Growing Your Business

By Al Trellis and Paul Sharp

Many builders reach a point in their business when they begin to question their ability to move forward and whether the things that made them successful will continue to work. Others plunge ahead and discover later that increased growth does not necessarily lead to increased profits or even financial success. Instead, increased growth can lead to increased overhead, production inefficiency, personnel problems and additional commuting and logistical support.

If you find yourself at this stage, it is usually better to consolidate for a year or two and concentrate on increasing profitability through better management, streamlined expenses and increased efficiency. You may also want to play with your pricing and increase your margins. Here are some steps to take to help you grow successfully:

Shore up the staffing

As you grow, so must your staffing, especially at the field supervision level. You may need to find new subs or rely more on existing subs. In all this, however, dont neglect your existing staff. Morale can suffer if the work load increases dramatically or if chaos overwhelms your systems. When you hire for growth, try to hire from the bottom so that new personnel support the existing staff and dont threaten their sense of security.

Look at your margins

Margins vary across the country, but your minimum net profit should be somewhere between 5 and 7 %. Overhead is more difficult to benchmark because builders use different methods to account for items like the owners salary. As the owner, you can increase overhead and lower net profits by taking out a large salary and generous benefits. Or you can draw a small salary and slim benefits to build a larger net profit, which might then be reduced by a substantial bonus. (More conservative builders leave the profits in the company and use them to buy more land and create additional opportunities.)

While its difficult to suggest a specific overhead percentage, many custom builders successfully run their companies with a ratio of approximately one employee per $700,000 to $1.2 million in gross sales revenues.

Consider a consultant

If you find yourself growing beyond your comfort level, it might be time to hire someone who can look at your current situation and discuss future opportunities and goals. A good consultant helps you focus on what you need to do and helps you understand how to do it. Good consultants dont just impose their vision on your company.

Growing your business successfully requires capital, good people, and especially smart management. If youre going to grow, do it in a way that you manage the growth, rather than letting the growth manage you.

Al Trellis and Paul Sharp are cofounders of Home Builders Network. Al has 25 years experience as a custom builder, speaker, consultant, and columnist. He speaks to over 6,000 builders a year. Paul provides marketing consulting to builders around the country. The article is excerpted from their book, Building with an Attitude.

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