Start 2019 by Closing Out Last Year’s Financials the Right Way

We’re in the first full week of the New Year — it’s time to buckle down and get back to work, putting all your plans for 2019 into action. But without some vital pieces of information, you won’t see a true picture of where you’ve been and how to get where you want to be.

You’re not done with 2018. January’s the time to take a deep dive back into 2018’s financials and close out the year the right way.

The Good Close

A good close is vital at year-end. It draws a line in the sand between one year and the next, and calculates an accurate equity number which allows you to accurately compare year-over-year results.

This kind of close also gives you insight into the effectiveness of your bookkeeping and accounting functions. It also enable you to tie your year-end financial statements to your tax return, and meets GAAP (generally accepted accounting requirements).

What You’ll Need

A good close includes a complete review of your Balance Sheet accounts, as well as reconciliation between Profit/Loss and Job Profitability Summary.  

Remember that all negative balances reflect an abnormal balance — research and figure out how that happened! Exceptions (above the Equity line) are Accumulated Depreciation, Indirect Expense Allocation (not the total) and Medical Insurance Payable.

Start by setting up a Memorized Report Group entitled “Year End 2018” to hold all the financial statements and related reports in one place.

  • Year-End WIP. The WIP affects both the Balance Sheet and the Profit/Loss. The year-end WIP is critical to the accuracy of assessing the gross profit, both for last year and current year.
  • The Balance Sheet. When the account balances are correct on the Balance Sheet, the Profit/Loss is correct to the penny!  
    • Liabilities:
    • Equity: depending on your company corporate structure the Equity accounts might be laid out differently.  
    • Owner/Shareholder Distributions for the current year should be posted to the Profit/Loss in the “Other Expense” section for development of the RA Focus Packet. Then journalized back to the Balance Sheet for tax prep.
  • Profit/Loss. Reconcile the Profit/Loss to the Job Profitability Summary (JPS) for the year to the Gross Profit Line.

Tying up your 2018 financial information is a crucial step to having a great, profitable year in 2019. Take some time to look back before plunging ahead!

Take a Deeper Dive with Judith

If you want to learn more about closing out 2018, Judith will be holding a one-time, 90-minute Strategic Action Group telecourse on how to properly conduct your year-end close. She’ll have a more detailed checklist and show you how to close right and bring your numbers in line.

This course will be held Thursday, Jan. 24, at 11 am ET. The cost is $325 and space is limited. For more information — and to register — e-mail Judith at jfmiller@remodelservices.com.

How to Properly Calculate a Change Order

Change orders are tough. It’s hard to get everyone on board, and challenging to get paid the amount you really need to for the business. It would be nice if there weren’t any, but the nature of remodeling means they’re a necessity on most projects. But you could be losing money in a way you’re not aware of.

Probably everyone knows the basics — anything that’s not covered in the contract scope or plans should get written up. Figure out your costs and mark them up. Be sure the mark up is the same as the contract. Add days for the work to be done. Add up the original contract cost and the change orders for a new contract price.Get a signature before starting the work. Don’t lower the price when the client ask why it’s so high, and always collect the money before the work is done.

You’re Missing the Disruption Days

What’s often missing in the calculation is the cost of what I call “Disruption Days.” These are the days not associated with any labor costs, but which will hit the job because of the disruption the change order causes. This is especially critical now — everyone is busy and we can’t just reschedule trades or material deliveries for the lost time of the labor. The job could slow down by week for one day of changes.

Try thinking in terms of overhead per day, per job. If overhead in a company is $500,000 in real dollars for the year with four jobs going at a time, then overhead per day per job is $500.  

So, for every day of a job you’re spending $500 of overhead. When you calculate a change order price, the days included in the labor numbers get an overhead amount attached to them automatically, but the Disruption Days do not.

Stop Losing Money

If that overhead money is not recouped another way, your company loses.  To add insult to injury, by extending the job extra days not associated with labor costs and revenue, we end up pushing the start of other projects out and losing the “opportunity profit” of another job. So some consideration must be given to adding this extra overhead into the sale price of a change order.

