Friday, November 4, 2016

Financial expectations when running a restoration company

In Business school we were taught that the purpose of a business was to make money.  This seems like a very fundamental concept but in reality I think that this is overlooked by many businesses.  When the thought of making money is discussed I think that it needs to be put into context to understand the real challenge that many restoration professionals struggle with.  The first concept is opportunity cost and the second is risk. Opportunity cost is simply the cost of the next best use of your time and money.  In this context it refers to the value of the next best investment.  The concept of risk simply implies that the greater the risk, the greater the expected return. Both of these are simple concepts that on the surface seem fundamental but when people are caught in day-to-day business strategies this becomes secondary.  Often I review company financials, I see that the financial performance to be an after-thought rather than a driver of business activity and management emphasis. 

Opportunity cost is difficult because it is not easy to quantify.  We make investments in our time and through our resources.  This often is done out of perceived need and frequently can be a response to another stimulus.  Examples of this include advertising expenses, compensation or staffing.  As business owners’ decisions are frequently made off the cuff and often based on historical decisions or even worse based on the actions of our completion – “everyone else is doing it” – or “that’s the way we have always done it.”  Through this process overhead escalates and companies become reactive and often struggling to achieve desired levels of profit.  Owners of these companies allow themselves to feel comfortable because they are making a reasonable salary and the company squeezes out a 3% net profit.  Comfort zones blind these business owners from seeing the real situation.  These individuals could often receive a similar salary and have a job with much less risk and certainly a lower level of stress.  Maybe this situation is rationalized because there is the perception that they can sell the business one day.  However my question is, would someone really want to buy your business?  If you are rationalizing your situation then you need to consider the opportunity cost – which is the compensation and also the ability to apply the capital in the business to other ventures or investments.  Let’s face it, restoration is a difficult business and the stress can be immense. As the owner of a restoration company you need to be compensated appropriately and secondarily your business should be making at least 10% net profit in exchange for the risk and commitment.

This brings us to the risk factor in owning a business.  The rewards in playing the lottery are substantial and the risk of loss is quite high.  On the other had the interest paid by a bank very low because the risk of loss is negligible.  Similar considerations need to be made when looking at your business.  Since the risk of failure is substantially higher than a municipal bond fund you should consider an appropriate risk premium.  An investor can earn anywhere between 3% and 6% after tax on municipal bonds and funds, so would you expect to get a commensurate or larger return on your business?  I understand that some of the money is leveraged so it is not an exact comparison and there are other spurious factors however I think that a business should expect to make 10% or more in net profit at the end of the year.  This appears to be an appropriate return in exchange for the risk and also the time investments in your business. 

When you look at your business and the relative success measurements you should consider both of the above factors when putting together your strategic plan.  As the owner you need to achieve an appropriate return on your business AND get a reasonable paycheck.  I am amazed at the amount of business owners that do not take a consistent paycheck.  Make sure that as you put your plan together, plan your compensation and success. 

Phillip Rosebrook JR, Certified Restorer is a partner in Business Mentors.  He has nearly 30 years of experience in the restoration industry and has helped 100’s of restoration professionals over the past 20 years grow their business and improve profitability.  He can be reached at

Monday, October 17, 2016

The state of the Disaster Restoration Industry

In September, I hosted a group of top restoration professionals from around North America at our annual Business Development Summit.  During this event we had an open forum where we discussed the top issues for restorers today.  The conversation kept returning to the conflict between restorers and the insurance industry.  I suspect a conversation may be happening in the halls of some insurance companies about how the greedy contractors are taking advantage of their insurance benefactors.  As I reflect back on our dialog I see a parallel with the current political diatribe happening right now between supporters of Hilary Clinton and Donald Trump. Many individuals are digging into their positions and looking for confirmation bias to support their political positions.  A negative culture results from a failure to communicate and cooperate.  I don’t see how there can be any winners given the strong opinions on each side.  I don’t think that I can influence our national attitudes, on the other hand, I am much more hopeful on my ability to influence the industry where I work.  It is my wish  that the industry relationships do not become Balkanized; rather, a dialog occurs with understanding and respect as a result.

