by Dave Stafford
No one intentionally sets out to go bankrupt, yet in every town and city— right now—there are flooring companies teetering on the edge of insolvency and one bad break away from going out of business. How can you moderate this risk as a flooring contractor, dealer, or installer? Can you turn these tough times into gaining market segment?
Are you diversified in your business model? If not, why not? You might have the best area rug business going, but if that business dries up, you are in trouble. If possible, look for ways to augment your primary business with complimentary but different products and installation. Joe’s company was known for its high quality sheet and luxury vinyl tile products and installation. In a flash of inspiration one day, Joe decided to train his team in techniques for flash coving and heat welding, and go after some local healthcare opportunities. He was successful and increased his business volume, kept his installers busy, and built his reputation over time.
Do you have financial stamina to withstand success? Many a person with a great idea has failed to plan financially. It is imperative that you be able to maintain or increase your credit lines for business growth. A key is to go after this additional credit well before you need it; if you wait until you need credit—especially in this economy—you may not find it available. Henry went all out to get a large commercial carpet project on the inside track because he knew the general contractor’s project manager. No, he didn’t have a line of credit with the specified manufacturer, but he was able to get product pricing and figured if he presented them with an order, fait accompli, then he should be able to get the necessary credit. Unfortunately, the mill didn’t see it that way, requiring a large up- front deposit. Henry didn’t have the cash flow to finance it or a bank credit line large enough. He finally worked it out through a two-party check arrangement with the general contractor, but the hassle involved burned a bridge and cost him dearly in reputation.
Have you taken on too much risk? There is a fine line between taking a business risk and being foolhardy. Every sale entails some risk. What is the job size in terms of your overall monthly or annual volume? If you are aggressively pricing “to get the job,” is the expected profit smaller or larger than your average profit within that business segment? If you don’t know the answer, then you had better price higher rather than lower, or not bid at all.
Have you determined the hidden cost of job delivery? It may be a great project with potential profit, but not if you are unable to perform delivery and installation within the specified time line. Are you able to use your existing installers or will you need to bring in a subcontractor? How do the payment terms match with your supplier’s credit terms? Tim underestimated his raw cost on a project by failing to include an overage for the product installation; he further compounded this mistake by overestimating what could be installed in a given day. A huge problem was also created when his existing warehouse storage area could not accommodate the entire product delivery. The ensuing chaos—lack of product, difficult delivery and slow pace of installation—resulted in a job that was delivered late, at very low profit and cost Tim his job.
To stay on the road to success and avoid the exit to bankruptcy, match risk and leverage with experience and financial resources. You can bet big only when you know the dimensions of failure.
Dave Stafford has been in the flooring industry for over 25 years, is a business consultant, a FCICA Honorary Lifetime member, and may be contacted via email at dave@dsainfo.com.