For example, let’s use that same company. They project $2 million in revenue for the year, making the overhead 25% of revenue. Assume there are 250 working days in the year, which means they need to produce $8,000 per day to hit the revenue target. If a few jobs extend past the completion dates, and the extension is not compensated by labor being marked up, the company won’t be able to produce the desired $2 million.

Depending on a number of factors, it’s $8,000 per day. Assume this happens to the tune of 30 days — or $240,000 worth of work — that can’t be produced. That leaves them at $1,760,000 for the year. The 28.4% overhead is robbing net profit of roughly 3.4%

Some of you are thinking “I just can’t add $500 per day extra to every change order!”  You’re probably right. But the costs are real. So calculate your overhead per day per job. Write down on each change order the number of Disruption Days. See if you can add that money back in. If not, add something for those lost days. If nothing else, you’ll be aware of what each change really costs you.

5 Keys to Strategic Planning for Your Remodeling Business

It’s that time of year again — when we look back to see what worked and what didn’t for your business, the good decisions made and others you’d change. Did this year bring the success you’ve been building toward or was it a challenging year that fell short of your goals?  

But it’s also time to look forward. To figure out and where you’re headed and move you closer to your long-term goals. For this, we look to strategic planning. 

Strategic planning is the process organizations use to clarify the long-term direction of their companies, define a company’s mission and vision, set priorities, align the team, allocate resources, and translate those goals for the future into projects and budgets that can are implemented in the short term. It defines the work in the coming year that will get your organization to your destination in the years to come. 

I get the pleasure of working with companies by facilitating two-day strategic planning events for their remodeling companies. Based on those experiences, these are the five keys to good strategic planning to do now. 

No. 1 Involve the Whole Team 

Schedule your strategic planning event at a time your whole team can attend. Involving the whole team improves the process by having more input, broader discussions, and a better understanding of the process when it’s time for implementation.  

No. 2 The Right Setting 

Get out of your office. Hold the meeting off-site, at a location that’s comfortable and — if possible — inspirational. Participants need to be able to focus; away from distractions but also be in a place that inspires creative thought. You don’t have to go far, but you do want to get out of your own space. 

No. 3 Set Your Destination 

You can’t get to your destination if you don’t have a map. Start by defining where the company is going. Pick a point in the future (three or five years) and describe in detail your vision for the company: 

  • Your revenue goals 
  • The type of projects you’ll be doing 
  • What your role as the owner will be 
  • How the company structure will change to meet the revenue goals 

Be sure to get good input from everyone. The clearer you can paint that picture, the better the entire process will go. 

No. 4 The Current State: SWOT & KPI 

Describe in detail where the business is now. Start with a SWOT Analysis: Strengths, Weaknesses, Opportunities, and Threats. Look at this at both the company and department level. Talk about processes and areas for improvement. Make that conversation about processes, not people. Then, define the Key Performance Indicators (KPIs) you’ll all use to measure operational improvement and the distance to your goals. 

No. 5 Budget and Plan for the Coming Year 

Finally, the goal of this meeting is to leave the process with an operating plan and a budget for the coming year. Set priorities for the team, detailing what role each member will play in the company’s success and how performance will be measured. Make a commitment to keep the team updated regularly throughout the year and avoid chasing new ideas and new projects that take the team away from the core mission.  

Follow these five steps to set your course, make strategic decisions, identify priorities, define roles, establish a budget, and build morale. If you do this well, you might just be setting the stage for the coming year to be the year you have been waiting for.

