I am now 66 years old. It seems like a strange statement to write here. Where did that time go? I have a grown son and my spouse and I are now empty nesters. It is just us now, but we do get to enjoy some delightful visits from my son when he can get away from his own business to join us. Does that sound familiar to you?

We will all be addressing a similar outcome as we age into our later years. This will also affect our busines lives. All business owners will exit their businesses, either by choice or as circumstances dictate (e.g., death, incapacity). Ideally, we want to exit on our terms:

• Leaving our businesses in the hands of successors that we have chosen
• For the money we need and want
• On a date we pick

In the public presentations that I get to do at trade shows and association meetings, I get to see an aging population where half of the attendees either have white hair or no hair (and I’m in that latter half)! We are an aging industry population, and I am guessing that you see the same thing in your own industry meetings. Is there a viable transition plan that we can implement moving forward?

In construction, we create building plans that map-out a vision that we construct for our clientele. We amend that plan as needed during construction because things do change during the construction process. We adapt to those changes and we keep moving. It’s part of the business model. Question – can we adapt a similar approach and do the same thing with our remodeling business?

There are 3 Universal Goals in any Successful Business Transition:

1. Financial: after you leave the business, how much money do you want annually for the rest of your life and your spouse’s life?
2. Departure Date: when do you want to leave your business? And what does “leave” mean?
3. Successor: whom do you want to be the new owner of your company?

Universal Goal 1: Getting what you want.

While we view financial security as a requirement for a successful exit, a second, related financial goal is the amount of annual income you want which will allow you to enjoy the post-exit lifestyle you envision. This second financial goal may be discretionary, but for many owners, it is important enough that they will postpone their exits until they can achieve it. As is true of all decisions in planning for the future of your ownership, the choice is yours.

In previous posts, I have already recommended that you work with a financial planner to determine what your financial goal is. I will continue to argue for the benefits of working with best-in-class advisors from several disciplines. But to quantify what it will take to live your dream, I repeat: rely on an experienced financial planner to establish your financial security wants and your financial security needs. As your planning moves forward, they can also help you bridge any gaps by providing investment advice.

Universal Goal 2: Leaving when you want

Establishing a specific departure date gives you and your advisors a time frame to plan and take the action necessary to prepare your business for your exit. This does not mean you must exit on the first day you choose. Just like amending a construction plan, you may decide to stay in the business longer than anticipated by choice. The choice is yours, but only if your business is ready for you to exit it.

Universal Goal 3: Transferring ownership to whomever you want

The third and last universal goal that I ask owners to establish at the outset of the exit and transition planning process relates to a successor. Whom do you want to succeed you: a child, a partner, or a third party? Which type of successor will best help you reach your goals?

At the outset of this planning process, you may not have a successor preference. You can postpone that decision until after you quantify your asset gap and begin to bridge it.

Modifying Your Goals:

When owners work with advisors to plan their exits, they think more deeply and clearly about what they ultimately want to accomplish for themselves, their families, and their businesses. It is not unusual for owners, as they gain clarity, to modify their goals. Making changes early in the process is more time and cost-efficient than changing course once a plan is finalized and implementation is underway.

Values-Based Goals:

The three universal exit goals are common to all owners. These may be the only goals you seek in exiting your business, but many owners have additional goals based on sentiment, attitudes, or feelings.

Values-based goals tend to be non-monetary. They also tend to be less tangible and more heartfelt. But they are no less important to owners than the goals we can measure objectively.

The following list of common values-based goals is by no means exclusive or all encompassing. You may wish to add your own:

• Family Harmony
• Owner Legacy
• Acknowledging Employees
• Taking the Business to the Next Level
• Minimizing Taxes
• Maintaining Culture
• Community Involvement
• Quality Retirement
• Charitable Impulses

To uncover your values-based goals, ask yourself the following:

• What is my vision for my company without me?
• What is my vision for myself without my company?
• Are my values-based goals important to either vision?

