Took over a Kitchen & Bath showroom, struggling to make payroll, rent, etc. Help

[mikegray]

Hello. If you can make it through the long read, I appreciate it. I am 31 and have been self employed in the remodeling industry since 2015. Most of that time I was physically on the tools and self performing most if not all work, specializing in Kitchen & Bath remodeling, finish carpentry such as wainscoting, crown mouldings, fireplace surrounds, built in cabinetry, etc. I had ventured into “large job” territory which included an addition, large structural beam installation, and more.

There was a family owned K&B showroom that was failing due to utter lack of organization and leadership. It is a design/build business model. They had to leave the showroom and the landlord was left with this beautiful K&B place, which took at least $250k to build out and finish. Comes with an approx 16 car newly paved parking lot, 2 large attached warehouses, offices, conference rooms, and an extremely large (300x300 maybe bigger) back lot for 18 wheeler deliveries, company vehicles, dumpsters, etc. I also inherited most of the employees, so they really know the ins and outs of the day to day.

I took it over in November. November and December are notoriously slow for my industry but there were some ongoing jobs that we finished out (under new management). Now, we’ll be dead slow in a couple more weeks because it has taken me too long to get all the marketing together, and I’m still not done.

The business model is there. The showroom is there. The staff is there, most are amazing and truly want to see this new venture succeed. I am lucky to have them. I have implemented a few new policies that will help us track profitability and accountability. I have also joined with a phenomenal marketing company. I KNOW that if I can make it through this new rough patch, it will be a successful business. However I am struggling.

The previous 4 years of sales for the showroom averaged around $2.5m. Payroll is about $10k a week, before taxes… this includes 1 sales person, 1 PM, 1 office admin, and currently 5 field employees. I believe our prices need to come up as well. Large venture capital firms have been buying up LOTS of home remodeling businesses with the same business models. The numbers I have seen have been astounding for businesses doing $20-30m.

Average “phase 1” bathroom sale is $10k minimum, costs us about $2500-3000 to get it done labor & materials, we have it done in 1-2 days. “Phase 2” bathrooms start at $20k and takes us 1 week and cost us closer to $6000 in our cost. “Phase 3” is closer to $30k or more, takes us 3 weeks generally and might cost us around $10-12k to get it done, I’m still working in truly narrowing down those figures for “phase 3” as we just started job costing when I took over.

Kitchens range anywhere from $50k-$100k and we have a pretty tight 50% cost on those. Our workmanship and design is great as well.

I KNOW we have what it takes to succeed, but I’m worried I can’t make it through. We need sales or we need a loan. I can’t pay for the marketing and advertising that’s needed because I’m barely covering expenses as it is. My credit card limit is too low so it’s killing my cash flow and they won’t raise it. I only have a few weeks left if we don’t sell any jobs and then I’ll be dead in the water.

TLDR; carpenter takes over local Kitchen & Bath showroom, can barely cover expenses and needs to make it through this rough patch until new marketing company can get our phone to ring. All my efforts have been spent on operations and setting practices in place. Help?

EDIT: wow thank you all so much for all the feedback. I was able to keep up with it for a bit but had to take some time to focus on work! I will be going through the rest of these comments and I am so thankful for all the input!

 

[jonnley]

@mikegray I’ve worked in the industry. I think you need to go get sales. I’d drive around look at houses under construction and talk to GC. Advertise locally in magazines.

 

[mikegray]

@jonnley Get sales, YES. With sales, we’ll make it through. However I’m struggling to get the leads. I need the funds to put into marketing, but I struggle to make payroll every week. Your suggestion of finding work by going to job sites is a good one, but we don’t do any new construction and we don’t sub for any other contractors. We are the GC, we supply all material and labor to complete full renovations.

 

[jott021]

@mikegray You have a few issues.

1. Cashflow (stating the obvious) - get an operating line in place asap
2. Expenses - your payroll costs are too high for your level of sales revenues. I'm not talking per job margins, but your monthly cash in cash out. If you have under or unutilized staff (e.g. the carpenters, the office admin) consider layoffs. Sucks but you need to do what you need to do or the whole business tanks.
3. Paid lead generation - you can't afford paid lead generation methods so stay away from those for the time being. Don't listen to folks trying to sell you on those. There are other things that you can do.
4. Type of work - get over not doing new construction, subbing for other contractors, and trying to own the whole reno. You need sales at this point.
5. As we start approaching spring the reno work should pick up quickly, but you need to have the flow of referrals and leads coming in. You and the salesperson need to go out, start making calls, and pounding the pavement. Contact: GC/renovators, interior designers, builders, realtors (in that order). Let them know your capacity and availability. Go through the customer and contact list from the past 5 years of jobs and start reaching out.
6. Check your online listings in Houzz, Google Business Profile, etc. to make sure that you have the best before and after photos, complete listings, and good reviews. These won't bring in new leads, but you want to make sure that any potential leads are not getting scared away from something they're seeing online.

Our agency focuses on another industry, so I'm not trying to drum up business just giving you my candid opinions from what you've shared. That said, we do have 10+ years of experience and clients that are in kitchens, baths, and closets.

 

[pattid89]

@jott021 Good post, especially #2. It can be incredibly hard for a small business to make tough decisions on personnel - but they def have underutilized people. I would ask if any of those 5 field employees want to go independent and 1099 for a higher rate - but only get paid when they’re working. Reduced fixed costs is the way.