 

FREE WEBINAR: How Effective Remodeling Leaders Use Strategic Planning to Get Ahead

Tuesday, December 4, 2018
11:00am – 12:00pm ET

It’s that time of year… Looking forward to 2019 and setting goals, budgets and expectations. Join R/A Director of Consulting, Doug Howard, for a FREE WEBINAR as he walks you through how to set up that process within your organization. As you gather your team for your annual planning meeting, Doug will give you the tools and resources needed to make the most of your time.
CLICK HERE TO SAVE YOUR SEAT FOR THIS FREE WEBINAR

Movin’ Out: Signs It’s Time to Leave Your Home Office

With work booming, many remodeling companies are in growth mode. If you’ve been working out of a home-based office, it may be time to fly the coop. No one wants to spend money on rent or another mortgage if you don’t have to, but if working out of your home is limiting your company’s growth or infringing on your family’s life, the benefits of moving into a commercial space may well be worth the cost.

No. 1: Zoning or HOA violations

Home-based businesses can get away with a lot when it comes to zoning laws or the rules of your neighborhood if you’ve got a Homeowners’ Association. Most municipalities have laws about things like business signs, percentage of your home you use for business, the sorts of materials you’re storing, and how many employees you have working there. Company-branded trucks, even parked in your own driveway, may be in violation of some neighborhood bylaws.

It’s easy to fly under the radar, but all you need is one nosy — or disgruntled — neighbor to blow the whistle on you and cause headaches.

No. 2: Your business has taken over the house or life

If your whole house has become the office, with paperwork, product samples, and equipment everywhere, it might be time to move out. This is especially true if it’s affecting the lives of your kids or partner. 

The upside of working from home is you can work all the time. But that’s also the downside. If your work is dominating your home life, it’s probably time to put some distance between the two.

No. 3: You need to meet with customers on your turf

If clients meet with you in your home often, it’s probably time to get a dedicated office. Their trust level will go up when they see you have a separate place of business — they perceive it as a more serious commitment and more professional.

No. 4: Kids, especially little ones

Running a business in the same space that your children are playing, or just being kids, is incredibly difficult. This is especially true when they’re infants and toddlers — too young to understand that you don’t want to be interrupted for a half-hour. Even having a small office somewhere other than home will boost your productivity.

No. 5: You get lonely

Some people just don’t thrive working alone — they are the people who need people. If you’re more productive and happier with the energy a communal office offers, you need to put yourself in that situation.

No. 6: Your business is growing

A growing business needs more room for equipment, storage space, and especially employees. Your employees need room to work, and they could be cramped in your home. You also could lose some prospective employees who think there’s something sketchy about working in your basement.

We went through this a few years ago — moving from a home office to a commercial space. The increase in morale and productivity made it clear it was the best thing to do, and well worth the added expense.

Run the numbers ahead of time to be sure you can swing it, and look at starting the new year in a new space. If you can’t afford your very own dedicated space, you still have options other than the local coffee shop. Check into the growing number of co-working spaces available and the different rental packages they offer. It can give you a place to work, either quietly or to enjoy the company and energy of other entrepreneurs, more networking opportunities, and a space to meet with clients.

 

When Did You Know It Was Time?

How about you? When did you and your firm know it was time to “cut the cord” and move to your own space? Any pitfalls or learning lessons? Let us know in the comments section below, we would love to hear from you!

It’s Halftime: Reviewing Your Company’s Mid-Year Performance

You lead a team of remodeling-industry professionals. You all set out to make this a great year for your company — a victory — and now it’s halftime!  Take the opportunity to head back into the locker room (or your office) to review your business goals and look ahead. Will 2018 be a win? What strategies will you use in the second half to make that happen? 

Unlike Hollywood’s version of halftime — the coach giving a rousing speech to a captivated team while the soundtrack swells — halftime for remodelers is about analysis and adjustment.  

You have to assess performance — what’s working and what’s not. Ask the question: “Where do we exceed expectations and where are we lagging?” Halftime is for making your objectives clear, so that all your team members know what to do in the second half to win the year. 