A great question you may wish to ponder is, “what are the likely consequences to others of transferring my ownership as I intend?” Discussing this topic with your spouse, children, advisors, or perhaps an owner who has already exited can provide insights into what will happen to your business, and to you after you leave. As your business has been your focus for so many years, where will you turn that focus after departing your business? What lies ahead?

Conclusion:

Setting goals is the most important step you can take in the entire exit planning process. I believe it is the most important action you will take in the rest of your business-owning career.

Once you set your goals and quantify your existing resources, you complete the first phase of the exit planning process. At that point, you will know how close you are to attaining your goals, how far you must go, and how long it might be before you cross the finish line.

Takeaways:

• You must set concrete goals. Unless you do, you will float aimlessly along instead of pulling with all your strength and cunning toward your desired destination
• Goals drive action. Coordinated, focused action requires specific goals
• Financial independence is the acid test of all successful exit plans. Unless your plan delivers financial security, it’s not a successful exit
• Base your three universal goals on facts, not assumptions
• Business exits take time. To determine how long it will take you to exit, you must start with a clear understanding of where you want to end up. The sooner you start to plan your exit, the more time and options you have to harmonize goals, avoid obstacles, minimize risk, maintain control, and increase business value

You do not need to reinvent the wheel. You may not know how to create a successful exit plan based on what you want to accomplish, but I do. If you would like to do a free exit assessment to get a better picture of your present position, contact me at david@remodelforce.com. A simple 30-minute assessment will tell you a lot!

The post Creating the Plan to Eventually Depart Your Business appeared first on Remodel Force™.

• Either they would like to be someplace else—doing something else—
• Or they simply no longer get the same kick out of doing what they are doing

The second stream is the general awareness of the following:

• They are close to financial independence
• They are making significant strides toward reaching financial independence
• They can achieve financial independence today by selling their businesses

While each exit plan is as unique as the owner who creates it, a carefully crafted exit plan has several signature characteristics:

• They aim to increase business value
• They are put into writing so that all involved can measure their progress toward the owner’s goals
• They incorporate accountability by holding the owner and each participant to deadlines for completing each task

The Exit Path Road Map:

Set Exit Objectives/Goals:

Many contractors do not set exit objectives precisely because it is too emotionally wrenching to contemplate separating themselves from a business they have created, nurtured, lived with, suffered with, brought to maturity, and in which they have totally immersed themselves. Your exit plan should be based on your goals. It is difficult, if not impossible, for any planning professional to engage you in the exit planning process until you are emotionally prepared to begin planning to leave your business.

There are three straightforward exit objectives that once established, allow owners to cut through a lot of muddled thinking that otherwise bars them from moving forward.

These 3  exit objectives are as follows:

• Knowing how much longer they want to work in the business before retiring or moving on
• Determining the annual after-tax income they want during retirement (in today’s dollars)
• To whom they want to transfer the business:
  • Family?
  • Co-owner(s)?
  • Key employees?
  • Outside third party?
  • Employee stock ownership plan (ESOP)?

No owner can effectively begin planning (or acting in an efficient and coordinated manner) to leave his or her business without establishing each of these objectives. Many owners will also set other objectives, such as the following:

• Maintaining family harmony
• Providing for one or more employees
• Transferring wealth to family members
• Getting maximum value for the business
• Living a life of significance
• Giving to charity

Remember, your goals and objectives direct all subsequent planning efforts and actions. You are the person primarily responsible for this step, but you do not need to work alone. Who can help? Owners do not need to reinvent the exit planning wheel themselves. I have experience in creating and implementing exit plans for owners in the construction industry.