This month to offer an opinion on the “Future Trends “theme of the 2016 final issue of C&R, I am writing in the restoration corner, which I feel comes with a big responsibility.  For many years when Cleaning and Restoration showed up at our office, I was like a kid that opened the Sunday paper in anticipation of the comics, as I flipped to this space to see what wisdom Martin King was sharing with the readers.  I feel compelled to write this article as if ‘Marty’ were to be commenting on the current state of the industry.  He was a pioneer in developing the professionalism of the industry and left it much better than he found it.  Today we are at a crossroads where leadership is required and the industry is looking for individuals and companies who will pick up the banner for our trade professionalism and take the industry to the next level.  Marty wrote several times and spoke often of the challenges with vendor programs and cautioned restorers to develop and maintain a strong retail brand that would allow the restorers to have a healthy arm’s length relationship with the insurance community.  Vendor and third party administration referral programs have confused and compromised this “healthy arm’s length business relationship” between the contractor and the property owner. These programs generally dictate obvious compromises to both the communications and cooperation with the contractor’s customer: the property owner.. Contractors are often at the mercy of the insurance companies as restorers line up to serve the insurance company’s needs.  I am not going to comment on insurance company intentions, only the impending results.

It is important to review the promise of the programs and TPA’s as they originally rolled out into the local markets.  A value proposition was given to contractors that they would not have to continue to market their service after they were selected.  As a matter of fact, restorers were penalized for continuing to market their services to these companies resulting in their reduced overhead expenses.  The terms of the programs were outlined clearly and the scope determined pricing, as we were all using the same pricing database and that the insurance company could quickly settle and pay the claim due to the administrative efficiencies created through the TPA  

For many insurers, TPA’s became the preferred manner of settling everyday claims. The programs and relationships evolved into a product that was very different from what was originally presented.  The claims departments started to challenge the scope of work based on a casual familiarity of restoration work, a basic understanding of our industry standards as well as participating in training in controlled environments.  For the contractor, program referrals end up requiring a dramatically inflated level of administrative responsibility that often results in a greater overhead burden in order to support the claims.  The program guidelines do not allow the contractor to differentiate priorities based on job peril, size, logistics or complexity as all program initiated jobs required equal urgency, documentation and communication.   The dominant preferred estimating platform offers pricing feedback through the upload process, yet, this process assures that the program pricelists are frequently affirmed because many programs do not allow adjustments to the pricing on these jobs. Many conclude that this results in a price fixing strategy that limits the contractor’s ability to adjust their reasonable and customary pricing for their services.  I am aware of companies that grew substantially through reliance on program work, and now, as a result of the recent changing program stipulations, are taking steps to reduce their dependence on them. 

It is not my intention to comment on whether program work is good or bad, since I think that it is neither; rather it is both.  It is essential that each company think through the process and have a proactive and long-term strategy that allow them to retain control of their business, the client, the jobsite risks and responsibilities and ultimately their business direction.  In the spirit of Marty’s vision for the industry and hoping for a professional response, Marty would encourage you to be a steward of your business and your industry.  Stewardship is defined as the responsibility of overseeing and protecting something considered worth caring for and preserving.  As an advisor to hundreds of restoration professionals it has been my recommendation to create a sustainable model where no company or source is responsible for more than twenty percent of your business.  This will allow you to maintain control in the relationship and manage your business from a position of strength. 
You may feel that the insurance claim industry will be driven largely by the policies and responses of the insurance industry and there is little we can do to influence its direction.  That is likely to be true, however, you should take comfort in knowing that you are fully in control of your business and your own professional standing. If you wish to maintain control of your business then it starts with your business strategy and relationship with your insurance clients.

We need to work to define our industry as professionals serving those with damage needing restored.  As professional restorers, we should be bound by the long-standing underlying tenet of the Certified Restorer code, which is, “Quality Work, Fair Dealings and Ethical Practices to benefit the restorer, insurer and general public.”   The motto of the Restoration Industry Association and the predecessor organizations is to “Make it better - we promise!.”  I think that if we start with virtuous cycle – one where all parties benefit – then we have the foundation for true change. 

