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Loosing money year after year

3/8/16       
Robert

Hi everyone,

I keep loosing money year after year with my business but it seems like I can always come up with a valid reason (the crash of 2008...then this, then that etc) I come up with a reason or create one. I'm not sure...

I have a shop of 4 (including myself) and we mostly do frameless kitchens (2 office and 2 in the shop) . Design,construction,installation.
We are not the cheapest but still I can't seem to sell more than 350 000$/year.

After searches and reading on this forum, I realise that it's not enough. Can we produce more than 350 000$? Of courses. but as you know, doing custom work involves dealing with other trades and when a job gets delayed for x reasons, then it's hard to fill that spot again and that time gets lost...

I see many companies doing much more in sales per employees...

I'm a fan of lean, working on and not in the business etc etc...
I really try to implement this as much as possible.

I know this post is a bit more of a rant than a question. I'm doing something wrong and I can't seem to put my finger on it.

3/8/16       #2: Loosing money year after year ...
Pat Gilbert

What is your niche?

Is that 350k for 5 people or 4?

What percentage is your gross profit?

Do you outsource anything?

How do you get your work?

How do you cut up panels?

What software do you use?

How is morale in the shop?

Who is in charge of the shop?

3/8/16       #3: Loosing money year after year ...
Robert

Pat,

What is your niche?

Contemporary kitchens. We work with designers and architects so that most often involves other pieces of furniture in the house. We also work directly with homeowners and design for them.

Is that 350k for 5 people or 4?

It's 350K for 4

What percentage is your gross profit?

Gross profit would be around 35% (total sales minus cost of goods and salaries . but not taking into account the overheads)

Do you outsource anything?

CNC and edgebanding. There's a shop next door that does that. We don't have shaker door style do all our doors are slab with 1mm edgebanding.

How do you get your work?

Word of mouth, houzz, facebook,

How do you cut up panels?

CNC..and the good old table saw for when we cut in the shop.

What software do you use?

Filemaker as our database, Sketchup for shop drawings and Ecabinets to create gcodes..

How is morale in the shop?

Pretty good!

Who is in charge of the shop?

It use to be me and now I got one guy who stepped up and is in charge. that helps a lot.

Thanks for your time Pat!

3/8/16       #4: Loosing money year after year ...
Pat Gilbert

You are doing something wrong but I can't seem to put my finger on it.

I don't see anything glaringly wrong. You just need more production.

To that end, you might try reverse engineering what a successful P&L would look like. E.G. figure out your break even point per day or week and set weekly and daily goals/quotas/targets. Probably do this with the foreman, maybe the workers. This should help getting your production up where it needs to be. You will get the most bang for the buck with budgeting the time i.e. production you are getting out of the shop.

This would be a budget for your time. Also do a budget for your expenses. The key one is budgeting for your promotion. When you have a consistent percentage of your budget going to promotion (that actually works) you are driving sales in the doors. This may be a percentage of your time spent on networking.

After studying this for some months you should be able to get a bead on how to improve things.

And if a price increase is in order. Suss out what the going price is in your area. You don't appear to be way off from making a profit a few percentage points here and there.

Good Luck

3/8/16       #5: Loosing money year after year ...
Robert

Thanks Pat!

Good points!

I find it hard to monitor the output daily. I'll aim for a weekly target.

Also, I forgot to say that we outsource finishing...

Thanks again for taking the time to read trough my post and landing a hand. Sometimes, things are simpler from the outside. But like you said, probably just more production.

a percentage of the sales going to marketing is a good idea.

Thanks again

3/8/16       #6: Loosing money year after year ...
Family Man

If you contemporary kitchens and you are outsourcing your cutting, banding and finishing...what exactly besides assembly are you doing in the shop? No disrespect meant. You need 1/2 a guy on the shop floor, not 2 if that is what you are outsourcing.

Since you do your own installs, how much of your labor hours are spent on that? How far away are the installs or if in very urban area, how many hours a wasted on parking/elevators/etc?

3/8/16       #7: Loosing money year after year ...
Pat Gilbert

I don't do kitchens I missed that, FM nailed it.

Damn, you should be able to make a great profit with just one guy.

3/8/16       #8: Loosing money year after year ...
Robert

Family Man,

I think you're right when it comes to assembling boxes but we often have a lot of solid wood involved in our projects. Like I said, a Kitchen often comes with a vanity, desk, bed and whatnot...
And of courses, there is a lot of sanding involved.