Quantify Available Resources:

A universal ownership objective is to secure the income stream that you (the owner) and your family will need to support a future lifestyle. The following three elements constitute your financial resources:

• Business value
• Projected business cash-flow
• Non-business sources of income

A Word About Business Value:

Knowing the value of the business is critical to the planning necessary to successfully exit your business because for most owners, their businesses are their most valuable asset. Accomplishing financial goals depends on converting that asset to cash. Based on owners’ knowledge of the current value of their businesses, owners, with the help of key advisors, can determine the following:

• Whether an owner’s financial objectives can be met at present through a conversion of business value to cash
• How much the business’ value must grow in-order to reach the owner’s retirement objectives (this is more common than the preceding point)
• Whether, and how quickly progress can be made to those financial goals

Focus on Business Value:

There are three parts to focusing on business value:

• Protecting existing value
• Increasing the future value of the business
• Minimize current tax liability and general liability when you transfer ownership

Increase Business Value:

An inevitable byproduct of a consistently well-run business is consistently increasing value. There are numerous actions an owner can take to maximize value. These include the following:

• Maintaining and consistently increasing cash flow
• Documenting the sustainability of earnings
• Motivating and keeping key employees
• Creating and using efficient systems

Increasing business value goes to the heart of a successful business and to the essence of your role within the business: to enhance value.

Minimize Risk:

A future buyer may not even consider purchasing your company if there is a risk that its value will decrease. Have you taken steps to make sure your key employees stay with a new owner after you exit?

Develop a Contingency Plan for the Business:

One of the benefits of developing an overall exit strategy is that you quickly appreciate how contingency planning is an integral part of it. Taking effective measures so that your business survives if you do not is a natural part of the exit planning process. In an ideal situation, business-continuity needs upon the death or incapacitation of an owner can be met by a business-continuity agreement with a co-owner. However, most businesses are solely owned. If sole owners do nothing else, they have a duty to their families and businesses to create written plans that answer the following questions:

• In my absence, who can be given the responsibility to continue and supervise daily business operations?
• Financial decisions?
• Internal administration?
• How will these people be compensated for their time and, most importantly, their commitment to continue working until the company is transferred or liquidated?
• What should happen to the business upon my death or permanent incapacitation?

When owners make the decision to begin transferring their businesses, the last thing they are likely to consider is the need for adequate planning to protect the business if they should suddenly die or become incapacitated. Yet, this is precisely the point at which the business is most vulnerable: It has peaked in value, but the event creating liquidity (i.e., the sale of the business) is likely years away. The remedy is usually straightforward: adequate legal documentation in the form of a buy-sell agreement or a stay-bonus program that includes adequate funding for important employees.

Develop a Contingency Plan for the Owner’s Family:

With this last step, your exit planning process comes full circle. Review your financial objectives established in the first step:

• If you do not survive until your business exit, which financial resources will your family need and where will they come from?
• Which actions can you take to minimize or avoid estate taxes?

As a business owner your estate plan is another part of your overall exit plan. Unlike some of your lifetime objectives (e.g., financial security), estate planning objectives and business-continuity objectives are relatively easy to meet upon your death or incapacitation. To acquire the liquidity sufficient to meet your financial objectives, consider the purchase of life insurance and disability insurance. You may be surprised by how easy it is to meet after death objectives using insurance.

Once owners complete the first two steps of the process (setting objectives and quantifying available resources), they can jump to this final step (preparation of appropriate estate planning documents and funding financial needs using insurance) so they can minimize the financial impact their death would have on their families and their companies’ ability to survive.

Conclusion:

All the techniques that produce operational business success (learning from mistakes; developing business strategies based on experience; and conducting business efficiently and effectively) do not guarantee a successful business exit.

Sadly, the valuable experience owners develop over the course of their business lives does not equip them to leave their businesses successfully. Experience, learning, and trial and error all require time, a luxury most business owners do not enjoy as they approach the end of their ownership lives.

All this planning sounds complex and time consuming, but it does not have to be. I can help you create a comprehensive exit plan that gets you the money you need, achieves all of your other objectives in a time and cost-efficient manner, and meets the following criteria:

• Based on your objectives
• Includes each of the steps summarized here
• Holds you (the owner) and all advisors accountable
• Provides a means of measuring your progress toward a successful exit
• Imposes deadlines to ensure that you and your advisors act in a timely manner

Armed with a written exit plan, a team of experienced advisors, and with (ideally) several years before you exit, you can optimize your ability to leave your business in style. If you would like to do a free exit planning assessment to better plan your eventual exit, let me know.  You can contact me at david@remodelforce.com.

