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Small Remodelers Good Job Candidates for Big Firms
Juggling the many everyday activities unique to remodeling — from managing trade contractors and dealing with customers to scheduling jobs, meeting a payroll and following a business plan — may not be for everybody in the business, and those who have joined the industry primarily because they enjoy working with their hands are likely to fuel a trend toward consolidation, according to panelists at the 2005 Remodeling Show in Baltimore on Oct. 12-15.
Many remodeling companies don’t get bigger than a couple of hundred thousand dollars in annual revenue, tend to turn over at a high rate, and are propelled by individuals who “get good at their craft and then get a little lost,” said Sal Alfano, editor-in-chief of Remodeling magazine. “Many are one- and two-man outfits, and they will always be there, but they could be challenged down the road” by increasingly difficult regulatory and technological barriers.
Small remodelers who aren’t doing a good job on the business side of their companies, and really aren’t interested in anything but plying their trade, may find an ideal solution by going to work for a large remodeling enterprise, he suggested.
Roughly 10%-12% of remodelers are racking up more than $1 million in annual business today and that segment accounts for 50% of the money that is being spent on remodeling, said Alfano, who was in the business himself for 20 years before going to work for the Journal of Light Construction.
Not Very Fit Businesses
In his assessment of the current state of the industry, Mark Richardson, president of Case Design/Remodeling and Case Handyman Services, noted that there are more than 816,000 remodelers across the nation today. More than 645,000 are self-employed professionals, and there are 171,500 firms with a payroll for whom remodeling accounts for at least 50% of their business. About 60% of the newcomers to the industry can be expected to fail within the first five years. “Nine out of 10 are honest and hardworking,” he said, “but are not very fit businesses.”
Richardson, who expects his company to bring in $46 million in sales this year, noted that the industry represents significant untapped potential for the top 500 U.S. remodelers who currently have a hold on less than 3% of the market share. “There is no organization that has come to where the ceiling is, considering the billions of dollars that are out there,” he said.
Aiming to realize more of his company’s potential, Richardson is a student of demographic information, particularly households and their incomes, which he said is available by metropolitan area through Demographicsnow.com.
“People tend to follow what other people do,” he said. So if you’re doing $2 million worth of business in one zip code and only $500,000 in another demographically comparable area, “you can be confident that the two can be the same.”
Pursuing that strategy, he said that he expects his company’s sales to exceed the $100 million mark in the next five years.
A design/build operation that provides clients with everything they need to see a job through from start to finish is “the way the industry is evolving,” said Bill Millholland, vice president of Case Designer/Remodeling.
“Remodeling can be hard to buy and clients don’t know how to do it, how to turn a notion into a project,” Millholland said.
On projects that start in the $25,000-$50,000 range, his company provides an in-house architect to come up with a design and then puts together a budget and lays out some basic ideas and a process for doing the work.
Look Like a Hero, Not a Schmuck
Regulation, in areas such as lead abatement requirements, “will separate successful from non-successful companies” in the period ahead, said Bill Owens, CGR, CAPS, of Owens Construction in Columbus, Ohio.
Owens also noted that today’s clients are more demanding and their expectations need to be handled with care and extreme sensitivity.
Owens said that he never shares his in-house production schedule with the client, because unexpected slippage and down time can get in the way of those expectations. He does, however, provide his clients with a time forecast of major events, such as the start of work on drywall or floors, with draws worked in.
“If you think a job will take four months, say six months, so you’ll look like a hero and not a schmuck,” he said.
Alfano warned remodelers to obtain information about the products they are installing when they are unfamiliar with them. “If you’re installing a product incorrectly, you’re in big trouble,” he said, especially at a time when the public is more knowledgeable about products.
“The stuff is more complex, and there are not as many rules of thumb with engineered materials,” he said.
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