Last year, I had a job, a job I liked. I lost that job when the company went under. It was a small business, but a long-standing one: 22 years.
Let’s do a neat exercise and re-design/troubleshoot the business such that it could have survived/thrived. I think this should be fun.
I’ll describe the business as briefly as possible while trying to cover all the bases.
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I worked for a kitchen/bath showroom that offered design and renovation services (no new construction). The owners were a married couple who worked together. Both were sales/design personnel.
Production was along the lines of twenty or more kitchen renovations a year or equivalent ‘busy-ness’ (like, more bathrooms and fewer kitchens).
The showroom was aging and out of date. This was a consequence of the owners having bitten off too much at once, in terms of buying displays. Ten years later, they still had not completely paid off the debt incurred from buying them all at once.
Rent was about $2k a month, including showroom space and a warehouse/basic shop in the back.
Fleet vehicles included two mini-vans and an aging cube van.
The company was primarily a dealer for one specific cabinet supplier that provided a quality product. Occasionally, they would sell cheaper cabinets from a different supplier if the client’s budget was really small.
Personnel consisted of two employees and one full-time subcontractor. The installer did almost all the labor involved, everything from cabinet and countertop installation to plumbing and wall repair. Other subs were only called in if the job was significantly larger than normal, although electrical was always done by a sparky. The installer was kept very, very busy.
Of the employees, there was a design assistant and a project manager (me). I did virtually no actual labor, being a manager/site super only (and deliveryman, etc.). Still, I was usually pretty busy. The design assistant drew up kitchens using the 20-20 program, ordered product, etc. She wasn’t very busy.
Advertising was restricted to the yellow pages and word of mouth. Some years before my time, the owners had paid some good money to have a brochure made up, but it turned out awful and they never had it printed. They had no website.
The owners constantly searched for another installer, and they were hoping for another guy who could do it all: top-notch cabinet installation, plumbing, wall repair. Everyone who applied came up short in one area or another.
The death knell came when they were audited after a couple slow months, and owed. They owed a lot of money to a lot of different creditors, and decided there was no way to turn the ship around.
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In some ways, the concept kind of worked. The owner couple could go away on vacation and the design assistant could mind the showroom, installation could continue, and so on.
What changes would you make so that the business actually thrived, instead of limping along?
Replies
Off the top of my head there looks to be a LOT of overhead supported by only 1 installer.
Before you can get the ship turned around you have to know your numbers. Do you know Gross Sales? Then you could infer some numbers for salaries and materials to get to Gross Profit.
WAG, I would first ax the Design Assistant. It's great that the owners can get away, but to have a full time employee for a couple days/weeks off is tough. Owners have to take over these duties.
Next, what does a Project manager do in a 1 installer company? Owner must also take over these duties. If the employees do the design and the on site managing what does the owner do?
Next, I would try to skinny up the showroom. Anyway to drop the lease/rent? Lot of folks do not have a showroom. Use the vendors showrooms to touch and feel. I would guess that the owners are older and use to the way things used to be where the established companies had thier own showrooms. That was the way it was done.
Then, work on marketing.
Interesting exercise. I suspect you knew that the company was overstaffed. Essentially too much overhead.
ditto to scrapr---- looks like this business was basically a 2 man operation
1) the installer
2) the owner who should have handled the desgign and sales duties vacations would still be achievable for the owner----installer would have to return phone calls at night during the owners vacation--and schedule appontments for after the owners return.no need for the expensive show room----probably much better off with a first rate web site which could be almost continuously up-dated with pictures of high level installations--in effect always fresh and up to date
one truck for the installer---plus the owners vehicle
stephen
That's very interesting, Stephen. The installer has a business under his name, now, and pays one of our former employers to do design work from home.As a side note, the installer did supply his own vehicle, which I didn't make clear at first.I think the owners developed tunnel-vision from being a showroom for so long. The business actually started in the '80s as ONLY a showroom for a non-local cabinet company. It was up to the client to find their own contractor - ha! Over time, they got into hiring contractors to do the installs, then got into bathrooms as well.I'm not sure they ever lost the 'retail' mentality. They sure didn't like handling the installation phase in the least.Edited 7/9/2008 4:46 pm ET by Biff_Loman
Edited 7/9/2008 4:50 pm ET by Biff_Loman
Biff
As long as we are exercising our brains. And we don't have any skin in the game. Let's see where things should have fallen.
