an instant, this remodeler’s world went from cautiously optimistic to gloomy. He let an assistant go as he and his business partner searched for ways to cut overhead and dramatically ramp up sales. This is tough stuff. And business is inherently tough. But sometimes the risks associated with a worthwhile endeavor like owning a remodeling company can recede deceptively far into the background.

Many of you, I am sure, see other remodelers everyday who scare the living daylights out of you — no insurance coverage, handshake deals in place of written contracts. You wonder about their sanity. This is a silly amount of risk and that is not the point. The point here is that a lot of card sharks and professional gamblers would walk away from some of the everyday risks associated with remodeling. From this perspective, the remodeling business can be seen as a constant effort to get new business while vigorously isolating and reducing the enormous number of seen and unseen negative outcomes.

Reputable remodeling companies have seen their general liability insurance premiums rise 400 percent over the past five years. This is clearly an over-reaction by insurance executives, many of whom have decided to stop writing coverage for remodelers in response to large judgments meted out for mold damage. Those insurance actuaries get paid to put a price on risks; many of them can’t determine that price, so they wait on the sidelines.

Remodeling can be extremely rewarding, but it seems clear that your clients should pay prices reflective of the risks you are taking when you agree to complete a project. If a client’s actions seem flaky from the start or they own a home that might prove troublesome, build in added contingencies. Do whatever it takes to make a job a clear win for all parties involved, and try not to bite off too much of the potential downside. It can certainly bite back.