Still, I do think you're right. There're too many people in the shop. The problem is that I definitely need 2 guys for when we install and I guess I keep convincing myself that I need 2 full time...

Outsourcing the installations could be a possibility but I can't figure how...Not sure why. It scares the hell out of me! Plus, most clients ask if we do install ourselves before they sign the contract so I always figured it was important to them...

We do spend a lot of time on the road etc etc..

Thanks again for your input.

3/8/16       #9: Loosing money year after year ...
Skillet Member

How do you do your estimates? I believe good accurate estimating is the key to making a profit. Accurate estimating comes from keeping track of your costs from previous jobs and reviewing costs after a job is completed. Every hour has to be accounted for. Your estimate should turn into a budget for that job and can help you when you have to make decisions when something unforeseen occurs. 2 people in the office for 2 people on the floor seems strong given your volume. Do you have a precise dollar amount for your overhead? Per year, per month and per hour? Are you including loading, unloading and drive time in your installation estimate? Charge for the delivery vehicle? Shops often price their work what they think other people are willing to pay not what it costs them to produce. Knowing exactly what your costs of doing business are and staying firm when it comes time to make that proposal will help insure that the work you do is at least profitable on paper. Shepherding that work through the shop and installation and keeping labor and materials within that budget becomes your focus. Review that completed job and adjust your next estimate. Rinse and repeat. Always count your time, if you don't do it, you'll have to pay someone else to. A good estimate will help your attitude as well knowing that at the start of this job, you have a map to profitability if you can stay on the road. You'll also know when you get off the road and can get back on track before you wreck. The goal is to know what your profitable work is, eliminate the money losers or adjust your price until they're not and only do the profitable work.

3/8/16       #10: Loosing money year after year ...
Family Man

Here's a few thoughts and I have no idea what is applicable and what is not, totally not enough information, so you are getting wild ass guesses and little tid bits of knowledge I have picked up over the years.

Installation: First, it takes a completely different set of skills and personality than shop work. It takes adapting to the real world of chaos, dirt, people coming and going (and bugging you each step of the way), out of plumb walls and out of level floors. Very few are good at both. Maybe you are the exception and not the rule, but I was not. Although I had the same anxiety about giving it up. But giving it up was one of the single best decisions I ever made towards profitability.

Furniture/Kitchens: Much like above, solid wood processing and panel processing to make boxes & slab doors are completely different worlds that need completely different tool set ups, temperment of workers and skill sets. Maybe you have it all but my guess is you fiddling around with mediocre or worse on both and not specializing on either. All kitchens or furniture will require a little of the either but not require you to specialize in both. If I were making the kind of kitchens you were I would want control of my panel processing. How much does this outsourcing cost you? Think about waiting to get on their schedule, moving material back and forth, etc.

Finishing: I would recommend that over the next couple years you learn this trade, inside and out and eventually have a plan to bring this in house. There is no single production (I don't consider sales, design & engineering on the production side of the house) piece of the puzzle that will make you or break your name, reputation and future than finishing. If you don't already understand the importance of this aspect I can't stress it enough.

Shop Management & Organization: Get a system and a product and stick to it. If you sell everything, people will buy a little of everything made a many different ways. Instead, Sell them what you make- what you make better than others and efficiently. Better yet, learn how to sell what you make. Make them want what you make versus what the other guy makes. Then work that system and product every day till you have the process from sales to shipping down to perfection, having worked out every kink and waste. In my opinion if you have two guys in the shop (yes you may have too many there too), then you probably only need one in the office (but maybe you are outsourcing so much that you are more of a design & sales business than a manufacturing business)

I'm probably reading my strengths and weakness' into your situation and yours may be completely different. But the bottom line is find your specialty (niche) and then work that thing to death and have fun doing it. Learn to say no (or this is the time you can outsource) things that are not your specialty. It does take some years to have it happen, but eventually the cash follows if you can do that.

And so you know I'm not blowing smoke, last year and this year I did double your sales with half your guys. But ten years ago I was asking the same questions you were. Mostly I learned through the school of hard knocks...hopes this saves you a class or two.

Good luck-

3/8/16       #11: Loosing money year after year ...
Family Man

One more important thing on the financial end: 1) stay out of debt 2) don't rent/lease, but own. If you can figure out how to do 1 & 2 at the same time then that allows you the years to get the process worked out, the clientle built, etc until the cash flows. Good luck

3/9/16       #12: Loosing money year after year ...
JM

Problem is simple, you dont have the sales to justify the workforce. You need to do 1 of 2 things. Increase sales, or decrease labour.

