This time last year, the remodeling market was expected to continue its growth with some softening in the 4th quarter. Things have certainly changed in ways very few experts expected. Remodeling expenditures are down more than 10 percent, and most remodelers are struggling to maintain sales volumes and margins. Survival has become a major issue for many companies. So as we prepare our plan for 2009, let's look at some basic survival tactics to ensure we're here when the market heats back up.
There's no other financial aspect of our business that is more essential to understand and control when the market softens than overhead. Its no coincidence that when management teams are brought in to oversee a company's restructuring in bankruptcy they cut overhead. Remember that the classic definition of gross profit is overhead plus net profit. In other words, every dollar we cut from overhead becomes a full dollar of net profit (or reduces the loss if things are really bad). Look closely at your overhead expenses and cut, cut, cut.
The one exception to the rule above is marketing expenditures. When leads are down we need to market more. Focus on the most effective marketing techniques that generate projects you produce most profitably. Hopefully you've been tracking your leads in the past and identified those projects that produced the highest gross profit. If not, you probably have a sense of which are your most successful so go with your gut and go after those projects. Employ marketing such as contacting past customers, cold calling designers and visiting suppliers to spread the word that you are looking for work. Keep your name in the marketplace in any way you can.
If profit is the food of a growing business, then cash is its lifeblood. We can survive for a time without profits. It's not fun, and we'll grow weak, unable to take advantage of opportunities, but we'll get by. But if we start bleeding, our demise comes very quickly. A significant portion of the businesses that go bankrupt are profitable at the time. What brings them down is lack of cash to pay the bills. So, project at least a month of two out where your cash is coming from and what you need to pay. If cash gets tight, prioritize payments and, if necessary, negotiate payments with your creditors. Whatever you do though, pay those taxes. If you have a line of credit and plan to access it during those short periods, be sure to talk with your banker and confirm that it will be available.
Now is the time to finalize that budget for next year. But be realistic when you make your projections. Most projections are for a tight remodeling market through 2009. Look at your numbers for the last two years and analyze the trend. Set your revenue projections at a conservative level and budget overhead that is affordable at that reduced income level. Don't plan optimistically in this current market. The risk is just too great. You can always ramp up if sales beat estimates. Monitor your revenue, gross margins and overhead carefully and be prepared to make changes as events dictate. Remember, the goal here is survival to play another day.
Decide to be one of the companies that survives now and is positioned to make the most of the next upturn.
|Vince Butler is president of Butler Brothers in Clifton, Va. Contact Vince at firstname.lastname@example.org.|