Any idea of Gross Sales?
Then we will back out what materials should be. Then instal labor. Then OH. Then owners compensation. And finally Net Profit.
Might be eye opening for some folks just starting out
Uh geez. . . Kind of hard to figure out when you've got a $50k kitchen followed by a $15k kitchen followed by a $13k bathroom.But for the sake of mulling it over, I'm going to pull $650k out of the air. I'm wondering if I'm off, considering that doesn't sound like that much, but then again, they did go out of business.
Well, lets start at $650k
Guess on material cost 50%, might be less. Just no idea. I'm not a remodeler.
650-325=$325k
Salaries
Project Mgr 60k
Installer 40k
Girl Friday 20k
So after materials & Salaries we have 205k to support the OH.
Owners Salary going to guess 7%.......45.5k
Availible to OH.......160k
Our OH is about 24-25%. Can't imagine a remodeler being less. We bury some of our OH in the Top line instead of below the line. But non the less let's say 25%. So $162.5.
Breakeven.
If the owners took out more than 45.5k they are eroding the capital base.
Nothing can go wrong. Debt service is out of the question.
You can quibble with my numbers. And they are a WAG. And I'm a trade not a remodeler. 650k sounds very low to support the amount of people on the payroll.
Glad you got into a good situation. Good luck
I made more like $35k. But then, their income easily could have been more like $600k. I'm really making #### up.
around here a showroom would be a must for that kinda operation.
I'da suggested they use more subs ... mechanicals.
even in my area where electrical and plumbing are supposed to be installed by a "pro" and inspected ... 99% of the K and B shops try to slide it all in under the radar.
most try to force their cab installers to do the electric and plumbing ...
as most are afraid to sub it out, wait for inspections and bill accordingly.
me ... I'd run a showroom and let the customers there's one legal way to do the work ... and it's just gonna cost a little more to follow the rules.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
There's absolutely no shortage of showrooms around here. I'm thinking it's part of the local culture.But everybody - everybody - has a website, even if it's lame.
just thot of something reguarding the showroom.
last time I was cold calling for work ... I looked up a coupla addresses of kitchen shops. 2 were on the same main drag ... so I took a drive up.
one ... ok looking store front, had a nice display inside the main window with a set of SubZero 700's ....
the other ... better looking store front ... real low end looking display.
took a quick walk thru the one with cheap displays ... figured if they're selling low end they're not paying high end rates.
ended up working with the place that displayed the Sub 700's.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Yes, I understood it was overstaffed. But I didn't want to share any of my thoughts because I'm more aware of what they did wrong than what they could have done right.Which is why I started this thread.They needed a PM because both of the owners wanted to handle design/sales ONLY. They never even went back to the HO's house after the job was sold. I collected the checks and everything.And yeah, I had my own thoughts about that at the time.Also, they had this belief that they would hire another installer imminently. But they couldn't find someone who was awesome at everything, reliable, blah blah blah. No kidding.
Edited 7/9/2008 4:41 pm ET by Biff_Loman
I haven't read through all of this, but the parts that I have all suggest cutting costs. Now there is no sense in wasting money, but in general, you can't cut your way to a successful business. And I think having a show room is a good idea. Customers need to see what is available, not just pictures but the actual product. Most people have very little ability to visualize what something will look like.I'd bet the primary problem was lack of sales. Nothing increases a business's success like more revenue.Rather than looking for another installer who can do it all, perhaps having two or three installers who specialize in certain areas, but who can also do other things, plus some grunt labor types. Then the master installer becomes the PM too, and goes around checking that the work is progressing properly, etc., pitching in where needed.
how "large" did the owners live????
did they take care of themselves first???
