The Future of Your Business

In the wake of three major hurricanes and wildfires in California, I find this to be a time to discuss the future of your business. Many restoration contractors are benefiting from peak workflow while insurance companies are looking to make changes and cuts. Back in 2005 four hurricanes made landfall and in 2008 another three hit. Contractors built up large overheads based on the expectations that this would continue. The years that followed were difficult years for some of these companies because the expected storms did not come and overhead had been expanded to meet the expected catastrophe work. It is my hope that you consider the lessons of the past and also keep an eye on emerging trends so that you position your business for success. There are considerations in the context of this column. The first is that you need to create a business that will survive on everyday claims and not be dependent on unpredictable weather events. The second consideration is that they insurance world is about to embark on the enormous change that will impact the way they address and handle claims. A description of some of these changes can be encountered by reviewing my previous columns.

My first recommendation is to build a strong company that will be relevant ten years from now. Many of the changes that are occurring will take time to be implemented but it is realistic to assume that the restoration business environment will be substantially different. The following recommendations will help you create both short and long-term success as well as increase the value of your business.

One of the largest hindrances for creating a nimble company is allowing your overhead to get out of control. As a general practice, it is a good idea to continually lower the percentage of costs that are being applied to your overhead. If you currently have an overhead more than 32% of revenue then you are in a vulnerable position. Take steps by cutting costs or stabilizing costs while growing revenue. It is easy to expand your warehouse or vehicle fleet in response to the increased staffing and workload from catastrophic events. Overhead can be rationalized, however, how much of the increase in revenue is built on hope and how much is built from a strategic perspective? Many overhead items require long-term time commitments. Look for different ways to manage your growth and consider outsourcing, controlling and leasing. These relationships are much easier to unwind than a 20-year mortgage. Take a look at your current processes and systems. Embrace technology and more importantly reduce redundant processes. Your systems will need to provide accurate and timely verification of job duties while removing steps from the process. This may help you both improve profitability and speed cycle time, which is essential.

Locating good staff is an area where I would consider investing since it is difficult to find great performers. If you have located good managers and frontline staff then you may consider increasing costs in order to secure these individuals. I would have strong job expectations, KPI’s, incentive compensation programs and timely feedback. You may use this opportunity to upgrade your team and move out under-performing people.

Protecting capital is often overlooked. Capital is your lifeline to future opportunities and is often overlooked when riding a wave of success. Large bonuses, new equipment purchases, raises, office expansions and other expenses can be easily rationalized and capital is not appreciated until it is gone. Prior to committing existing capital, it is important to look down the road to understanding the capital needs in the next several years. If you utilize your capital with a long-term perspective then you are preserving your ability to finance growth. Consider the cash consequences of your decisions. It is essential that you are aware of how long it takes revenue dollars to be turned into cash. It is easy to count revenue but much more difficult to locate the cash. Be disciplined to make your investments out of cash profits rather than projected profits.

This is a great time to refine company measurements and reporting. When you make decisions without strong financial reporting then you are taking on a high level of risk. Timely and detailed reporting will make your decisions more relevant and confident. Having timely and accurate financial reports will assist your company manage the coming changes. Knowing your overhead, breakeven, gross margins, days on receivable, job profitability, invoicing, individual and department performance and more, will assure you can make critical objective planning decisions.

Regardless of the changes in the industry, there are core virtues that need to be protected. Use profits to create customer service programs and systems that will assure you are meeting and exceeding your client expectations. Make sure that trust; integrity; and credibility are at the heart of your company culture. These virtues are timeless and will be required regardless of the technological and procedural changes in the industry.

When considering your long-term strategy it is essential that you are aware of the changes coming as well as the opportunities that currently exists. Plan for a company of the future, not yesterday. Be aware that low overhead and technological acumen will be rewarded while large overhead and antiquated business structures will be penalized.