The post Leaving Your Business is Inevitable! appeared first on Remodel Force™.

Determining how to increase transferable value is the business owner’s job. However, once owners and their advisors determine which of the appropriate value drivers (listed below) must be strengthened, everyone in the company should be involved. By definition, business owners cannot do it alone. If they could, they would not be creating transferable value, because once they departed, the value drivers would disappear.

As you read through the following list, remember that it contains only “generic” value drivers. Depending on what your company does, you may have other factors that create and increase transferable value. Additionally, there’s no particular order to this list, except for the importance of the management team: It is management that creates, manages, and grows these essential business characteristics which is why establishing a “best-in-class management team” is always the most important factor of creating transferable value.

Common Value Drivers:

• A stable, motivated management team that stays after the owner leaves
• Operating systems that improve the sustainability of cash flows
• A solid, diversified customer base
• Recurring revenue
• Sustainable revenue, resistant to “commoditization”
• A competitive advantage
• A documented and proven growth strategy
• Financial foresight and controls
• Good and improving cash flow
• Scalability.

Let’s look at each of these Value Drivers in a bit more detail.

• A stable, motivated management team that stays after the business owner leaves. If you plan to take any exit path other than liquidation, capable management is indispensable. Having best-in-class management is the surest way to become a best-in-class company. Capable management is what buyers buy when owners sell their businesses, so establishing the best possible management team will make it more likely for you to receive the best possible price for your business.
• Operating systems that improve the sustainability of cash flows. The establishment and documentation of standard procedures and systems demonstrate to a buyer that the business can maintain profitability after the sale.
• A solid, diversified customer base. Buyers typically look for a customer base in which no single client accounts for more than 10% of total sales. A diversified customer base helps insulate a company against the loss of any single customer.
• Recurring revenue. As a buyer, wouldn’t you want to acquire a business that prints money with the push of a button? Recurring revenue is that button that buyers look for in purchasing a business. Without recurring revenue, you may struggle to find a buyer who is willing to pay top dollar for your business.
• Sustainable revenue. Buyers look for revenue streams that continue despite fluctuations in the economy. They also prefer those that are resistant to “commoditization,” which is when a company, product, or good loses its distinctive attribute forcing that company, product, or good to compete based on price alone, which leads to slimmer margins.
• A competitive advantage. To paraphrase Michael Porter of Harvard Business School, competitive advantage is a product or service that a company offers that, over time, performs either better or more cheaply than its competitors. Your company’s competitive advantage is the reason your customers buy from you instead of your competitors. Thus, having a strong competitive advantage can differentiate you from the rest of the pack, and if that differentiation is positive, buyers will be more likely to pay top dollar for it.
• A documented and proven growth strategy. Even if you expect to retire tomorrow, it makes sense to have a written plan describing future growth and how that growth will be achieved based on industry dynamics; increased demand for the company’s products; new product lines; market plans; expansion through augmenting territory, product lines and so on. This detailed growth plan, effectively communicated, will help attract buyers. Buyers will give credence to your current growth plan if previous plans have achieved their goals.
• Financial foresight and controls. Effective financial controls protect company assets and support the claim that a company is consistently profitable.
• Good and improving cash flow. Ultimately, all value drivers contribute to stable and predictable cash flow. You can begin increasing cash flow today by simply focusing on ways to operate your business more efficiently by increasing productivity and decreasing costs.
• Scalability. Could your company improve its profit margin if it increased its revenue? Considering value-added services or even creating a mobile app can contribute to the company’s scalability.
Creating a plan to increase transferable value in your company is the business owner’s job. No one else cares nearly as much as you do, and no one else will reap as great a reward for making sure that your company has the most transferable value it can. However, executing the strategy to increase value is everyone’s job. If you don’t already have top managers and skilled advisors ready and willing to provide ideas and implement value drivers, I suggest that you recruit them. Today. Good employees want to work with a growing and successful company. They want to be part of something like this!

