Remodelers to Restorers?

While at a recent conference of the Restoration Industry Association (RIA), I heard several contractors complain about remodelers and home builders attempting to get into the insurance restoration business. With head-shaking disdain, they remarked that the restoration business isn’t as simple as builders think.

And they’re right.

But that’s not what some would have us believe. Shortly after the conference I found a web site advertising a book that would teach contractors the SIX EASY STEPS to becoming an insurance restoration contractor, including how to achieve (a remarkably precise) 87.62% bid success rate, with HUGE PROFITS. BIG, FAT, WONDERFUL 20% to 40% PROFITS!

Hmm. A few of these “easy steps” remind me of the first half of comedian Steve Martin’s joke about how to become a millionaire and never pay taxes: “First… get a million dollars.”

“Easy” step #1 is to “Establish a relationship with the proper insurance company 'insider', known as an adjuster.” Well, fine. Go ahead and establish that relationship. But it helps to have knowledge of the special procedures unique to restoration work. “Easy” steps 2 through 6 are to analyze the damage (yes, maybe along with five other contractors), perform the repair cost analysis (do you know how to use the standard estimating software, Xactimate?), obtain an "approval of sheet" from the insurance adjuster (which I assume is an agreed scope and price), set up the contractual relationship (which now involve the interests of three parties), and then “proceed with the repairs.”

Let’s isolate just one of those “easy” steps. An insurance estimate is scoped and priced much differently than a remodeling job, and Xactimate requires special training to use. If you’re a participant in an insurer’s program, they will pay your cost based on Xactimate’s pre-set values + 10% markup (not margin) for your overhead + 10% for profit. Pause for laughter. Money is made in this business, to be sure. But could you make money in your business if you used that formula, literally? Well, there are ways, but those were the subject of ethics roundtable debates at the aforementioned RIA conference.

Now, perhaps I’m being cynical. Maybe it is easy to just dive into emergency response and restoration services for water, smoke, and fire damage. All you need are trained and certified technicians, and the capability of providing 24-hour response. Your staff will need to know how to deal with traumatized homeowners in the middle of a crisis. And they’ll want to use tools and equipment that are specially designed to perform the work required by the emergency – take water damage, for example: equipment that can dry a structure quickly; vacuum units and specialty extraction tools (for carpets and cushions); air movers and dehumidifiers; meters to test moisture content. And there are special procedures and documentation required to prove that the structure was dried properly and returned to a pre-loss condition that won’t promote mold growth.

But wait, there’s more! Other services include content inventory and pack-out, fire damage demolition, smoke mitigation, mold remediation, gray and black water mitigation, and even (shudder) trauma scene cleanup. With fire damage repair, for example, you have to do the correct amount of demolition. Too much and you’ll be doing work for which you won’t be paid. Too little and you could have odor and structural problems. Then you have to properly handle the fire odor problem. But I’ve made my point: Restoration work is a completely different animal.

Different, until you get to the “put-back” or rebuilding step. This is where the remodeling industry intersects the restoration industry. Put-back means what it implies – replacing the structure and finishes to their original state: framing, insulation, drywall, trim, flooring, painting, and so on. Margins are typically lower than for mitigation work, because put-back requires management and technical skills that cost more in the marketplace. This would obviously dilute a restoration contractor’s blended margin if he carried the fixed costs necessary to perform that kind of work. Therefore, many choose not to pursue it. But it’s also the type of work that matches a remodeler’s skills and resources.

Given the state of the remodeling industry right now and for the foreseeable future, this may present an opportunity for you to subcontract for a local restoration firm that does not currently perform the put-back portion of insurance claims work. The difficulty will be in convincing them that their company’s good name will not be tarnished by your failure to perform acceptably. That’s a hot-button issue, as their business relies on maintaining a satisfactory reputation among the insurance adjusters who feed them work. One bad job could undo years of good will.

So if you can demonstrate why there would be no risk in subbing to your company; or if you’re willing to become an employee, there might be an opportunity for steady work through this protracted slowdown. After all, fires and burst pipes don’t care about the economy.

P.S.: The second half of Martin’s joke is “Then say… ‘I forgot!’”

Organize Your Business Using The Franchising Model

For those who have read Michael Gerber’s The E Myth Revisited, you’ll recognize this theme: Organize your business as though you were going to franchise it.

Franchising is simply a method of distribution of a product or service utilizing the brand, operating systems and support of the franchisor. Applying these principles to your own business can help improve your productivity and profitability even if you never plan to actually franchise it.