Recently the Property Insurance Restoration Conference (PIRC) had their inaugural meeting where they started a dialog with the insurance community.  Our support of such communications and resources  can  accomplish the betterment of our industry as we start talking with each other rather than at or about each other.  I encourage you to learn more and support the PIRC in their mission to improve the communication and understanding between the restoration and insurance industries.

Tuesday, August 9, 2016


It is difficult to watch the news today: Zika viruses are overwhelming the Olympics coverage and now we are not supposed to travel to Miami; the presidential campaigns do not appear to be offering a compelling vision of the future – only fear of the wrong selection; terrorist activities are hitting the headlines every couple of weeks, racial tension is gripping major cities and more.  It seems that there is a general feeling of malaise and tension.

As I look out to the troubles of the world, I try to figure out what I can do to fix this problem and it is overwhelming.  I have figured out the solution to all of the problems above.  Get ready for this because it will be transformational.  NOTHING – Do NOTHING. As you might be surprised by my reply, I will to clarify.  The world is a very big place.  I realize that I cannot control Zika viruses or Fundamentalist Islamic Terrorist.  If I cannot control or influence these issues then how can I expend my limited energy on these issues? 

I am not naively saying that you should pretend that we are living in a perfect world, or that you should checkout, yet you should keep these issues in their appropriate place.  This weekend I spent two days riding bicycles nearly 120 miles across the beautiful Oregon countryside with my daughter.  I was able to be fully present in that moment: No cell phones, television news, radio reports or other distractions.  The weekend was just about my daughter, myself, a few close friends and hundreds of others sharing a great cause and enjoying the moment.  Perhaps it takes moments like this to put things in perspective. There was no reason to worry about things outside our control.  If I had been worried about the economy, Presidential elections or racial tensions, I would have missed so much this weekend. 

It is important to understand your sphere of control and be impactful in that area.  When I take stock of my world I see that I can truly change my family, business, health, church and community.  I know that I can reach a little outside those key areas but the further I go, the less I am able to accomplish.  You may argue that I am not willing to make my contribution yet this is proven over and over by a simple economic theory. This is the theory of diminishing marginal returns.  The theory states that the more I do, the lower my ultimate results.  Perhaps I am taking the theory out of perspective some but it is close enough to support my ideas.  The more I try to accomplish, in reality the less effective I will be and also the less I will know about what I am supporting.  For example, President Obama is asking for $2 billion to fight the Zika virus.  Why Not $1 billion or $10 billion instead of the $2 billion requested?   Will one produce more effective results than the other?  Keep in mind that this is not a political discussion rather one of return on investments.  If this is a billion dollar solution then how can I really make an impact? On the other hand the bike ride that I participated in was a fundraising event for the National Multiple Sclerosis Society.  The ride has a goal of raising near $800,000.  My daughter and I will raise more than $10,000 for this event.  I feel as though our efforts contributed strongly to this event and we were able to make a real impact.  Not only did we raise a lot of money, I was able to invest greatly in my relationship with my teenage daughter at a very formative part of her life. 

It is important that you do not miss out on real opportunities while you are worried about an uncontrollable event – unless you are a world-class researcher. Be present in your moments and make real impacts where you can make an impact. 

It is not my desire to squash big thinkers and those that hope to make a global difference, yet I hope to offer peace to others.  My hope is that I can inspire many more big ‘doers’ and people of action.  It is my thought that if you have something of consequence that needs to be done then you can focus on achievement rather than living in fear or even a general feeling of discord. I also feel that if people operate at a level where they can do good, then the world will be a better place.  I also think that if you focus on the positive things in your life and the world in general you will find that you will have fewer worries.

It is not my place to determine your priorities but in case you are not sure of areas for impact I will offer some thoughts for your consideration.  How is your family?  Are your children building skills that will help them make their world a better place?  Do you have a solid relationship with your spouse?  Is there a cause worthy of your time and investment?  You can make a difference by being important to children, visiting the elderly and lonely, feeding the hungry, educating children, cleaning the environment in your community, raising funds for medical research, supporting the arts and much more.  When our families, communities, churches, businesses and the environment are stronger then you will truly make a lasting impact.  If you worry then nothing gets better and you feel worse. 