The post Creating Company Value Drivers appeared first on Remodel Force™.

One of the most important elements of a successful business exit or transition is the creation of transferable value. No matter what an owner sees for the future of their business, transferable value can be the common denominator that makes every goal more achievable.

What is Transferable Value

Transferable value, for a closely held business is most simply what a business is worth to someone else without its original owner. Transferable value should not be confused with profit. Just because your company brings in thousands of dollars of profit each year does not necessarily mean it has transferable value. True transferable value in a business is determined not by how well you run the business, but by how well the business runs without you.

Business owners are not always aware that transferable value is more than a formula involving multiples of earnings or some calculation of discounted future cash flows. To get a more accurate representation of the current state of your company’s transferable value, you can start by asking yourself the following questions:

• If you permanently leave your business today, would it continue with minimal disruption to its cash flow?
• Who will be responsible for running the business without you—and with minimal disruption to cash flow?

Value Drivers

One way to start to build transferable value is to evaluate your company value drivers. Installing and enhancing value drivers can help create a company that can be transferred to someone else (whether that’s the next generation of family members or an outside third-party buyer)—without the owner—with minimal disruption to its cash flow. Some examples of value-drivers that you may need to focus on are:

• Next-Level Management
• Operating Systems Demonstrated to Increase the Sustainability of Cash Flows
• Diversified Customer Base
• Proven Growth Strategy
• Recurring Revenue That Is Sustainable and Resistant to Commoditization
• Good and Improving Cash Flow
• Demonstrated Scalability
• Competitive Advantage
• Financial Foresight and Controls
One might measure the effectiveness of value-drivers in two ways:

• Their positive contribution to cash flow
• Their ability to continue to contribute to cash flow under new ownership

Simply, a company with strong value drivers will be worth more than a company with weak or non-existent value drivers.

Build Transferable Value with Your Management Team

Building a management team that you can confidently leave your company with can be challenging. You may want to create a loyal “next-level” management team that will not only maintain the value of your business but is just as motivated as you are to grow the business to new heights. Understanding where your company may have weaknesses is an important step in knowing the type of person you will need to attract to help fill the gaps. It is worth it to ask yourself whether you are focusing on attracting people with the skills sets the company needs to accomplish growth independently from the efforts and resources of the current owners. Establishing this highly qualified team long before you are thinking you will transfer the company can give them the time and space to prove their ability to perform.

Attracting the right team is the first step. Retaining the team long after your departure is the real task. To hold onto these vital team members, they may require more money or some percent of ownership as a condition of employment. Creating an effective incentive plan that fits the needs of your team is the best way to ensure your management team stays in place and continues to increase business value after your departure. Simply, plan your future with the end in mind!

The post Creating Company Transferable Value appeared first on Remodel Force™.

Let me ask the question this way – would you want to buy your company? I think I know the answer to that one. By and large, we have remodeling company owners who have the majority of their funds invested in one thing – their business. The question here is how to convert this lifetime of work into a successful retirement plan (whatever that might look like). Here are some key points:

• There are over 100 million homes in this country
• Over half of these homes were constructed before 1980
• These homes are aging just like we are
• These homes need ongoing repairs, upgrades, and improvement

We need to expand our marketplace. I call this diversification. Instead of doing the large and complicated projects, can we start to assist homeowners with all of their home-related needs and concerns? Can we assist them with a seasonal check-up? The HVAC industry understood this years ago and they regularly offer annual maintenance plans. Guess what happens – homeowners sign up for and use these plans. Let’s build on this… Can we assist homeowners with understanding and planning for the replacement of key home systems:

• Roof
• Furnace
• Hot water heater
• Exterior siding/paint
• Exterior windows

Can we work with a home performance company so that we can provide our clients with an energy audit to reduce energy bills while making the home more comfortable? Can we help them plan for future improvements, helping them understand costs, and assisting them make home improvement decisions that make economic sense? Can we refer them to competent subcontractors and suppliers that will insure that any work done is done professionally and that complaints are handled quickly and professionally?

