Improving Improving Company Company

Performance!Performance! How Do You Compare toHow Do You Compare to

Top Companies Across the Top Companies Across the

Country?Country?

Summarized Summarized Data from Data from 173 173

Member Member CompaniesCompanies

Not Your Ordinary Not Your Ordinary RemodelersRemodelers• Improvement seekersImprovement seekers

• Tend to be financially savvy Tend to be financially savvy overalloverall

• Belong to associations Belong to associations

• Read publicationsRead publications

• Seek out educational opportunitiesSeek out educational opportunities

How We Ranked the How We Ranked the ResultsResults• Step OneStep One -- Determined -- Determined Average Average

Annual Total CompensationAnnual Total Compensation for for Last Two Years Last Two Years – Total Compensation = One Owner’s Total Compensation = One Owner’s

Salary Salary (Normalized)(Normalized) + Net $$ + Net $$

• Step TwoStep Two – Ranked in Two Ways – Ranked in Two Ways– In Total Dollars $$$In Total Dollars $$$– As a Percentage of Sales As a Percentage of Sales Favors efficiency Favors efficiency

rather than sheer size.rather than sheer size.

Compared Data Compared Data from from

Top 10% Top 10% and Bottom 10%and Bottom 10%

The Top 10%. . .The Top 10%. . .

Have Higher VolumeHave Higher Volume $2.82 vs. $2.82 vs. $1.84$1.84

Significantly larger Significantly larger average job sizeaverage job size

$93,628 vs. $93,628 vs. $34,528$34,528

Complete fewer Complete fewer jobs/yr.jobs/yr.

32 vs. 5932 vs. 59

Budget for lower job Budget for lower job costscosts

60% vs. 65%60% vs. 65%

Use higher mark upUse higher mark up 67% vs. 54%67% vs. 54%

The Top 10% . . .The Top 10% . . .

Larger backlog Larger backlog $552,070 vs. $552,070 vs. $236,363$236,363

Produce Nearly Produce Nearly twicetwice revenue/employee! revenue/employee!

$233,005 vs. $233,005 vs. $125,073$125,073

Offer Performance Offer Performance based bonus based bonus programs to the programs to the fieldfield

53% vs. 41%53% vs. 41%

Use more Use more subcontractorssubcontractors

40% vs. 34%40% vs. 34%

The Top 10%. . .The Top 10%. . .

Fewer small jobsFewer small jobs 11 vs. 3711 vs. 37

Greater gross profits Greater gross profits on those they do takeon those they do take

43% vs. 39%43% vs. 39%

The Top 10% . . .The Top 10% . . .Spend more on Spend more on marketing, both in gross marketing, both in gross dollars & as a % of salesdollars & as a % of sales

1.9% vs. 1.9% vs. 1.6% 1.6%

Have marketing plansHave marketing plans 76% vs. 76% vs. 35%35%

Reach out to previous Reach out to previous customers at least 4 x/yr.customers at least 4 x/yr.

53% vs. 53% vs. 35%35%

Have greater percentage Have greater percentage of referrals of referrals (more than 60% of (more than 60% of leads come from referrals or leads come from referrals or repeat.)repeat.)

88% vs. 88% vs. 76%76%

The Top 10% . . .The Top 10% . . .Marketing results are Marketing results are trackedtracked

88% vs. 88% vs. 59%59%

Use a Lead Qualification Use a Lead Qualification SystemSystem

76% vs. 76% vs. 59%59%

Receive more leads from Receive more leads from former clients and former clients and “friends of the company.”“friends of the company.”

Lower closing ratioLower closing ratio 6.62 vs. 6.62 vs. 5.685.68

The Top 10% . . .The Top 10% . . . More Fully Use Recommended More Fully Use Recommended PracticesPractices

P & L and Balance Sheet P & L and Balance Sheet MonthlyMonthly

100% vs. 100% vs. 82%82%

Do Job Autopsies regularlyDo Job Autopsies regularly 82% vs. 59%82% vs. 59%

Use % of Completion Use % of Completion AccountingAccounting

88% vs. 71%88% vs. 71%

The Top 10% . . .The Top 10% . . . PLAN for their SUCCESS!!PLAN for their SUCCESS!!

Have a Realistic Have a Realistic BudgetBudget

82% vs. 71%82% vs. 71%

Budget for bigger Budget for bigger owner’s salariesowner’s salaries

$150,000 vs. $150,000 vs. 56,00056,000

Budget for healthy net Budget for healthy net profitsprofits

15% vs. 7%15% vs. 7%

Most importantly, they achieve Most importantly, they achieve these goals!!these goals!!

