Editorial: What Will You Gain?

by Kyle Clapham

An important question that any business owner must answer involves the types of gains they might hope to achieve by running a business. Many—but not all—remodelers and contractors focus on profit as their main objective. They aim to build a business that will give them a steady return of net profit on top of their salary each year. Key to that calculation is forward planning and the ability to know which assets and dollars are being risked at the start of every new year before any profit is made.

Our columnist Dave Yoho makes this point very often. If it will cost you $500,000 to run your business in a given year, and the return is net profit of 3 percent, then a rational person might decide to either increase profit or shut the business and put the money in a very safe certificate of deposit at the bank. Your money will be there at the end of the year, and you stand to lock in a few dollars on top of it. A mutual fund is riskier, but you’ll likely see some gains there too.

There must be a very compelling reason to risk that $500,000 or much more each year. What are your gains? Some people like to be in charge. They enjoy the opportunity to expense vehicles and other items that benefit them personally at the same time they benefit the business. If you add those benefits to a salary, profit is gravy.

For those with decades of a career ahead, growth of the enterprise is often the main goal even if it comes at the expense of lower profit. These gains are expressed in more people and products, which amount to value creation over time. The asset grows and becomes more valuable. Eventually, its value will be unlocked through bigger annual profits, and in the end, it can be sold. But as recent acquisitions in the industry show, any sale is contingent on profitability. At some point, growth and profit must come hand in hand with each other.

Our discussions in this issue about evaluating franchise and dealer opportunities, as well as our discussion with longtime industry leader and CEO Tom Kelly, who is retiring next month, are undergirded by decisions owners make. Tom is passing the torch and leaving the business in able hands for the next generation to operate and grow.

In business and in life there are tradeoffs. If you are the kind of person who knows what they want and how best to strike this balance for themselves, so much of what needs to be done will fall into place. For those of you who are unsure about what they hope to gain by owning and running and growing a business, it makes sense to explore these questions more deeply. It is an important step in this business. QR

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