5 Critical Steps To Take at Halftime to Boost Your Chance of Victory 

  1. Have a clear measure of victory for 2018. Do you have a budget? What are your expectations for sales, gross profit and net profit? What should your balance sheet look like when the year ends? These numbers should be clear, written and shared with the team. 
  2. Know where you stand right now. You should have accurate financial statements through the end of June. You should know whether you’re ahead or behind. These should be in writing and shared with the team. 
  3. Understand what’s working and what’s notKnow what’s driving your numbers. Know your lead sources. Determine how many leads converted to design contracts, and how many those converted to construction. Are we finishing jobs on-time and on-budget? Are our customers happy and sending referrals? Are our employees motivated and committed to staying part of the team? Get the best information from those who actually do the work.
  4. Determine what to adjust. You can’t fix everything at once, and you don’t want to get away from the fundamentals of your business. In most cases, small, incremental improvements should be made to improve performance in the most critical areas.
  5. Manage, support and motivateBe sure your schedule leaves ample time to manage your business, while supporting your team to keep them focused and motivated to their best. Your job is to create the plan, call the plays and keep individual performances on track for the benefit of the team as a whole.

You have the same amount of time in the second half as you did in the first, so don’t panic. Take a breath, take some measurements, and use second half to make 2018 the victory you were expecting! 


 

Want More Halftime Strategies?

Don’t miss the Free Webinar coming up on on July 25th “Mid-year Check-up: 7 Key Strategies to Get Back on Track!

Doug Howard and Tim Faller will walk you through various ways to analyze your progress so far in 2018 and make key changes to help build your business. Doug will present the business perspective and Production “Guru” Tim will address the production side.

REGISTER HERE FOR THE FREE WEBINAR

There is No Such Thing as a Cash Flow Problem

Well, how could that be? If you have more bills to pay than money to pay them, isn’t that a cash flow problem?

My guess is that if you are a business owner who has ever faced that situation at any point in your career, you would most definitely have considered it a problem. In fact, you might have considered it an emergency or maybe even a crisis.

So why would I say there’s no such thing as a cash flow problem?

The reason is that while cash flow can be an issue, it is really a symptom of a much bigger problem. So, we really need to dig in to find the “root cause” so we can make sure that whatever is causing the situation doesn’t keep creating cash flow issues, and more importantly that the situation doesn’t get worse.

Think of a cash flow issue like you would think of pain in your arm. If it happens only once you might disregard it as something that just happened. You might take aspirin, put some ice on it or just let it rest. And that would be that. However, if the pain returns, becomes more frequent and more severe, you begin to realize you need to get it checked, get an x-ray, or even see a specialist. You need to find out what’s causing the pain.

Sometimes in business, we deal with a cash flow issue like that pain. In lieu of aspirin, we might put money in the business, tap a credit line or start using funds that are really for the next job that just signed a contract. And like the pain, if the cash flow issue comes back it tends to be more serious and more frequent, all the while you are depleting resources.

Soon, you might find that the issue has gone on too long. Resources have been exhausted that now need to be repaid. And, you might not have the time or money to fix the problem. Now, we have a mess.

Moral of the story:

Cash flow issues need to be addressed quickly, monitored accurately and resolved at the root of the problem!

Cash Flow Series

Look for future PowerTips in this series on Cash Flow; “Rapid Response to Cash Flow Issues” and “Improving Cash Flow by Improving Production”… coming soon!

The Path to Higher Profit: Strong Leaders & Good Numbers

After more than 30 years of working with remodelers around the country, I have encountered nearly every problem to confront a remodeling company: the dissolution of long-term partnerships, ineffective marketing tactics, sales systems that don’t produce results, unmotivated production crews, theft from overhead coffers, bankruptcy and terrible accidents on the job.

On the other side, I’ve seen phenomenal successes: great customer satisfaction, happy employees who are ready, eager and capable of taking over the company from the owners upon retirement, and substantial consistent profits over time.

Strong Leadership

Each outcome, success or failure, is the direct result of one key component; Strong Leadership.

Good, sound leadership imparts vision & motivation to employees who then implement tactics appropriate to each of the main areas of the company: marketing, sales, estimating, production and finance/administration.

At almost every Remodelers Advantage Roundtables meeting, we clarify the tactics necessary to reach the next level of success for each unique company.