Life is not a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside, thoroughly used up, totally worn out, and loudly proclaiming
WOW!!! What a Ride!
Forget the primal scream, just ROAR!!!
They lived really small, always paid employees first. Just really well-intentioned people. I liked them a lot on a personal level, but I could tell the organization was sick and it affected my job satisfaction quite a bit.
I agree with all above. We have 3 in the field and 1 1/2 in the office currently. We also have a part time field guy. My OH isn't what theres appears to be and we are not getting rich. So I think having a second or third job going on would have beent he ticket. Really the build up of long term debt says it all in proof of this. You can borrow your way to staying in business for a long time I imagine. DanT
these days you cant run a business like that without a website. everyones on the web. without it you are non-existant
A kitchen guy I occasionally work for has 2 office people, himself and a designer, and 1 installer.
They give the installer a van, which he can take home. The installer usually does everything from demo to finish, ( except plumbing and electric) unless its a prettty big job. Then I get called.
They rent a box truck when needed, like to deliver cabinets to a job.
The owner is second generation, but is 65-70 YO. So at this point, the business is more of a hobby for him.
one of the really smart guys from here once told me it takes $125K / yr (revenue) "per guy" to run a successful deal.
I won't out him incase it's all wrong ... but ... from what I've seen over the years ...
looks to be pretty close to the truth.
so ... add up all those people U listed ... multiply by $125K ....
and see how close / far they were.
of course ... it depends on locale .... but I'd say $100K / per guy ... give or take $25K.
Jeff
Buck Construction
Artistry In Carpentry
Pittsburgh Pa
Jeff,
That is a number is use a broad measure of where I am on staffing. I did a little analysis of the Remodelers top 50 a while back and found that number was accurate for folks that self perform. Those that sub everything need to have at least double that.
I also looked at self performing staff and found that there was one manager/sales and one office staff per five field employees.
Based on all of Biff's info I would say they were upside down on staff. 4 managers per one installer-sounds like our city maintenance crews.
Bruce
I've started doing the quick division on the Top 50 list since he told me.
like U said ... seems pretty close to being right on.
Jeff Buck Construction
Artistry In Carpentry
Pittsburgh Pa
well first i'm thinking they should of found subs to install or hired a installer and as a owner learned to love being on site,sorry but your job would of gone.you have a husband and wife and designer sitting back in a dated showroom designing???????
i would of found someone to start selling displays to and renewed 1/2 of them,with some thought as to selling them in 2 years and do it again,just like the big boys.i'm always amazed at what lowes wants for a "old " kitchen and someone always buys it.
2k for rent ,if the space was prtty presentable great,if not your dead in the water,people want to feel there in a high class operation if they are dropping 50k for cabs.
signed on with a couple more cabinet lines,customer can't find what he wants in 1 line he's gone.
have to be on the web,even if it's a simple deal.
NOW to the part i really know about,working with your spouse,lots of advantages but lots of negatives to and the first is hard to grasp at first. around here a real decent wage is 40k male,30k, female. so if your out in the working world your both bringing in 70-80k ,Plus one of you will have insurance,that can be worth 10k a year,plus when you go on vacation,you are on vacation.
i'm in this exact sititation,i make a average living,but my wifes unemployed basiclly,even though she goes to work with me most every day.if we both had that average job thing we would be doing much better. we won't even get into all the other negatives :]
i can see if the wife is a designer that that would help elimanate another paycheck.
getting into debt on a small bussiness thats not generating a lot of revemue is the next thing that will eat you up. when you sell inventory and live off it instaed of buying more inventory,means your going broke,it's just when.
small business,if it was easy everyone would do it. larry
if a man speaks in the forest,and there's not a woman to hear him,is he still wrong?
i agree with the overstaff part as others have suggested but i think they could of probably pulled it off with advertising.
did they ever do home shows?? an ad in the yellow pages is not enough for a volume based business.
did they sell more jobs then could be completed effectively. what was the backlog?
where there sufficient leads coming in the door?
