Renovation and remodeling projects spiked during the pandemic, and are still growing. In 2021, 84% of homeowners planned to tackle a home improvement task. Outdoor areas are especially popular places since many people plan to entertain post-pandemic. Also, some people are now working remotely and need a functional space. The current boom may make it harder for remodeling businesses to keep up. Here are some ways contractors can efficiently handle the increased demand and grow their remodeling business during an economic upswing.
1. Hold on to your cash
When renovation jobs are pouring in the door, it often feels like success is guaranteed. But growth actually invites a lot of risk for a remodeling business. When you take on more jobs, your cash outlay increases for material purchases, labor, and mobilization costs. You can quickly find your business underwater while you wait for payments to come in.
It should come as no surprise that cash flow problems are the number one reason why construction companies fail. When you’re trying to grow your remodeling business, it is increasingly important to watch your financial statements closely, and keep an eye out for any gaps in your cash flow forecast.
Looking for an easy way to protect your cash reserves? Try financing your material purchases. Let someone else pay for your materials up front while you only pay when your customer pays you. Use those funds for other bills that can’t wait.
Get more time to pay for materials.
Free up cash flow with pay-when-paid terms on materials purchases.
2. Protect your lien rights
The more jobs you have open — and the bigger they get — the more costly it is when a customer delays or defaults on their payment. You need that money to keep your other projects afloat. It doesn’t matter how much you trust the homeowner to pay — your right to file a mechanics lien is the most valuable tool in your payment toolbox.
Remember: When business is booming, cash flow problems can sink you quickly. If a homeowner is delaying payment, consider filing a mechanics lien to protect your financial assets. A mechanics lien claim can prevent an owner from selling or refinancing until you receive payment.
3. Be clear about payment expectations (and consequences)
Even when homeowners think they are ready for an upgrade, they don’t always understand the true cost. Home improvement shows are wildly popular, but they give homeowners unrealistic expectations. For example, a kitchen island may cost around $1,000 on an HGTV show, but $3,000 for a typical homeowner.
Therefore, setting clear expectations about pricing is important. When you write the remodeling contract, make sure to use simple language and avoid industry-specific jargon. Lay out numbers with images and graphs to make it easier for clients to understand. Also, be transparent and explain all associated costs so homeowners aren’t surprised. Having clear expectations from the start creates a smoother and more pleasant process.
Before you sell the job, make sure your clients are aware of what happens if there’s a disagreement down the line. Let them know you’re prepared to file a lien if they don’t follow through with the payment you agree upon.
Worried about turning off a potential customer? Don’t be. Homeowners are intensely wary of fly-by-night contractors. If they scoff at the idea that you would file a lien, let them know that other contractors would do the same — they just wouldn’t give the homeowner advance warning. There’s nothing people like less than unwelcome surprises.
Starting off on an honest foot builds trust, and trust is an invaluable commodity when you’re working with homeowners.
4. Choose remodeling customers wisely
When you have more renovation jobs than you can handle, you can be choosier about the customers you take on. Choosing the best clients for your company is critical.
The first step is to ensure the services you offer match up with the customer’s expectations. Does your remodeling company focus more on the designing or building of a project?
Location is another important factor. Consider the construction site’s distance from your office. Working on assignments farther away can take more time and resources.
It’s also essential to get to know your clients. Unless they’re hiring you to design and build a new bathroom, make sure they have the specifications nailed down before you begin the renovation process. During the interview, you can see if your personalities will blend well. Since you will be working with them for an extended period, this is key.
If you’re hiring subcontractors on a remodeling project, make sure they have a good track record of performance — and payment history. If a plumber doesn’t pay their supplier, that supplier can file a lien on the property, erasing any goodwill you built with the homeowner.
5. Bid accurately
It may be tempting to overbid to increase your payment. However, it can end up causing you to lose potential clients. Few homeowners choose the first contractor they see when they’re planning a remodeling project.
When coming up with the bid amount, it’s critical to evaluate past projects so your renovation estimate is as accurate as possible. Look at things like blueprints and bills. You also want to consider all remodeling costs, such as labor, materials and equipment.
Another way to determine the proper amount is understanding the ROI of projects. For example, projects like bathroom remodels have a more significant ROI. Researching can help determine the most accurate price for the renovation. Be sure the bid information is organized and has data to back up the expected costs.
6. Automate your processes
Technology has become more advanced and should be incorporated into your business. Using automation software can improve everyday tasks, such as payroll and invoices. With these processes done quicker, your contractors can focus on more urgent projects.
You should also implement cloud-based payroll. In addition, automating field time reduces the need to enter information twice.
Here are some software applications to consider investing in:
7. Monitor your assets
Keep track of the tools you need on the job to increase your productivity. Use a platform where on-site crew can communicate with those in the warehouse. Effective communication can reduce supply delays and make the process quicker.
Using cloud-based tools and management systems can help you regularly access maintenance schedules. Tracking data in real-time makes the renovation more efficient.
8. Track financial performance
Every homeowner is different, and every renovation project is unique. Costs will exceed your estimate on some jobs, and other projects will come in under budget. Tracking your financial performance over time will help you identify trends that you can actually control.
In addition to tracking variances in job costs and labor hours, you should be watching key performance indicators that measure how effectively you are collecting on invoices, managing cash flow, and earning profit.
9. Protect against profit fade
Profits fade because of several factors, such as changing material costs. For example, between January 2020 and 2021, iron and steel prices increased 15.6%. Manage change orders and forecast prices with technology to stay on top of these fluctuations. Also, it’s a good idea to produce a labor cost report during each construction phase to reduce any unexpected expenses.
In addition, having control over documents like change orders can improve efficiency. Staying organized and keeping this information in one place is essential. Along with your documents, keep a close eye on employees to reduce profit fade. At the end of a project, remember to check your progress to increase profitability next time.
A renovation boom is a good thing — if you’re prepared
Many people are starting to evaluate the design of their homes, leading to a rise in renovations. Follow these tips to keep your business on top of the remodeling boom.