1. Improving Company Performance! How Do You Compare to Top Companies Across the Country?

2. Summarized Data from 173 Member Companies

3. Not Your Ordinary Remodelers Improvement seekers Improvement seekers Tend to be financially savvy overall Tend to be financially savvy overall Belong to associations Belong to associations Read publications Read publications Seek out educational opportunities Seek out educational opportunities

4. How We Ranked the Results Step One -- Determined Average Annual Total Compensation for Last Two YearsStep One -- Determined Average Annual Total Compensation for Last Two Years –Total Compensation = One Owner’s Salary (Normalized) + Net $$ Step Two – Ranked in Two WaysStep Two – Ranked in Two Ways –In Total Dollars $$$ –As a Percentage of Sales Favors efficiency rather than sheer size.

5. Compared Data from Top 10% and Bottom 10%

6. The Top 10%... Have Higher Volume $2.82 vs. $1.84 Significantly larger average job size $93,628 vs. $34,528 Complete fewer jobs/yr. 32 vs. 59 Budget for lower job costs 60% vs. 65% Use higher mark up 67% vs. 54%

7. The Top 10%... Larger backlog $552,070 vs. $236,363 Produce Nearly twice revenue/employee! $233,005 vs. $125,073 Offer Performance based bonus programs to the field 53% vs. 41% Use more subcontractors 40% vs. 34%

8. The Top 10%... Fewer small jobs 11 vs. 37 Greater gross profits on those they do take 43% vs. 39%

9. The Top 10%... Spend more on marketing, both in gross dollars & as a % of sales 1.9% vs. 1.6% Have marketing plans 76% vs. 35% Reach out to previous customers at least 4 x/yr. 53% vs. 35% Have greater percentage of referrals (more than 60% of leads come from referrals or repeat.) 88% vs. 76%

10. The Top 10%... Marketing results are tracked 88% vs. 59% Use a Lead Qualification System 76% vs. 59% Receive more leads from former clients and “friends of the company.” Lower closing ratio 6.62 vs. 5.68

11. The Top 10%... More Fully Use Recommended Practices P & L and Balance Sheet Monthly 100% vs. 82% Do Job Autopsies regularly 82% vs. 59% Use % of Completion Accounting 88% vs. 71%

12. The Top 10%... PLAN for their SUCCESS!! Have a Realistic Budget 82% vs. 71% Budget for bigger owner’s salaries $150,000 vs. 56,000 Budget for healthy net profits 15% vs. 7% Most importantly, they achieve these goals!!

13. The Rewards? The Top 10%... Earn greater total compensation $635,650 vs. $244,993

14. Top 10% are Happier!! Are much more satisfied with their work Those ranking themselves Fabulous or Pretty Good 83% vs. 47% Work fewer hours 44 vs. 51

15. Our Conclusions - Successful Firms... Believe in and adopt our recommended practices. Believe in and adopt our recommended practices. Plan for success in the careful preparation of realistic budgets. Plan for success in the careful preparation of realistic budgets. Monitor plan carefully as they execute. Monitor plan carefully as they execute.

16. Our Conclusions Successful firms... Control job costs and overhead carefully, minimizing slippage of both. Control job costs and overhead carefully, minimizing slippage of both. Are willing to ask for higher prices. Are willing to ask for higher prices. Spend more for marketing and do it effectively. Spend more for marketing and do it effectively.

17. The Top 10%... Plan for their success!

18. Now Let’s Talk About Your Numbers! Handouts for this section available at RemodelersAdvantage.com under Free Resources

19. Any remodeler who can produce a detailed estimate for an addition can MASTER analyzing financial reports!!

20. 5 Financial Tools…… 1. Methods of Accounting 1. Methods of Accounting 2. Profit and Loss Report (Income Statement) 2. Profit and Loss Report (Income Statement) 3. Balance Sheet 3. Balance Sheet 4. Job Cost Reports vs. Estimates 4. Job Cost Reports vs. Estimates 5. Operating Budget vs. Actual (P & L) 5. Operating Budget vs. Actual (P & L)

21. 1. Methods of Accounting…. Cash Cash Billings Billings Completed Contract Completed Contract % of Completion % of Completion

22. Does Method of Accounting Really Make Any Difference?

23. Percentage of Completion is the GOLD Standard for Remodeling What have I truly earned? What did it cost me to earn it?