We are a 2.5 man shop doing about $600k worth of frameless kitchens. We outsource doors and drawer boxes. To be making money, you need to be at least $150k per employee. You are just slightly better than half of that.

In our operation, 1 man in shop cuts, and assembles cabinets ($20 per hour). 1/2 man in shop does the finishing ($25 per hour). I do all the sales, design, cnc programming, paperwork, and anything else I can do to help the guys out. Shop man and myself do installs.

3/9/16       #13: Loosing money year after year ...
Robert

Thanks again everyone,

And mostly, Thanks Family Man for the long post. It's really appreciated and right on point.

Ouch... Ok, time to look at the wasted time I suppose...

Family Man, are you always using the same company to install? Was it hard and long to develop a strong relationship with them? Or do you simply just tell customers that you do not install and they ask the contractor?

Do you both only do kitchens and that's it?

Would I be right to assume that you guys make good money with your businesses? Feel free to throw in numbers :) but I would understand if you don't feel comfortable doing so...

I would have a thousand questions for you but I don't want to take more of your time without first looking at my business and see where the problems are...

Thank you for taking the time to help out.

3/9/16       #14: Loosing money year after year ...
Robert

Skillet,

Estimating is done with a parametric spreadsheet. we are always off our time whether on administrative, shop or installation time... The only estimation that is pretty accurate is sanding :)

Still, I believe the time I estimate is accurate and the problem is more in the organization of our work in the office and in the shop etc...

I hear everyone when they say to find a niche and stick to what's profitable. To be honest, I feel like I could see coach someone else (figure of speech) but have a real hard time reading my business.

To me, what seem to make a job profitable or not seem to be the customers we deal with or the whole dynamic of the job.. when it's delayed biggest of bigger problems in the house that the contractor need to fix etc etc.. Than we lose momentum. I often estimate around 30 hours of administrative work per kitchen. including everything from drawings to follow up etc.

Sometimes it gets to 60-80hours... Which makes no senses...

3/9/16       #15: Loosing money year after year ...
Family Man

Robert,
For the most part the GC's (or their installers) install our cabinetry. I would say this is true about 70% of the time. With the other 30% we often recommend the same GC's to the clients. This allows two things. It makes the GC's take ownership in the project.

"Stuff" doesn't roll down hill as much and they become the problem solver for every trade instead of you. Yes, you do have to remake the occassional screwed up part for them or answer the question on how does this go in- but it pales in comparision to the amount of effort to navigate all the other trades, their schedules, their rigs, their radios, etc.

But the occassional job we throw back at them...you scratch ours we scratch yours- and often times that leads to more work for them.

We also use a couple installers that have done a lot of our work. Again, offer a 5% sale commission and they are out their actively selling your work for you and they have ownership in the job too then. Sometimes on the simple kitchens & homes, they even pull measurements and I don't even meet the client. Just conduct business via email. But you've got to have a long track record to get to that point.

It's about building relationships with contractors, clients, installers and designers. You treat them so good and the trust level is so high that their first instinct and gut level reaction is to do business with you and doing otherwise would just feel wrong to them. Show them loyalty. That is the good ones. Cut out the bad ones quick. It's better to have no business than working for bad clients.

Yes, I make a comfortable living. I'm not rich, probably never will be. But that is mostly because I don't want to grow the company big. I'm not suited to managing a monster that big. I don't enjoy big and I'm only mediocre at it. But I know my strength's and have learned to stick to them. Which is keeping it small and keeping more of the pie. So you won't catch me in Forbes, but I could take the next five years off if I had to or wanted to (mostly because I own, but did so without going into debt), not bad for a late 30's guy who started with a couple thousand dollars.

Once you get to that point, you are so confident, that the confidence makes the sale for you. Also, don't be afraid of a busy schedule...sometimes that is the best sale technique there is. I have clients write me non refundable checks to hold production slots 6-9 months in advance without having even given them a bid. Solely based on reputation and the fact that if you have to wait that long to get on his schedule he must be good. Some of the finest wines, automobiles, phones, you name it...people wait for. As long as you are good on your scheduling of when you will deliver it almost increases the perception of their value.