I thought manufactures gave big discounts for there products to be displayed in a show room.? how did they get that far into debt on the showroom?
showing golden oak cabs in a world of cherry and maple would more then turn a few buyers off around here.
"did they sell more jobs then could be completed effectively. what was the backlog?"Famine is famine: sometimes they were slow. But a feast won't help you if you can't eat it: they'd be overwhelmed when the jobs did come in, without enough labor to address them in a timely fashion.That did cost them some business.With respect to the showroom: even with the discount, they went overboard. They had four big, full kitchens, a fancy-#### bathroom, and some other stuff.
Edited 7/9/2008 11:22 pm ET by Biff_Loman
It sounds to me like they were top heavy in fixed rate salaries and the showroom expense wasn't paying off. I gotta wonder how much the yellow pages expenses helped too. As for the website....I can never find anything I want on the websites. It may work for the young people but it doesn't work for me on blind searches. If I know the exact name of a company, then it works. So, their approach to advertising may or may not have worked. You don't mention their volume of leads or closing ratios so it's hard to judge whether they were spending their advertising dollars well. I don't have a problem with paying a Project Manager, but I don't like the idea of a salaried one. I'm paying a fixed percentage fee. If you're running only one job, you better run it fast and get it done or you might not survive. Same goes with the designer. I'd pay per design.It sounds like they opened a showroom and then remembered it was an anchor. They had to be there an open it every day. So, they hired a designer to be the anchor. They didn't like dealing with the homeowners so they hired a PM. They don't like dealing with the construction or money. To me, it sounds like they were in the wrong business, then made the wrong business decisions to deal with their dislikes. They were in love with having a showroom and being in business. They didn't love the kitchen design/build business. Note the subtle difference. When they noticed the negative cashflow, they had to shed the designer and shed the PM or at least structure the pay to fit the volume better. If sales were slow, they needed to re-evaluate their sales staff and maybe fire themsleves! Bob's next test date: 12/10/07
"You don't mention their volume of leads or closing ratios so it's hard to judge whether they were spending their advertising dollars well."Yeah - I have no clue. For me, the jobs just appeared after the contracts were signed."They were in love with having a showroom and being in business. They didn't love the kitchen design/build business." You hit the nail on the head. Without question, they hoped that if they had the right team, it would all happen automatically, and they could spend their time yacking about faucets with customers. Of course, they had kept that up for 22 years, so they thought they were doing something right. "When they noticed the negative cashflow, they had to shed the designer and shed the PM or at least structure the pay to fit the volume better. If sales were slow, they needed to re-evaluate their sales staff and maybe fire themsleves!"Yeah. . . I pretty much laid myself off, in the end. They were procrastinating dealing with the fact that my position was superfluous, so I went to them and told them I thought they should let me go. Pizzed off my wife some, but I already saw the writing on the wall. Two months later, they had closed up.
Edited 7/10/2008 7:41 am ET by Biff_Loman
Wow, that place had a bunch of choke points.
For me as a consumer walking into these places, and wondering if I should bother to bring my wife in too, the display area is critical. It doesn't have to show me everything there is, but it should show me something new and creative. Instead of showing rows of product, maybe just a bathroom and a kitchen, fully decked out in a new and interesting way. Then, change those displays periodicly for the repeat customers. This shows that they are IDEA people, who can come up with ideas for me.
Their web site would be a great place to not only give details about themselves, but also planning tools for their customers. Deep links to manufacturers websites for their particular products is good too.
As for the installer... they were lucky they found this first guy, but their business relied too much on him. Great contractors like him aren't born, they are taught. They should have gotten someone young and cheap and had the old guy train the new guy.