Summary

We develop remarkable relationships with our homeowner clients. Can we optimize these relationships, and become our client’s home advisor, assisting them with every home related decision? They have a family doctor. A family dentist. They probably have a family car mechanic.

Can we become their family contractor?

The post Diversify Your Business – Expand Your Marketplace appeared first on Remodel Force™.

When market conditions are bad and consumer confidence is low, homeowners hold back on larger remodeling projects. The phone stops ringing, and sales go down. We all experienced this in 2008 with the market downturn until 2012 when consumer confidence started to return to the housing market. For example, while contractors are reporting strong sales in 2013, no one is certain what may happen in 2014. Having a good year this year, does not mean you will have a good year in 2014.

This is the uncertainty that any potential business opportunity buyer will address in looking at your company for potential sale. This doesn’t disallow selling to family members or employers, but the sales price will reflect that economic uncertainty.

In talking with a business opportunity broker, he let us know that a company’s value is dictated by economic “value-drivers” that help maintain sales in any economic condition. Without these value-drivers, a remodeling company’s value is reduced due to all the uncertainty. He shared with us that a traditional remodeling company might sell for 2 times the annual net profit. For example, if a company has a net profit of $100,000, it might sell for $200,000 (if there is an interested buyer). Share that number with most remodeling company owners, and most will just keep working. They don’t want to give up their ownership position for 2 times the annual net profit.

The Answer – Diversify! Think of all the products and services that are part of maintaining and improving the traditional home. Can you begin to provide solutions to this long list of on-going services, and take on a new role with your homeowner clients? Successful companies create more than one profit-center so that when one profit-center is down, another area maintains sales and cash flow. There is the basis for a wonderful opportunity here!

In doctor’s terminology, can you become a primary care provider? I’ll review these additional profit centers next week.

The post Building Business Equity appeared first on Remodel Force™.

This issue of selling a successful company continues to haunt remodeling contractors as they spend 10, 15, and 20 years building an established brand and reputation, only to discover that their company isn’t worth much more that the value of the tools, office equipment, and real estate. The value of their client list is just that – it’s just a list. Not much more.

Let me explain the key issue here so that we can address this and tackle this “equity” issue. When I was working with the Remodelers Guild, a banker sat down with us and told us what his chief concern were. Simply, a remodeling contractors start over every year. Homeowners doing a major addition for project one year are not calling back the next year asking to do another project. Hence, even if you did over $1,000,000 in sales this year, you can’t convince the banker that you will do another $1,000,000 in sales the next year.

Remodeling is subject to the whims of the economy, and a market downturn or terrorist attack can have a devastating effect on consumer confidence. If there is no consumer confidence, remodeling sales go down. We just experienced this from 2008 to 2012.

Business brokers will evaluate the health and saleability of a business based on brand, reputation, and recurring revenue. They call these “value-drivers“, and a business will equity will have the following value drivers:

• A unique product or service
• Your team – the right people in the right seats
• A good client list
• Technology supporting your product and service
• Strategic partnerships

You all have the parts to complete this equity-building exercise, but you might need some internal tweaking. I would like to create a part 2, and build on this idea. Would you like to know more? Let me know.

The post Creating a Saleable Business appeared first on Remodel Force™.

Almost every homeowner begins the remodeling process with baggage. If you watch television, read the newspaper, or listen to the radio, you will inevitably read or hear stories about unscrupulous building contractors. In these stories, some unsuspecting homeowner was taken advantage of and it cost them thousands of dollars. Homeowners don’t trust building contractors. They are afraid they will hire a crook, or, they fear that someone working with the contractor will get into their home and “rip them off.”

1. 1. Money: Homeowners don’t understand the real cost of remodeling. They are afraid of the “hidden” costs.