Good luck. That's about all I got. Catch me in another ten years I might have learned something else worth sharing...maybe!

3/9/16       #16: Loosing money year after year ...
Derrek

As stated earlier you sales.to employees doesnt match up.sales are the most important thing you can focus on. With such a low volume you cant pay for labor materials payroll and overhead and have anything left over. Work on increasing the sales volume. With your employees you need to be at 500 to 700k a year to make it work.

3/9/16       #17: Loosing money year after year ...
Jim Member

I'm a 1 man shop doing the same kind of kitchens. Contemporary for a couple of local architects. Sales right at 400k. I outsource nothing except having the veneered panels layed up.
Everything else is done in the shop. I also do all the installs. If I need help schleping the boxes down to the job I have a couple of guys local that will do it for an hourly charge.
You have the shop next door on your payroll to do your cnc and edge banding,
How much do you pay them per year?
Get a good panel saw and a used edge bander. You could get both for what your paying the other shop and your other shop guy.

3/9/16       #18: Loosing money year after year ...
CRIS

Break one job down into 10 - 15 catagories Put a number on each one. Track the job accurately. Then you will know where you're money is going. Make changes. If you are willing to follow the data you will make money. Never negotiate overhead and profit.

3/10/16       #19: Loosing money year after year ...
RobertNH  Member

My 'niche' so to say, is Installation of your product.
I gave up the shop to go this direction.

Find yourself someone like I that will install and represent you in a way that brings you more work.

I find so many times now, that when a Site Super sees one of our teams show up, he/she smiles.
We make their life easier, get it done and make 'you' look better to them.

Case in point. A Millshop was attempting to be awarded a Project. New Millshop to us, but does nice work. I called the Senior Estimator (I know most of these folks) and told him who we're coming in with.
He asked 'my' opinion of them.
We're doing the Project with them.

These are the types of installers you should be looking for.
Not the guys that are cheaper and drive the 40K pickups..

3/10/16       #20: Loosing money year after year ...
cabinetmaker

You are not charging enough

Production is slow and low. Increase both

3/10/16       #21: Loosing money year after year ...
Robert

I probably should have written this post a long time ago...It's easy to get caught into something and not realize how far off you can be...

There's a lot of good info in all the post so I'll sure look into it.

Thanks again everyone.

3/10/16       #22: Loosing money year after year ...
Larry

Like said, your sales to labor are way off. $150K/ total people @ a minimum! That's $600K. and when you figure all the out sourcing you are doing it should be way more than that. Something is desperately wrong. You do too many different things. Stop the installs, they take away from production. Your facility is sitting idle when you are out installing. Optimize your production process. Sell what you can make most efficiently. Measure your process times. Develop a niche, promote the hell out of it. Mine is specialty commercial work, often involving curves. I will not do residential. Too much hand holding, time wasting! Here's one to compare your methods to ours. We are not a super efficient operation by any means. Last Euro box job, shipped a week ago. 176 boxes of all sizes. All the way up to 5x8x3'. Lots of them free standing finished all around. Melamine, 3mm banding on all edges even back edges of uppers and 4 sides of shelves (not our idea but we charge for it.) To make it comparable for your method of getting parts made & banded I'll just skip to the start of assembly. Dowel construction, including the 3/4" finished backs in this case. One man has parts come to him on the conveyors already sorted into parts by case. He puts the drawer guides & hinge plates on, injects glue, puts a bead of melamine glue along joints, knocks case together slides assembled case out the back of the clamp and fresh case in. Cleans up any glue squeeze out and moves the finished case to the transfer car. When it is full he moves it about 12' to the conveyors in the final area. They put doors, drawers, faces and last of the hardware on and move cases to shipping. The break down in our system is that the cases are not fully finished before they are moved away from the clamp. The man @ the clamp averaged 6 minutes per case doing the steps detailed above. It took two men to keep up with him getting the cases completed and into the shipping area. That is unacceptably slow! You should be able to do better.

3/11/16       #23: Loosing money year after year ...
RobertNH  Member

I agree with Larry!
Get out of installs. Find yourself someone like 'I' that does this and will get you more business.
Installs takes too much time away from you.
We could never make a living on just one shop/client. How could you possibly make a profit doing both.. Unless, they are 'High End'.
Meaning months worth of work. Yes, we do that.