These tactics typically apply to one or two main areas: For example, one portion of the company is working well; let’s say sales in the current economy, while production slippage results in less gross margin than budgeted.

Good Numbers

November is the perfect time to be looking at your numbers for the past year, and then to be making appropriate plans to improve in the upcoming year. The numbers you are looking at provide “proof of concept.”

Want to know if your marketing is working, look at the number of qualified leads received every month. How about sales… look at sold volume compared to budgeted sales. Did you hit month-to-date and year-to-date numbers?

In every main area of your business, certain time-tested systems apply. Get these systems in place, establish goals for each and then test your assumptions AGAINST GOOD NUMBERS.

The Bottom Line

Talk all you want about volume, but until you meet the criteria for success in the other areas of your business, you’re not assured of increasing gross profit.

Strong leadership and a good team can build a growing company, however, as you grow, only effective systems implemented by good employees can produce consistent net profits. You will only know this if you have good numbers to analyze. Use them well and Good Luck!

PowerTips TV Throw-back Thursday: “How a Job Autopsy Can Save Future Profits”

In our last throw-back episode of the season, we take a closer look at Slippage and how it can destroy the profit margin your team works so hard to obtain.

In order to keep it from becoming a recurring problem, we cover how to perform a “Job Autopsy” or a break-down of where things went wrong… where costs started to invade your production plan.

[notification style=”success” font_size=”14px” closeable=”true”]We’re excited to launch our new season of PowerTips TV next Thursday with all new episodes! If you have ideas for topics you would like us to cover, please suggest in the comment box below… And if you haven’t subscribed to our YouTube Channel, Click Here.[/notification]


This week I’ll share some examples of how slippage can destroy your profits. More importantly, you’ll see how performing a thorough job autopsy can prevent future slippage.

So if you’re looking for ways to increase your profits, look no further than this week’s episode of PowerTips TV and learn one very effective technique for eliminating waste and ramping up profits.

PowerTips TV Throw-back Thursday: “How to Tell if Your Marketing Actually Works”

As we head into the second half of 2017 we take a closer look at your Marketing efforts. A key to your success is tracking… What’s working and what isn’t… Do you know? In this week’s re-run episode of PowerTips TV we throw it back and take a closer look at how to track and what to look for.

At the bottom of this page is a Free Download for an easy-to-use Marketing Tracker; if you aren’t tracking your marketing effectively, download this tool and give it a shot.


Do you know how effective your marketing is? I mean really know? If you’re serious about developing a marketing program that consistently delivers the best results, you need to start tracking the individual tactics you are putting out into the street.

In today’s episode of PowerTips TV, I’ll share the key metrics you should be analyzing and what to do with the information once you’ve got it!

How about you?

Are you monitoring your marketing efforts on a weekly basis? Monthly? Not at all? Please share your stories in the comments below.


Free Download: Marketing Tracker Spreadhsheet

Marketing Tracker

In this video Victoria mentions how important the tracking of your Marketing Tactics is… It’s so important, in fact, that we wanted to provide you with a FREE tool in order to help you track your performance. Click the button below to download your copy of the Marketing Tracker Spreadsheet. Enjoy!

5 Ways to Reduce Slippage [Infographic / Poster]

As we bring Slippage Awareness Month to a close we look back on some solid information provided by our team here at Remodelers Advantage. Tim Faller led us off with a blog post on The Team Approach to Preventing Slippage and an in-depth webinar, “From Slippage to Grippage: How to Raise Profits Without Raising Prices”. We added some thoughts on how to assemble your slippage reduction team and Steve Wheeler brought us his thoughts on how to avoid slippage from a sales perspective. Last week we launched re-runs of our PowerTipsTV series and brought you an episode dedicated to “How to Stop Losing Money on Change Orders

To wrap things up this week we wanted to present an Infographic that provides additional thoughts on ways your company can reduce and eliminate project slippage on your road to greater profitability. If you would like to print this information out and share it with your team, here is a link to a PDF that can be printed out on 8.5” x 14” paper on your office color copier.