Most homeowners do not understand how difficult it is, and how expensive it is, to remodel an older home. Most homeowners underestimate the true cost of remodeling. It is a difficult and expensive process to integrate the “new” with the old. This process is made even more difficult because of the uncertainties that arise during the remodeling process. Dry rot, termite damage, bad electrical wiring, and insufficient load bearing capacity are problems that are frequently exposed once a project has begun. Whether planned for or not, these problems must all be fixed.

1. 1. Disappointment: After extended design time, and a lot of money, homeowners are afraid: “It’s not what I wanted!”

In working with hundreds of homeowners over the years, I’ve made a very important discovery: Homeowners can work with a set of plans for months, but with 90% of the homeowners I worked with, they did not fully understand what their project would look like until the walls started going up. The 2 dimensional reality presented on building plans is not enought for most homeowners to truly visualize what their project will look like when it’s done. Most homeowners fear, that after spending all that time and money, they won’t have what they wanted.

1. 1. Disruption: Homeowners are afraid of the disruption that remodeling brings.

Remodeling is a tremendously disruptive process. A homeowner can be without a kitchen for weeks, or longer. They can be without a bathroom for weeks, or longer. A major remodeling project can disrupt just about every routine a family may follow. It’s also a very invasive process. A psychiatrist I know, who himself went through a major renovation on his own home, said it was one of the most difficult times in his marriage.

1. 1. Control: Homeowners fear losing control of both their home and finances during the remodeling process.

Due to all the factors I’ve reviewed above, many homeowners express the fear that once their home remodeling project begins, that the all the unknowns involved leave them with a feeling of “being out of control.” This is a very fearful time for many people. Their home is usually one of their biggest investments, and they’re spending a lot of money. They want guarantees. Home remodeling involves unknowns. Remodeling contractors can’t always provide the kinds of guarantees that homeowners want. They have to trust their contractor.

There are some things a good remodeling contractor can do to help a homeowner through this process:

1. Its a process, not a product: A good remodeler understands they are not just selling a product-they are also selling a process. The best ones understand they must manage the process, as well as manage the project. Homeowners need to be guided through the remodeling process, every step of the way. They need to trust that their contractor will always be there for them, no matter what.
2. The 4 elements of trust: Homeowners desperately want to trust their remodeling contractor. If a contractor understands the 4 elements of trust, and practices them honestly, most major problems will be avoided. The 4 elements of trust are:
   • Consistency: Remodeling contractors need to set, and follow, consistent routines.
   • Honesty: Tell homeowners what’s going to happen each week, and acknowledge mistakes.
   • Promise Keeping: Contractors must keep their word. They must fulfill on the promises they make.
   • Reassurance: Good remodeling contractors reassure homeowners on a regular basis. Homeowners want to know their contractor will be there for them every step of the way.
3. Homeowners are emotional: Experienced contractors realize a major remodeling project is an emotional time for homeowners. Good remodelers expect this. They gear their efforts towards reducing homeowner fears, and dealing with the inevitable upsets. Emotional homeowners are not the exception-they are the rule. It comes with the territory.

The post Homeowner Fears and How to Manage Them appeared first on Remodel Force™.

If you have a marketing budget, how do you spend your marketing dollars? If 75% (or more) of new business is coming from past client referrals, are you spending 75% of your marketing budget on these past clients who are responsible for over 75% of your work? If not, begin to consider this:

• We are in a relationship-driven business
• People work with those they know, like, and trust

I know a business owner in Phoenix, AZ who opened 3 complementary service companies in 2008 (at the start of the economic downturn):

• Pool cleaning
• Carpet cleaning
• Pest extermination services

He reasoned that if he got customers in one service area, that they would benefit from the other service companies, so he could cross-market all 3 service-companies. What made this more interesting is that he formerly was the owner of a marketing company. In starting his service companies in 2008, he did some things differently. Instead of traditional advertising methods, he focused on 4 specific relationships building activities:

• Sending holiday and birthday cards (with a personal message to all past customers)
• Sending personal notes to past clients highlighting one of their personal interests that he had learned from working with them
• Sending annual gifts at the end of each year to thank them for their business (the gifts would vary depending on the amount of work he did with them)
• Doing joint ventures with sub-contractors so that they could cross-market each others’ services.