Then, you need to spend a few days writing a solid business plan with a focus on market research and your specific growth plan, and then reach out to your bank for a revolving line of credit for payroll. Even if they start you at a low cap, it will help especially if you successfully lower your fixed costs by 10-15%.

Last thought: can you bring in an investor and give up equity? The right investor doesn’t just provide (needed) access to capital- but also sound business advice and access to their network.

Good luck!

Sounds like a good opportunity

 

[unspokenexpression]

@mikegray

we don’t do any new construction and we don’t sub for any other contractors. We are the GC, we supply all material and labor to complete full renovations.

When it's tough to get leads with your current practice it may be time to change things up, at least to weather the storm. Why not do new construction or sub for other contractors temporarily when work is slow? Sounds like a good networking opportunity and a good way to fill in gaps when you're short on jobs to do

 

[mikegray]

@unspokenexpression It seems to be a common idea here so I must consider it as an option from this point and moving forward. Thank you.

 

[christian2012]

@mikegray Maybe expand into new construction and do as the previous person suggested. Get out there and talk to builders and show them what you’re capable of.

 

[bleyes443]

@christian2012 They are priced out of what builders, or investors, or GC’s in my area would pay. Not sure where he’s located, but those prices in my area are for retail homeowners, not anybody that has budget limitations and a margin to stay within.

And based on OP’s comment that he wants to GC the entire renovation of the kitchen or bathroom, it doesn’t sound like he would be interested in working with those types of clients (who typically hire plumbers to do the plumbing, flooring guys to do the flooring, painters to do the painting, etc.)

It sounds like his only real option for generating business is advertising to homeowners and hopefully beginning to generate word-of-mouth.

I’m an investor and GC in a Pittsburgh.

 

[mikegray]

@bleyes443 Precisely! Our model is not based on providing labor to others who will be marking it up to the end client. It doesn’t make sense financially for either party. Our business model is direct to the homeowner. Thank you for clarifying that for me.

THAT BEING SAID - if I need to get my toolbelt back on and do some sub work to fill in gaps on the schedule I will do that as a last resort. But I cannot base my business on that, it’s not sustainable.

 

[bleyes443]

@mikegray Yeah, I would offer cabinets and countertops to builders and GC’s in your area. That’s an easy divide to make that doesn’t interfere with other trades they would have going on during a rehab. I buy custom cabinets and typically quartz countertops for all of my rehabs, and I always have the supplier do the install because it’s easy. And these are retailers with show rooms that I use, who offer à la carte services. They will happily renovate your entire kitchen for you, or they’ll just sell you cabinets that you can install yourself.

Also, I wouldn’t think about it as them marking up your labor to the end client. An investor, homebuilder, or GC will have lots of other elements going on in the property outside of the kitchen or bathroom and the numbers need to work. They are not gonna hire you to come in and only do the electric/plumbing/Drywall/flooring in the room. You’re working in, when the entire building is going to have tradesmen there for that. And they need to make a profit off the job too.

Working with these types of clients is an excellent way to get more repeat business than you can handle if you’re willing to adjust your business model to offer services that align with the needs of those clients.

That might help fill the gap during the slow months. I don’t see why you can’t do both.

 

[christian2012]

@bleyes443 I’m an electrical contractor in Ga just starting out and in my area there’s a lot more new construction going on than there are remodels at the moment. Most people with existing construction aren’t willing to spend the money on upgrades with the markets like they are. I think lowering prices and doing more work would be beneficial. Making less on each job, but doing more jobs might help them keep the doors open u til the remodel market picks back up

 

[mikegray]

@christian2012 My take on this is totally different. With interest rates being so high, people are not going to be moving or building unless they’ve already been in progress or under contract. With interest rates being 7% and over, people will be opting to stay out and renovate their existing homes to accommodate whatever changes they sought by buying or building.

 

[christian2012]

@mikegray That’s why I was saying to go directly to the builders. A lot of them are building before they even have buyers lined up. My area is still booming with new builds and someone is paying for them. Two old ones were torn down up the road from me and six new ones are going in in their place. I know they’re all being done by the builder. “Spec” houses as you would say, but they’re large homes that money can be made on. General contractors are your friends, not your enemies just because you don’t want them marking up your product. Even looking on realtor.com, all the under construction homes in my area have pending offers on them. I’m not saying give up on going after homeowners, just expand your market.

 

[mikegray]

@christian2012 It’s not at all that GCs are my enemy. I am a GC! lol. And when I made the statement about someone else marking up my services…it seems some people interpreted that in a way which was not intended. I am in the business of marking up. I understand this is how businesses make money, and I did not mean to imply that’s the reason I don’t want to work for other GCs. There’s a multitude of reasons, that is not one of them, in fact, it would be insane for a GC to NOT mark up their subs or vendors.

What I meant by that statement was that my prices are not conducive for another GC to mark up to their client while still being reasonably priced. I am priced out of that market. However, I am priced appropriately for the retail client that wants to remodel and looking for a full service design and build GC. That’s our bread and butter. I have supplied quotes to other GCs and been laughed at for being 2-3x the competition.

 

[lwphilbeck]

@mikegray You need your sales staff to start networking and reaching out to designers. The designers are going to be in on the remodels that are using products high end enough to be shopping at a K&B specialty store. Target custom home builders as well. Are your sales and/or marketing staff attending networking meetings in your area? The ASID, AIA, NAHB, Buy Local, etc... I agree about remodels, custom, and semi-custom builds are where you're going to find the business base. I'll also DM you a few ideas.