24. Answers from the Percentage of Completion Worksheet (WIP)! production output for month production output for month forced look at each job’s current profitability forced look at each job’s current profitability stabilizes COGS and GP % on P & L stabilizes COGS and GP % on P & L overbillings, underbillings – whose money is it anyway? overbillings, underbillings – whose money is it anyway? how much GP remains in backlog how much GP remains in backlog corrected P & L and Balance Sheet corrected P & L and Balance Sheet

25. 2. The P & L – Scorecard for the Current Game P & L Skeleton! Income/Revenue - Cost of Goods Sold (COGS) = Gross Profit - Overhead = Net Profit

26. P & L – Rules to Play By Good chart of accounts Good chart of accounts On % of completion On % of completion Consistent definition for COGS Consistent definition for COGS All COGS must be dispersible to job costs All COGS must be dispersible to job costs All COGS must match estimating categories All COGS must match estimating categories %’s on report %’s on report

27. P & L Answers…. Production output for period Production output for period Average GP produced by jobs Average GP produced by jobs Overhead dollars and percentage Overhead dollars and percentage Earned net profit Earned net profit

28. 3. Balance Sheet = Cumulative Scorecard Balance Sheet Skeleton Assets = Liabilities + Equity

29. Balance Sheet - Rules to Play by… Assets = what we own Assets = what we own Liabilities = who has some claim Liabilities = who has some claim Equity = If we closed the doors today…what would be left to owner Equity = If we closed the doors today…what would be left to owner Current = w/in the year Current = w/in the year Cash and liquid assets are king Cash and liquid assets are king

30. Balance Sheet Answers…. How much cash do we have available? How much cash do we have available? What is my equity/value in the business? What is my equity/value in the business? In a crunch could I pay current liabilities from current assets? In a crunch could I pay current liabilities from current assets? Am I getting behind in my collections? Am I getting behind in my collections? Do I have too much money in my business? Do I have too much money in my business? and lots more….. and lots more…..

31. 4. Job Costs – Rules to Play by… Important but don’t overemphasize Important but don’t overemphasize Clear estimate formatted to COGS categories Clear estimate formatted to COGS categories Sorting of categories has to match Sorting of categories has to match Review bi-weekly Review bi-weekly Autopsy at end of job Autopsy at end of job Share with all employees who can effect changes Share with all employees who can effect changes Worth lots of effort, time and money Worth lots of effort, time and money 2% rule 2% rule

32. Job Cost Reports Give…. Updates on how job costs match estimate Updates on how job costs match estimate Clues to problem areas Clues to problem areas A discussion document between teams A discussion document between teams Proofing of estimating system Proofing of estimating system Clues to performance issues Clues to performance issues Comparisons between team members Comparisons between team members

33. Could every job come in on budget but the company have a losing year?

34. 5. Budget - Rules to Play by… Budget and P & L same format/sorting/chart of accounts Budget and P & L same format/sorting/chart of accounts Be realistic - can try “what-if” scenarios Be realistic - can try “what-if” scenarios Don’t need to line item COGS Don’t need to line item COGS Be critically accurate on GP % Be critically accurate on GP % Rework, rework, rework until 8-10% net Rework, rework, rework until 8-10% net

35. More Budget – Rules to Play by… Tweak markup, overhead expenses, production savings Tweak markup, overhead expenses, production savings Break down by month – realistically Break down by month – realistically Enter into bookkeeping system Enter into bookkeeping system Study monthly budget-to-actual report Study monthly budget-to-actual report Update at least quarterly Update at least quarterly P & L is the report of actuals P & L is the report of actuals

36. Budget Answers…. Is it possible for me to make a profit? Is it possible for me to make a profit? Exactly how would I do that? Exactly how would I do that? What three critical numbers should I monitor? What three critical numbers should I monitor? Volume, GP %, OH $ Volume, GP %, OH $ How can I communicate the game plan? How can I communicate the game plan? How can I measure progress? How can I measure progress?

37. The ProfitFirst System Begin with the end in mind."

38. Joe is planning for his next business year. He is committed to achieving a net profit of $25,000. He's planning to sell and produce a volume of $300,000. Overhead runs $65,000. The Seven Step ProfitFirst System © : 1.How much net profit do I want? 2.How much should I sell/produce? 3.What will my overhead be? 4.How much gross profit dollars will I need? 5.What should my job costs run in dollars? 6.What should my job costs run in percentages? 7. What markup must I use to achieve this?

39. And a sixth financial tool – Honesty in your Financial Reports You’ll sleep better at night You’ll sleep better at night Your fellow citizens won’t be burdened with your taxes Your fellow citizens won’t be burdened with your taxes You’ll know what your company is really doing You’ll know what your company is really doing You’ll be able to share financial goals/info with your staff You’ll be able to share financial goals/info with your staff You’ll create a climate of honesty in the company You’ll create a climate of honesty in the company A buyer will pay more for the company A buyer will pay more for the company It’s the moral, right, legal thing to do It’s the moral, right, legal thing to do You won’t go to jail You won’t go to jail

40. What have we covered? Methods of Accounting Methods of Accounting P & L P & L Balance Sheet Balance Sheet Job Costing Job Costing Budget vs Actual Budget vs Actual Honesty! Honesty!

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