3 Financial Strategies for a More Scalable Business

 

August 31, 2017

By Shawn McCadden

Economic reports continue to forecast growth for the remainder of the year. For contractors, this is great news, but it can also present the challenge of scaling up to meet growing demand.

Scaling up requires not just hiring more workers and buying more material, but also adjusting your financial strategy to cover increased overhead expenses without hurting cash flow and profits. Here are three financial strategies for successfully scaling up in 2017 and beyond.

Scale up revenue while scaling down costs and expenses

A scalable business model allows you to increase revenue while holding both job costs and overhead expenses down. To be scalable, your financial plan should aim for gross profit margins of 40% or more (minimum of a 1.67 mark-up).

To achieve this level of gross profit margin, one fundamental strategy is increasing your revenue. The key to increasing your revenue is improving your marketing and sales. One of the most efficient ways to improve your marketing is by improving your positioning through a better unique selling proposition (USP): a brief statement that summarizes what you offer customers that your competition doesn’t.

To refine your USP, narrow down your ideal target market. For instance, is there a certain neighbourhood or a certain type of project that would be more profitable to specialize in? Research what your target market is most seeking in an electrical contractor. For example, are they price shoppers, or are quality or service bigger priorities for them? Craft your USP to emphasize what your target market most values, and make sure all your marketing material reflects your new USP.

Along with increasing your revenue, the other half of keeping a high profit margin is keeping expenses low. Many businesses fail because they can’t cover the cost of overhead. Finding ways to reduce the money you must pay for running your business is key to minimizing your expenses. Make time to research different organizational charts, industry best practices, project management methods, business management software, and employee compensation strategies based on performance. As the business grows, investing in these areas now can help your business reduce overhead through efficiency of operations as well as economy of scale.

Maintain efficiency through outsourcing

Outsourcing is proven way to cut labour costs both in the field as well as the office. Many successful large companies outside our industry have used outsourcing effectively to streamline their labour expenses. For instance, Google relies heavily on revenue from pay-per-click advertisers who pay to have their results featured in search engine rankings. Maintaining its advertising revenue requires a large sales support team, which Google has outsourced. Amway is another company that outsources its sales, relying on a distributor model to promote direct sales. In our industry many contractors already outsource activities such as building permit procurement, sales, lead intake and prequalification, and specialty trades.

As these examples illustrate, you can outsource functions that are part of your core business if it is more efficient to delegate them to specialists than to maintain in-house talent. With the right plan and system you can also easily outsource routine peripheral functions such as bookkeeping and payroll.

Shawn McCadden is a consultant, educator and speaker who offers business consulting and coaching services for remodelling business owners who want more for and from their businesses and their lives. He also consults with construction-related product manufacturers and suppliers, helping them understand, find, educate and better serve remodelers. Check out Shawn’s website http://www.shawnmccadden.com/ and blog www.shawnmccadden.com/Subscribe-to-The-Design-Builders-Blog.