With 25 years of experience, Joseph Balich, CR, has seen it all in the construction business. From a recession in Boston, Mass., to boom times in Mint Hill, N.C., Balich has developed a sense of how to succeed in the remodeling industry. The lessons he has learned and applied to Integrity Builders can serve as guideposts to others.
Through the seven years he has owned Charlotte-based Integrity Builders, Balich has applied his skills to keep his company focused and profitable. One important lesson he learned is that the transition from skilled craftsman to competent businessman is not without cost. "It’s hard to let go," says Balich, suggesting anyone moving from the field to the office first thoroughly train a new field supervisor.
For the past four years, Integrity Builders has averaged approximately $1 million in remodeling revenue. With four employees in the field (two supervisors and two carpenters) and four in the office (Balich, a project manager, a newly hired sales person, and a secretary), Balich is comfortable at this volume level. He says growing remodeling companies should level off at some point to slow their growth. By doing so, the changes necessary to build a thriving company can be implemented gradually, profit margins can be firmed, and a base can be established for further expansion.
One of the keys to a successful remodeling company is accurate record keeping. At Integrity Builders, accounting is a shared responsibility. Balich uses a payroll service for biweekly paychecks, which cost him $30 per pay period. As part of the fee, W-2s are provided to each employee. In addition, for a fee of $200 per month, an accountant prepares monthly financial statements and tax returns.
Balich collects sales (income) and expenses for each job, and overhead information for the entire company. His target for gross profit is 35 to 40 percent of sales, with overhead costs at 20 to 25 percent of sales. Lastly, Balich shoots for a net profit of 10 percent.
Armed with his financial statements, Balich is able to identify the types of remodeling jobs that are most profitable for his company. Specifically, Integrity Builders specializes in larger custom renovations, including additions (with and without kitchens), master bedroom and bath suites, and add-a-levels, all of which offer Balich the opportunity to obtain more favorable gross-profit percentages. In fact, based upon his analysis of company job-costing figures, Integrity Builders has moved out of the handyman and small project aspects of the remodeling business.
The primary reason Integrity Builders stays away from small projects is the lengthy job preparation process, Balich says. In addition to a sales call, preparation of a job estimate, and completion of a proposal for the customer, Integrity Builders also thoroughly preps jobs at the site. This includes a site meeting with the customer, project manager and job supervisor, followed up by a meeting at the site with all affected subcontractors. The transition from sales lead to job folder is thorough. Because of the amount of time dedicated to this process and the fact that overhead consumes so much of the profit, Balich no longer accepts jobs for less than $35,000.
Integrity Builders collects its data with a computerized accounting program by Peachtree. The software allows Balich to confirm and update sales costs when estimating jobs similar to those previously completed, he says. It also allows him to maximize tax credits by showing all employee-related costs such as health benefits, eliminate those types of jobs least profitable to the company, and highlight year-to-year comparisons.
Balich, who takes a regular paycheck like any company employee, says owner compensation is included in overhead as a fixed cost. In general terms, he says owner base salary should be approximately 10 percent of sales. Net profit, targeted at 10 percent, is separate from base pay, and Balich uses it for such expenses as his bonus, new equipment or vehicles, employee training, and updating computer equipment.
The goal of reaching $1 million in sales was a result of Balich’s desire to hire a full-time carpentry crew, have a full-time office staff, and move from the field to the office. His intent is to be a business owner, not a tradesman running a business.
Along those lines, increased sales volume afforded Balich the opportunity to become a dealer for a line of cabinets. This not only allowed Integrity Builders to increase profit margins on cabinetry work, but also gain control over scheduling for their delivery and installation.
In the near future, Balich would like to build a sufficient cash reserve to withstand any bad times Integrity Builders might face. But if he keeps an eye on the numbers, there’s no reason Balich may ever have to face bad times again.