As a remodeler and business owner with a finance background, planning and monitoring my company's profitable growth has been a strength. It is one of the reasons that in my 13 years of business, there has been only a single year with a recorded loss, and it was less than 1%.
Before starting my own business, I spent 15 years as a credit and collections specialist in various construction companies. Time and again, mismanagement of money and robbing Peter to pay Paul met with derogatory results.
Planning for profit is a skill set that every business owner and remodeler should endeavor to master or at least become familiar with to avoid becoming one of those contractors.
Listen to April Bettinger talk profitable growth on our Women at WIRC podcast:
What is Profitable Growth?
Profitable growth at the end of the day, means having a healthy company and minding your cash and equity position.
It also means you understand what a current debt-to-equity ratio is. In my experience, targeting a 1.5 ratio or better is a sign of a healthy company, meaning that at 1.5 or better, I own my company versus the people I owe money to. Divide current liabilities (client deposits, payroll, etc.) by current assets (cash and liquid assets) to identify your ratio.
The final element to profitable growth is that we net 10% profit.
You can have 10% profit no matter what you’re doing, you just have to plan for it. Growing profitably won't happen by accident, and growth takes money.
It Starts—And Ends—with a Goal
If you don’t know where you’re going, you’re never going to get there. Each year, budget planning should start with the end in mind.
As an remodeler owner, you have to know what you want out of this business. You’re not doing it to be a 501(c)3—you’re doing this to be profitable and to support your life.
Over the years, I knew I wanted to grow a business and didn’t want to wear all the hats.
You can have 10% profit no matter what you’re doing, you just have to plan for it. Growing profitably won't happen by accident, and growth takes money.
I was encouraged to look at my next five or 10 years and create organizational charts that would show what my company might look like. And then I had to create a budget that would support that org chart.
What that did was reveal what my path would be and my next hire. When I eventually reached the next level of my business, I didn’t debate over the next step. I had a good idea of the next step and what it would cost me.
I find there’s a magic number for remodelers and in construction: 65% cost of goods, 25% overhead, and 10% net profit.
These are the steps I take for budget planning:
1. Identify the profit you’d like to make
2. Identify the gross profit percentage you’re at or believe you can sell at
3. Identify overhead expenses
4. The resulting number is what you need to make to achieve the profit you desire—but always make sure that figure is 10% or more
(Potential) 5. If it’s not 10% net profit, you need to sell at a greater margin or cut overhead (but whatever the answer, it needs to be achievable).
Pay Attention and Know Your Stuff—Even if You Have a Bookkeeper
One of the most dangerous things you can do in a company, I believe, is rely too heavily on or give too much authority to your bookkeeper without a system of checks and balances.
In my company, the bookkeeper does taxes, payroll, and accounting. They cannot access online banking or have signing authority. I have two signers at my company, and review financials regularly. I have seen other companies place too much trust in others and pay the price.
If you want to be a professional remodeler business owner, seek out someone who can train you in finances and make sure you at least learn the basics. Understand what a balance sheet is, what a profit and loss is, and key numbers to review your company's health.
You don’t have to understand it all but surround yourself with people that can teach you.
Weathering the Storms (With Cash)
From 2021 to 2022, my company doubled in size. But this year started a bit slower because of the market uncertainty. I budgeted for flat growth or a bit of a decrease.
Budgeting in reverse looks at how many projects you need and at what size. We target 20 projects per year, so I can tell my team at all times, whether they’re worried about the economy or not, that we just need 20 people to say yes.
Cash is king, and you have to be financially aware. With that in mind, have four to six months of operating cash available if you need it.
If you want a healthy business, you need to keep money in the company. That is one of the biggest mistakes I see that people make.
It Comes Back to Relationships
Above and beyond finance, growth is about relationships.
When you get into hard times, if you can focus on an amazing client, employee, and trade experience, then at the end of the day, you've got happy people, you have raving fans, you've got repeat and referral. You're making more profit because it's easier, it's more reliable. There are not as many mistakes and expensive turnover.
April Bettinger is the owner of Nip Tuck Remodeling in Seattle. Throughout her career in construction, she has worked with a vision and determination to create a remodeling company with extraordinary craftsmanship and a focus on professionalism. In 2010, April began Nip Tuck Remodeling where she holds key roles managing finance, budgeting, customer service, team building, and sales management. She is an active member of the Board of Directors of the Master Builders Association of King and Snohomish Counties. April holds the designations of Certified Graduate Associate, Certified Graduate Remodeler, and Certified Aging-In-Place Specialist through the NAHB. She is also a member of many national organizations including the National Association of Home Builders, NKBA, & Remodelers Advantage.