The results – his businesses have grown an average of over 30% per year since 2008. He understood that he was in a relationship-driven business.

It is no different for contractors in the remodeling industry. People are inviting us into their homes. They need to like and trust us before they will hire us. Managing the relationships with past clients will put this trust on display, and your past clients can easily share their positive experience of working with you. Let your past clients sell your services. They are the best people at doing this. Mange these relationships, and the business will follow.

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Competitive bidding is not good for business. Besides the time spent doing an estimate for a job you may not get, there is an additional element that most homeowners are not aware of. The following quote helps explain this:

“Competitive bids are just that! If I shave the labor or materials to get your job, is that the house you really want? There are hundreds of ways to lower the price of a building which often lower the quality and workmanship also. The best drawings and specifications don’t protect you from poor trade practices.” The Well Built House by James Locke, Pg. 23

This quote above sums up my feelings well. There are plenty of ways to cut corners to create a lower price. Competitive bidding rewards the lowest price and offers absolutely no advantage to good workmanship. This is what we need to educate homeowners about. Homeowners are taught 1 distinction when they pick a contractor, and that’s price. In this column, I want to show you how to promote value.

Remodelers don’t sell a commodity-we sell a service. Remodeling can never be priced on a per square foot basis. There are too any variables. It is incumbent upon us to teach homeowners about these variables. It is up to us to educate the homeowner about the “process of remodeling.” It is up to us to help homeowners understand the service we are providing. We are not just managing a project; we are managing a process. To be successful in remodeling, you must manage the process as well as manage the project. We need to make the homeowners we work with aware of this.

In a remodeling project, homeowners are putting one of their biggest assets, their home, at risk. They will frequently spend thousands of dollars to have work done on this primary asset. When most projects start, varying degrees of deconstruction take place, where floors and walls are torn away from their home. This is followed by a period of reconstruction, where a parade of strangers comes into their home to do a variety of projects homeowners don’t really understand. Remodeling someone’s home is invasive, messy, and will interrupt virtually every routine the homeowners’ follow. Homeowners understandably get very uneasy during this process. Most have never gone through a major remodeling project, so they don’t know what to expect. A good remodeler helps homeowners understand the steps involved in this difficult process, and guides them through this difficult time. Helping homeowners deal effectively with this process is one of our biggest jobs. If you want to “sell” homeowners on the service you provide, show them the way that you will guide them through this very demanding process.

Some time ago, I interviewed several homeowners who were very happy with the results of recently completed remodeling projects. These were “battle tested” veterans, and they wanted to tell me about their projects. They wanted to talk about the good remodelers who had worked on their homes. I asked them to describe some personal characteristics of these remodelers, and they gave me the following:

1. Honesty, integrity
2. Good communication skills
3. The ability to empathize
4. Long-term relationship oriented

In the same survey of satisfied homeowners, here are the attributes as being present in good construction companies in order of importance:

1. Quality construction
2. Clear builder specifications
3. Good company organization
4. Ability to provide price checks
5. Ability to provide value engineering
6. Company responsiveness
7. On-time performance
8. Fair price

At the completion of these successful projects, price was only one of eight important considerations these homeowners identified. Having the benefit of hindsight, these remodeling veterans understood the value of the service they received. To get away from doing competitive bids, we need to show our potential customers the value they will receive from working with us. What do you do that makes you unique? Do you do weekly progress meeting? Do you assign a lead carpenter to the project until it is complete? Do you provide a written schedule that you review with the homeowner on a regular basis? These are the things that create value in the homeowner’s mind.

In the informal survey above, price was not the primary consideration. Good service was. Remodeling is a relationship business, not a numbers game. If you communicate the value you provide, homeowners will pay for this value. Think about it. Why do people buy BMW’s?

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