COTNEY CONSULTING GROUP John Kenney, CPRC, CEO, Cotney Consulting Group
Managing a Successful Roofing Company, Part One Understanding why roofing contractor businesses can lose money is the best way to prevent that situation. The decisions and events that precede the failure of a roofing business can be categorized and quantified into a group of common causes. When it comes to understanding the causes, one of the most interesting facts is that the events and decisions that cause or contribute to a roofing contractor’s failure occur during the company’s profitable years. If you look for the causes during the problematic years when a company is losing money or breaking even, you are only examining the result, not the causes. The events and decisions that precede a company failure occur during the one to three profitable years before the first year of breaking even or loss. Since many companies struggle through several losing years before failure, the time frame can be from one to four or more years before failure is evident. In researching the events and decisions that cause companies’ difficulties, I found five recurring and industry-wide risk elements to potential profit or failure. These common aspects of business failure are: 1.
Increase in project size
2. Unfamiliarity with new geographic locations 3. New and unfamiliar types of installations and services 4. Changes in key personnel 5. Lack of managerial maturity. In this article series, we will focus briefly on items one through three and look deeper into reasons four and five. I am not suggesting that you fear growth or change. Many contractors making decisions concerning growth or expansion into new markets, locations or new and unfamiliar types of installations and services do not see them as risky or dangerous. In fact, with proper planning and controls, most of them are not. But, when two or more of these changes are undertaken simultaneously, they can be lethal to the company’s bottom line.
Increase in Project Size
One of the most common elements among contractors who fail is a dramatic increase in project size. Taking on more significant projects is a normal part of growing a roofing company. The switch to larger projects usually occurs during profitable years. However, 30
FLORIDA ROOFING | December 2022
problems can develop before the first of the larger projects are completed. The project size relative to the size of the company and the size of its average projects has a definite relationship to profitability. When a company is operating at a healthy profit doing a specific average-sized project and a certain top-sized one, there is no reason to believe that profit will carry over performing a dramatically larger one. Most companies can perform well on a two or three-times larger project than it usually does. Let’s say you normally do roof replacements between five hundred thousand and one million dollars. In all likelihood, you can do a two to three-million dollar project. As the size increases, so does the strain on the company’s resources and technical abilities. Nonetheless, within this magnitude, you can probably get the job done. But the critical question is this: Can you make a profit? Using this example, making a profit from a job three to four times greater than the largest project would be impossible without additional resources and careful planning – unlikely without outside help. Large projects can also be a significant drain on cash flow. When considering these types of projects, ask yourself these questions: ■ Getting the additional resources required might be possible, but how would my company, without a background on a project this large, determine the needed resources? ■ Without experience, how could I carefully plan the work? ■ Do I have the capital available to bankroll this type of project?
Unfamiliarity with New Geographic Locations
While many good business reasons exist for a company to expand into new geographic areas – such as normal growth, lack of work in the primary area and unique opportunities – risks must be recognized and planned for. Again, the question is not whether the