Now getting out of Residential, is a maybe.
If you're not hooked into Designers or Architects that can put you into the 'high end' clients.. I agree with what he's saying.
I am, and could get you there.
That's what I'm saying about getting someone me to install for you.
Emphasize 'Like', if your not in the Metro Boston area, or your product does not meet 'our' standard, we will not install for you.

That's 'our' niche.

3/12/16       #24: Loosing money year after year ...
Alan F.

Robert,

Your estimates need to based on what times it really is taking you, including your inefficiencies.
You need more income, the simplest answer is to raise prices and sell more.
Without more information we don't know where you need to try and cut costs or if the problem is in pricing.

If you had $350,000 in sales ,didn't pay your self and lost money then you need to be selling the same amount of work for 350000 + what you loss + what you should get as a salary + profit you should get as a business owner.

That will tell you what you need to sell the current workload at to make money.

The market will tell you if you can sell at that price.

How do you know your prices are correct, what is the ratio of bids submitted to bids won?

If you can't sell at that price then you need to get more efficient and sell more to lower your expenses and increase your gross.

I wonder if you are too nice or agreeable to what the customers want to pay, its more important from my perspective to take care of your family first, and your customers should understand that for you to provide quality product and service to them you need to be profitable.
A-

3/13/16       #25: Loosing money year after year ...
cabinetmaker

Robert-

Here is a plan that you can follow for absolute success-

1- line out your schedule with enough work UNDER CONTRACT with deposits in hand to cover as much over the calendar as you can. In other words, the jobs are sold and yours. This will tell you how much work you have and if it really work or you are just being busy with "busy work"

2- use a spreadsheet to line out when and how much those jobs add to the bank account and where the money goes. Materials, rent, insurance, payroll, all of it. The spreadsheet will tell you where your shortfalls are. IT IS NOT LYING. Just remember garbage in garbage out, so be honest.

3- Set up all procedures in writing to sell, book, receive deposit, draw, get the drawing approved, produce it, install it punch list it.

3A- Clean and set up the shop for effiency Clean and set up the Office for effiency.

3B- Implement and improve- daily. Don't let your guard down THIS IS A MARATHON.

4- Produce a "Job Completion Checklist" set up an appointment to REVIEW the job with your client on the JOB. YES. IT IS YOUR RESPONSIBILTY TO STAND THERE AND RUN A CHECKLIST WITH A CLIENT and go evey detail with the client(s) making sure all is good and they are happy.

Have a printer make a 3 part or 4 part carbonless checklist and have all the items printed on there from toe kick to crown. Have an area that is for added items and LABEL it as such. Hand write 1/4 round or whatever gets added. Write in what it is and how long it took to make it and install it. I mean every last thing. DO NOT SLACK ON THIS

Have a line @ the bottom for you to sign and them to sign off as the list and job is complete.

Run the list with the client, sign it, have them sign it and give them a copy.

5- Accounting - Did you bill for all the added items ?? No ? Installation AND fabrication ?
5A-Write up a bill and add the 3rd copy to the bill. DO NOT FEEL SORRY FOR THE CLIENT. IT WAS AN ADD------ NOT YOUR PROBLEM !!!
5B- Send the bill. It is in writing, And, has yours and their sgnatures.

6- Fill in as much work for you and the installers as possible in the holes on the schedule. This includes fixing drawer boxes and shit for walk ins.

6A- Repeat and rinse above items 3B, 4, 5, 5A, 5B, 6. Repeat and rinse

7- Count your cash. Spend as little as possible. Avoid the illusions of grandeur and buy only what is needed.

8- Pay yourself and invest in the machine that pays you. Buy equipment and software that automates the machine (business)

My story was a lot like yours. Alan F. posted a comment a several years ago on added work to a commercial job that spelled out how long something took. It listed everything in the 1/4 hour increment from unloading or recieving shipments and checking the item in to quality control inspection, production of it, to hauling it to the jobsite to getting it in the building to wipe it off for use. (That golden nugget of info changed my thinking).

That post changed my life @ home and the business.

I have one Project Manager that does nothing but review jobs and writes change orders every damned day. The GC's call me and sing his praises. The owners love him. He writes them in ways that make sense and explain how and why the added cost in neccessary. "God, PM so and so from company X really pays attention to detail therefore my job is extra special ...........Blah, blah blah....) Remember the "Sign Off Sheet " in Item 4 ? That's your free PM.

Man up dude, it's possible and yes I pay myself well.

Signed- "cabinetmaker"

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