Thursday, September 21, 2017

Where there is profit, there is loss nearby

It has been a banner year for restoration professionals across Canada and the United States.  Is this good or bad for your business?  If your region has been impacted by disaster then it most likely has added to your bottom line. Bottom line results don’t tell the entire story and often can be masking much larger issues in your business.  Please consider my thoughts below as you assess your business and your strategy moving forward. 

A friend of mine used to quote an ancient proverb that states Where there is profit, there is loss nearby.  This is a statement that refers to the challenge that profits will hide inefficiencies and loss.  The bigger the profits, then potentially you may be covering bigger hidden losses.  Over the years I have found that many outwardly successful companies were simply riding a great wave only to find that when that went away, they were left with a struggling business. 

The first time that I encountered this situation was when mold remediation first became a focus for many restoration companies.  The jobs were complicated, large and very profitable.  I recall asking one of the restoration industry pioneers, Martin King his thoughts on the direction for the mold remediation industry.  He stated that in his opinion, many thought there were a number of requirements for mold growth but there was only one.  As I ran across the contributing factors to mold growth I was thinking that you needed several elements for growth and they were all equally important (darkness, food source, moisture, lack of air movement. etc.)  He could see my confusion and then he smiled and said, “money.”  When you remove the money, it will cease to be an issue.  In many ways he was right.  Mold did not cease to be an issue but it diminished substantially when the money diminished.  There were companies performing millions of dollars in mold remediation and related work only to find that it went away virtually overnight. Some of these companies found that they were losing money in the other parts of their business, which ultimately lead to their failure. 

The second time that I encountered this situation was after several years of hurricanes in the Southeast in the early 2000’s.  Companies were buying equipment, hiring people, paying large salaries and bonuses and even selling their business for large amounts based on the thought that we would encounter storms every year.  Until last year it had been over ten years since a hurricane hit the United States.  Many large and outwardly successful companies found that without the large losses, the rest of their business was not viable due to inefficiencies and much higher overhead.  Many of these businesses are not around any longer, including several publicly traded companies.  The profits from the large losses and events were substantial and allowed these companies to grow despite the fact that the rest of their business was losing money. 

2017 if not already, should be the largest year for insured losses ever.  Hurricanes Harvey, Irma and Maria along with wildfires; hail; rain; freezing temperatures; and wind have impacted nearly every part of North America.  These events have lead to a much-needed relief for restoration contractors that have been struggling with margin pressure, over-supply of contractors, consolidation from insurance companies and other major client groups, increased competition, and increasing costs. 

The challenge for you and your business is to pay attention to the underlying trends that are impacting our industry and your business.  Don’t let the profits from catastrophe events cover the inefficiencies and loss in other areas of your business.  If you are sitting on a large backlog of work or profits from completed work, now is the time to look at your business and assure that you are positioned for long-term success, not just short-term profits.  Use your resources to invest in a winning strategy. 

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