Rebuilding my home in Cypress, CA
Also a CRX fanatic!
Save the Whales! and Guns!
A bad showroom is way worse than no showroom, in my opinion. Good jobsites are great showrooms. I've been lucky enough to not have to do any advertising at all. It's only been a year on my own and everytime I get ready to invest in a website I get another call. I don't expect that to last forever, but I'm enjoying it while I can.
I have no idea how to fix a failed company. I'm just trying to make sure mine isn't one of them!
I'm neither a business nor building expert, but the two obvious ones are the web site and showroom (as others have said already).
A web site *is* the yellow pages now. If I can't quickly google you 'kitchen cabinets + my city' then I don't know you even exist.
As for the showroom, even Ikea doesn't go nuts with it...they may have one or two kitchens, and then one set (base + wall) of each individual cabinet style.
That money could have been better spent on subcontracting an architectural photographer to occasionally shoot portfolio pieces of installations they did.
From a kitchen person's point of view:
Aging showroom tells whatever traffic comes in that the owner/designer really doesn't care. Keep the bread & butter displays, freshen up with new tops & paint, add just enough new to look "current". Don't waste money on overkill. Sell whatever displays you can, and only replace what's critical.
I'm curious about how much they put in that showroom not to have paid it off in 10 years! Most cabinet lines discount at least 50% from net for displays, so they either greatly overspent or it was a huge showroom.
Lack of an advertising strategy will kill you.
Links from cabinet lines, suppliers, NKBA, etc. could have directed lots of traffic to their website if they'd had one. Missing those critical components of networking says someone wasn't paying attention or just wasn't interested.
Mailings are critical; fancy brochures aren't and a website is better than a brochure any day.
Replace the design assistant with someone used to doing both sales and design. Sounds like they needed more business to keep up growth. A good sales/design associate could have helped with operations and to increase the number and scope of projects.
It's quite possible that the owners exaggerated how much debt they owed on the showroom in order to justify their debt load. To make it more psychologically acceptable.When in reality the business was unprofitable and they borrowed to keep the doors open. But that's not what they told me.
When in reality the business was unprofitable and they borrowed to keep the doors open
Been there, sort of, when I had a gift shop. I do understand the temptation to borrow in hopes of stabilizing the business because I did it. In my situation, tho, the business wasn't doing that badly, but it couldn't grow fast enough to cover the overhead. Since I purchased the older home in which the business was located, my business partner would never kick in her part to cover the mortgage payment when the shop couldn't pay its "rent".
One day I just told her that, unless she could figure a way to make the rent payments the business owed, it was over. I was too far in debt and operating with no income from the business, and I wasn't going any further. We closed the shop later that month after 2 years in business.
10 years later I'm still not past that financially; actually, I never will be. It's hard to learn a valuable lesson by losing a business, but sometimes that's the only way.
Overall, the kitchen & remodeling business is tough and profit margins aren't large. It sounds like they were trying to "phone in" their involvement and paid the price for it. Really too bad after all the time invested.
before i read any others answers... i'll give you mine....
too many people drink'n from a small pond....
1. they couldn't handle more business because of lack of an installer... (not that i think they were turn'n any away)
2. what in the heck were the owners doing...? don't sound real hands on... one of them should have doing your job... and the other should have been doing the design without a "design assistant "
3. sounds like the owners got or were lazy
4... just a WAG 20 projects a year thats one every 2.5 weeks... so each project has to pay for all the overhead for that period... (not even talk'n profit) thats like make'n one sale every 17.5 days and you have a store (showroom) now if each project was 100k then ok i'm with you... maybe if you were smart in your buy'n you could keystone it...
5... i'm guess'n they never made any money in the last 10 years they were in business... maybe longer... but each "good job" kinda cought them up but they were never more than a few bad months away from being broke...
not slam'n em... thats how 80% of small business people work... all they own is a job
p