Controlling costs through business systems is an important part of running a successful remodeling business. This month remodeling industry specialist Shawn McCadden, CR, CLC, CAPS, helps launch a three-part NARI recertification series on using business systems to control cost and grow profits.
McCadden says that profit should be a planned expense so therefore should be incorporated into the price of a remodeler’s product. It is not just a case of “wouldn’t it be nice if I had something left in the end.” It is also important that an owner should be paid for what they do before net profit is determined, because if the owner didn’t work there, they would have to hire someone to do what the owner does.
“You should calculate not only the net profit that you plan to have, but the net profit that you’re achieving,” adds McCadden. “If you imagine yourself as a stockholder, how long would you want to be a stockholder if the company came to you every year telling you it didn’t make money or needed more to stay in business? How long would a stockholder want to deal with that? Remodelers need to think that same way. They’re really stockholders in their own business.”
Controlling costs can be pointless if a remodeler doesn’t know what their reference point is according to McCadden. Whether it’s an estimate on a job project or a business’s budget, it’s important to have that estimate that flushes things out. If you’re going to apply a markup to the estimated cost in order to get to a sale price, then there has to be a budget that predicts the cost of being in business so a business owner can determine their markup.
“When we talk about controlling costs on the jobsite, we control them within our estimated costs so we can meet our margin,” adds McCadden “If you don’t have a budget, how do you make sure you’re spending your money in the right place? Control isn’t just over the hard numbers. Control is also questioning if you’re investing it in the correct places.”
McCadden recently had a budget for one of his clients in 2008 and the client did great. He made a great profit and kept his margins actually above where he needed them for his budget, but then, after the new year, he burned through the work that he had sold and the workload became very light.