The Rewards? The Top 10% . The Rewards? The Top 10% . . .. .

Earn greater total Earn greater total compensationcompensation

$635,650 vs. $635,650 vs. $244,993$244,993

Top 10% are Happier!! Top 10% are Happier!!

Are much more satisfied with their Are much more satisfied with their workwork

Those ranking Those ranking themselves themselves FabulousFabulous or or Pretty GoodPretty Good

83% vs. 47%83% vs. 47%

Work fewer hoursWork fewer hours 44 vs. 5144 vs. 51

Our Conclusions -Our Conclusions -Successful Firms . . .Successful Firms . . .

• Believe in and adopt our Believe in and adopt our recommended practices.recommended practices.

• Plan for success in the careful Plan for success in the careful preparation of realistic budgets.preparation of realistic budgets.

• Monitor plan carefully as they Monitor plan carefully as they execute.execute.

Our ConclusionsOur ConclusionsSuccessful firms . . .Successful firms . . .

• Control job costs and overhead Control job costs and overhead carefully, minimizing slippage of carefully, minimizing slippage of both.both.

• Are willing to ask for higher prices.Are willing to ask for higher prices.• Spend more for marketing and do Spend more for marketing and do

it effectively.it effectively.

The Top 10%. . .The Top 10%. . .

Plan for their Plan for their success!success!

Now Let’s Talk Now Let’s Talk About Your About Your Numbers!Numbers!

Handouts for this section available Handouts for this section available at at RemodelersAdvantage.com RemodelersAdvantage.com

under under Free ResourcesFree Resources

Any remodeler who can Any remodeler who can produce a detailed estimate produce a detailed estimate for an addition can for an addition can MASTERMASTER analyzing financial reports!!analyzing financial reports!!

5 Financial Tools……5 Financial Tools……

• 1. Methods of Accounting1. Methods of Accounting• 2. Profit and Loss Report 2. Profit and Loss Report (Income (Income

Statement)Statement)

• 3. Balance Sheet3. Balance Sheet

• 4. Job Cost Reports vs. Estimates4. Job Cost Reports vs. Estimates

• 5. Operating Budget vs. Actual (P & L)5. Operating Budget vs. Actual (P & L)

1. Methods of 1. Methods of Accounting….Accounting….

• CashCash

• BillingsBillings

• Completed Completed ContractContract

• % of Completion% of Completion

Does Method of Does Method of AccountingAccounting

Really Make Any Really Make Any Difference?Difference?

Percentage of Completion is Percentage of Completion is the the GOLDGOLD Standard for Standard for

RemodelingRemodeling

What have I truly earned?What have I truly earned?

What did it cost me to earn it?What did it cost me to earn it?

Answers from the Percentage Answers from the Percentage of Completion Worksheet of Completion Worksheet (WIP)!(WIP)!• production output for monthproduction output for month

• forced look at each job’s current forced look at each job’s current profitabilityprofitability

• stabilizes COGS and GP % on P & Lstabilizes COGS and GP % on P & L

• overbillings, underbillings – whose overbillings, underbillings – whose money is it anyway?money is it anyway?

• how much GP remains in backloghow much GP remains in backlog

• corrected P & L and Balance Sheetcorrected P & L and Balance Sheet

2. The P & L – Scorecard for 2. The P & L – Scorecard for the Current Gamethe Current Game

P & L Skeleton!P & L Skeleton!Income/RevenueIncome/Revenue

- Cost of Goods Sold (COGS)- Cost of Goods Sold (COGS)= Gross Profit= Gross Profit

- Overhead- Overhead= Net Profit= Net Profit

P & L – Rules to Play ByP & L – Rules to Play By

• Good chart of accountsGood chart of accounts

• On % of completion On % of completion

• Consistent definition for COGS Consistent definition for COGS

• All COGS must be dispersible All COGS must be dispersible to job coststo job costs

• All COGS must match All COGS must match estimating categoriesestimating categories

• %’s on report %’s on report

P & L Answers….P & L Answers….

•Production output for periodProduction output for period

•Average GP produced by jobsAverage GP produced by jobs

•Overhead dollars and Overhead dollars and percentagepercentage

•Earned net profitEarned net profit

3. Balance Sheet = 3. Balance Sheet = Cumulative ScorecardCumulative Scorecard

Balance Sheet Balance Sheet SkeletonSkeleton

Assets = Assets =

Liabilities + EquityLiabilities + Equity

Balance Sheet - Rules to Play Balance Sheet - Rules to Play by…by…

•Assets = what we ownAssets = what we own

•Liabilities = who has some claim Liabilities = who has some claim

•Equity = If we closed the doors Equity = If we closed the doors today…what would be left to today…what would be left to ownerowner

•Current = w/in the yearCurrent = w/in the year

•Cash and liquid assets are kingCash and liquid assets are king

Balance Sheet Answers….Balance Sheet Answers….