My challenge to you today is to find your passion and make the necessary investments to make your world a better place.  Start by thinking about your priorities and determining what is truly important to you in this world.  Is it your faith, family, health, or other?  When you determine your priorities then you can start with your plan to make an impact.  When you have priorities and a plan then consider developing person and family goals in order to maintain your focus.  Life is a gift and you have a responsibility to make a difference.  Making a difference will not come for worry; rather it comes from positive action.  Hopefully this emphasis will pull people from their television, Facebook, video games, Pok√©mon Go and other distractions and allow for positive purpose.  

Friday, August 5, 2016

Announcing the Business Mentors Business Development Summit

The Business Mentors summit is continually one of the top events in the restoration industry.  You can learn techniques and tips that you can implement in your business today.

Don’t miss out on the Business Mentors Summit.  The event is continually rated as a top training and networking event in the industry.  We have dynamic speakers and great networking.  Come spend several days with us in Chicago on September 21 and 22.  Event highlights:
  • Learn trends in the insurance industry that are driving changes in the restoration market.
  • Find out trends and events in the restoration market and that impacting other companies across North America and how this may impact your business.
  •  Learn how to create a company culture that creates accountable action in your business.
  • Discover how to set up your business for scalable future growth – allowing for a profitable future.
  • Learn how effective communication can improve performance and profits. 

September is back to school month and a great way to recharge your management for a solid finish for 2016.  Email for more information.

Communication overload

We live in a world that is so connected yet is seems that we have become disconnected.  I watch people walk around and instead of looking people in their eyes, smiling and offering a greeting they are staring at a mini screen in their hands.   I have seen people that send thousands of text messages in a day and likely do not say anything of consequence.  Companies have communication systems and tools yet the employees are not sure how they are performing or where the company is going or the company’s progress.  This process seems to be a continuum rather than a destination.  We are slowly moving down a path where we are becoming one with our technology rather than becoming one community, one family, or one company.  I would like to explore the cause of this situation and potential outcomes and offer some recommendations.

I recall my first cellular phone.  Back in the early 1990’s I had a phone installed in my vehicle.  It was so big that it had to be placed in a box in my truck.  The service was very limited but provided a great tool to stay in contact with the office when I was in range.  Over the years the technology improved and we evolved to bag phones then to the classic Motorola brick phone.  This progression helped restoration companies maintain contact with our clients and the office.  Walking around with a cell phone strapped to our hip showed that we were modern and even became a status symbol of sorts.  Being connected was a great tool.  In our 24/365 industry we were able to maintain contact with our clients, improve our service and even cut down on cycle times for projects. 

Improved cellular technology has progressed into instant email contact and messaging.  Prior to email communication every employee had an inbox or cubby in order to receive important written communication.  Now messages are transferred immediately throughout an organization.  The challenge today is that in many organizations the messages can become overwhelming and extremely time consuming.  In an effort to keep everyone in the loop and to communicate important details about projects, the company, clients, events, programs, meetings and activities, we send a message or email.  I have worked in companies where employees receive hundreds of emails every day!  There are several substantial problems with this.  The first is that important details can be lost in the clutter.  We want to be inclusive and communicate our message so that everyone is in the loop, yet we have done quite the opposite.  Personally I cannot take a vacation without taking several breaks each day to review messages.  If I wait until I return then I have an overwhelming amount of information that cannot effectively be prioritized and filtered.  As a result I review email every day – even on vacation or at family events.  If an employee gets over one hundred emails every day it is easy to see how an important detail can be overlooked in message number 62.  The additional concern with the sheer volume of emails in most companies is the time that it takes to review and comment if necessary on the messages.  Most management employees are spending an hour, or potentially substantially more time, each day with electronic communication.  This is significant if you think that this is 15-20% of your available time each day.  When this adds to efficiencies then this is not a problem.  The problem starts to occur when the time spent reviewing communication takes away from knowledge transfer or simply adds to the tasks and responsibilities for your staff. 

Look for a continuation of this article in the September issue of Cleaning and Restoration Magazine.