The foundation of a franchiseable business is replicable operating systems. “System” is defined as a coordinated body of methods and procedures, but I would add that for business purposes it needs to be documented in a form that can be most effectively utilized by those responsible for its implementation. So where do you start if you want to document operating systems for your business? I recommend that you create a “map” of your organization, sorted by job function, responsibility, and task. From that map you can document the systems for each key responsibility.

As an exercise, write in simple outline format how your business is organized. Example:

I. Marketing/Advertising
II. Sales
III. Production
IV. General Management/Financial

Then under each section, write the related responsibilities. Example:

IV. General Management/Financial
a. Planning & budgeting
b. Bookkeeping & accounting
c. Human resources
d. Office administration
e. Operational performance review & analysis

Then under each responsibility, write the related tasks. Example:

IV. General Management/Financial
e. Operational performance review & analysis
- Review goals & objectives monthly
- Review job cost reports
- Review cash flow reports
- Review financial statements monthly
- Review marketing numbers monthly
- Review sales plan vs. actual monthly
- Compare closing ratios to plan monthly
- Compare gross profit to budget monthly
- Determine where and why variances occurred
- Make changes to plan and budget monthly

Now create a spreadsheet with a page (tab) for each section, with the responsibilities and tasks listed down the rows. At the head along the columns, list the job functions, not titles, in your company (as the general manager, you may also be the sales manager and production manager; so list all three functions). Where a job function and a task intersect on the spreadsheet, place an X if that function handles that task. Ideally, the responsibilities and tasks will be in sequential order, ascending, so the information will be in a “day in the life” order. Example:

With this breakdown, you can provide your staff with an outline of their duties. This, however, is not an “operating system.” A true system would include a written, graphical and/or video description of how to perform it, which should address the “who, what, where, when, and why.” This would be a staggering project for all the tasks that have been mapped out, so the realistic approach is to identify only the most critical tasks and document those. But don’t assume the burden of doing this all yourself; delegate pieces of it to your staff. If they’re not comfortable with writing, meet with them and tape record what they say.

Self-Accountability: The Biggest Challenge

Years ago, I counseled one of my franchisees who had been a trainer for my company before he left to open his own franchise. He was struggling to survive, and finally reached out for help. Here was a bright young man who had been in the position of teaching franchisees how to improve their business performance; and yet when I asked him the most basic questions (what were his sales against plan, what margins was he hitting, what was his monthly nut), he sheepishly admitted to not having the answers. Even though he knew what to do, he didn’t implement the very lessons he had taught to others because apparently there was no one in authority to kick his butt.

That encounter crystallized in my mind the need for a mechanism to hold the business owner accountable. When you’re the owner, who do you answer to? And what do you do if you don’t like your performance? Unless you have exceptional self-discipline, you probably cut yourself a lot of slack. When work is plentiful, the requirements of the contracting process provide both the structure and urgency that motivate productive effort. But when there’s little to no work on the boards, is your day-to-day activity driven by a comparably clear and pressing set of objectives? In either case, are you managing your business as effectively as possible?

If this isn’t an issue for you, stop reading. For the rest of you, consider developing an external accountability system that will help you focus and perform at the level necessary to navigate through leaner times ahead. Here are two ideas:

First
> Create a checklist of your key performance measures broken down by category – Marketing & Advertising, Sales, Production, and Management & Financial. For example, the list would include number of leads received, number of sales by source of lead, gross margin achieved, net profit for period, and so on. You should be able to come up with at least 20.
> Once a month, meet with an outside advisor (your banker or accountant, or a successful business owner) to report the previous month’s performance on these measures against your budget (assuming that you have one). Defend and analyze the results.

The nominal purpose of this exercise is to help identify problem areas and to establish corrective action. But the actual purpose is to force you into a discipline of planning, tracking performance, and analyzing performance against plan; and to do so in a recurring, timely fashion… all of which are essential to the competent stewardship of a company. Using an outside advisor establishes a de facto accountability relationship, because it’s human nature to avoid the embarrassment of failing to be prepared for the meetings and wasting someone’s valuable time.

Second
Another option would be to join a peer review network that specializes in the construction industry, such as Business Networks (not to be confused with BNI). A good peer review program will require you to meet a high standard of participation and be metrics-intensive, providing a comprehensive data base against which to benchmark your performance. Membership costs money, but if you follow the system your return will far exceed the investment. Having your peers hold you to account, as well as provide you with advice and support, is priceless.

Whether it’s a DIY program or a professional membership, an external accountability system will provide the framework that can motivate you to take needed action when you otherwise might not.