• How much cash do we have available?How much cash do we have available?

• What is my equity/value in the business?What is my equity/value in the business?

• In a crunch could I pay current liabilities In a crunch could I pay current liabilities from current assets?from current assets?

• Am I getting behind in my collections?Am I getting behind in my collections?

• Do I have too much money in my Do I have too much money in my business?business?

• and lots more…..and lots more…..

4. Job Costs – Rules to Play 4. Job Costs – Rules to Play by…by…

• Important but don’t overemphasizeImportant but don’t overemphasize• Clear estimate formatted to COGS categories Clear estimate formatted to COGS categories • Sorting of categories has to matchSorting of categories has to match• Review bi-weeklyReview bi-weekly• Autopsy at end of jobAutopsy at end of job• Share with all employees who can effect Share with all employees who can effect

changeschanges• Worth lots of effort, time and moneyWorth lots of effort, time and money• 2% rule2% rule

Job Cost Reports Give….Job Cost Reports Give….

• Updates on how job costs match Updates on how job costs match estimateestimate

• Clues to problem areasClues to problem areas

• A discussion document between teamsA discussion document between teams

• Proofing of estimating systemProofing of estimating system

• Clues to performance issuesClues to performance issues

• Comparisons between team membersComparisons between team members

Could every job come in Could every job come in on budgeton budget

but the company have but the company have a losing year?a losing year?

5. Budget - Rules to Play 5. Budget - Rules to Play by…by…• Budget and P & L same Budget and P & L same

format/sorting/chart of accountsformat/sorting/chart of accounts

• Be realistic - can try “what-if” scenariosBe realistic - can try “what-if” scenarios

• Don’t need to line item COGSDon’t need to line item COGS

• Be critically accurate on GP %Be critically accurate on GP %

• Rework, rework, rework until 8-10% netRework, rework, rework until 8-10% net

More Budget – Rules to Play More Budget – Rules to Play by…by…• Tweak markup, overhead expenses, Tweak markup, overhead expenses,

production savingsproduction savings

• Break down by month – realisticallyBreak down by month – realistically

• Enter into bookkeeping systemEnter into bookkeeping system

• Study monthly budget-to-actual reportStudy monthly budget-to-actual report

• Update at least quarterlyUpdate at least quarterly

• P & L is the report of actualsP & L is the report of actuals

Budget Answers….Budget Answers….

• Is it possible for me to make a profit?Is it possible for me to make a profit?

• Exactly how would I do that? Exactly how would I do that?

• What three critical numbers should I What three critical numbers should I monitor? monitor?

Volume, GP %, OH $Volume, GP %, OH $

• How can I communicate the game How can I communicate the game plan?plan?

• How can I measure progress?How can I measure progress?

The ProfitThe ProfitFirstFirst SystemSystemBegin with the end in mind."

Joe is planning for his next business year.

• He is committed to achieving a net profit of $25,000.

• He's planning to sell and produce a volume of $300,000.

• Overhead runs $65,000.

The Seven Step ProfitFirst System©:

1.How much net profit do I want? 2.How much should I sell/produce?3.What will my overhead be?4.How much gross profit dollars will I need? 5.What should my job costs run in dollars? 6.What should my job costs run in

percentages? 7. What markup must I use to achieve this?

And a sixth financial tool – And a sixth financial tool – Honesty in your Financial Honesty in your Financial ReportsReports• You’ll sleep better at nightYou’ll sleep better at night

• Your fellow citizens won’t be burdened with Your fellow citizens won’t be burdened with your taxes your taxes

• You’ll know what your company is really doingYou’ll know what your company is really doing

• You’ll be able to share financial goals/info with You’ll be able to share financial goals/info with your staffyour staff

• You’ll create a climate of honesty in the You’ll create a climate of honesty in the companycompany

• A buyer will pay more for the companyA buyer will pay more for the company

• It’s the moral, right, legal thing to doIt’s the moral, right, legal thing to do

• You won’t go to jailYou won’t go to jail

What have we covered?What have we covered?

•Methods of Accounting Methods of Accounting

•P & LP & L

•Balance SheetBalance Sheet

• Job CostingJob Costing

•Budget vs ActualBudget vs Actual

•Honesty!Honesty!

Thank you for coming!Thank you for coming!

• Please complete your evaluation and Please complete your evaluation and drop if off on your way out.drop if off on your way out.

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