Start a Remodeling Business
COST VS. VALUE REPORT
The Cost vs. Value Report, issued annually through the Joint Center for Housing Studies at Harvard University and Remodeling Magazine, offers a guideline to home improvement contractors in a variety of project categories for cost and average homeowner recoup percentage.
This report will help you:
- Qualify prospects by providing budget expectations
- Provide project cost guidelines based on scope and materials
- Assist with financing for property loans when applicable
- Learn about the overall activity in the home improvement sector which helps with forecasting and understanding trends
More Resources for MA & RI Housing Trends
Business Models for Remodeling
There are different business models for setting up your Remodeling company. These are outlined briefly here for industry professionals. Homeowners please click here.
The Remodeling Process
Whatever type of business you own, you are only as good as your reputation and service. NARI contractors vow to be ethical in their business practices. We encourage and guide our members to build strong relationships with customers, sub-contractors, vendors, town administrators and business partners (accountants, lawyers, IT contractors, marketing contractors, etc.).
What distinguishes a design-bid-build firm?
- Client hires separate entities for project
- Builder bids on work designed by someone outside of his firm, either an architect or kitchen/bath designer
- Typically, separate estimating for design work vs. construction work
- Focus on the price of the project
- Billing typically from separate design/architecture firm and construction company
Benefits of design-bid-build firm
- The most common residential construction method
- Construction does not begin until design is finalized
- More choices/options in hiring a contractor to build project
- Defined roles/responsibilities for all team members
- Project costs known as the project develops
What distinguishes a design-build firm?
- The client deals with one entity
- Design staff/architect in-house (rarely builds projects designed by an outside source)
- Estimating/budgeting process includes design & construction
- All billing handled by one company
- Focus on project design over the price
Benefits of the design-build model
- Customers deal with one company from start to finish
- Integrative services
- Comprehensive budgeting
- Comprehensive scheduling
- Total control of the project
- Excellent communication opportunities
Whether working within the existing footprint or adding square footage to a residence:
- Will require permitting
- May or may not require design services for reconfiguring space
- May require additional engineering
- Usually requires sub-contractor participation and specialists
Standards for Remodeling Business Operations
NARI is in the process of developing standards that define what a mature remodeling business may look like in terms of business, marketing, and operating systems. It is expected that a mature remodeling business could use these standards as a means of finding areas for improvement and increased profitability. These standards may also serve as a road map for startups and newer remodeling companies as they look for areas to help productivity or profitability. These standards may also serve as the foundation for NARI’s webinars and education programs of the future.
The NARI Standards Development Task Force thanks you.
ll. Business and Financial Operations
Business Structure / Corporate Status
- Be Incorporated
- Maintain appropriate licenses, certifications, or permits as required
- Maintain job descriptions for each position
- Maintain an Organization Chart that shows reporting relationships
- Maintain up-to-date employee and company policy manuals
- Demonstrate consistent hiring practices
- Demonstrate appropriate due diligence on candidates prior to hiring
- Utilize an employee review process
- Maintain all insurances as required by jurisdiction, permits, and client contracts
- Have a structured chart of accounts in place
- Use a recognized accounting information system
- Use an accrual or cash accounting method
- Conduct in-process Job Costing on remodeling projects
- Demonstrate a pattern of profitability over the past three (3) years
- Maintain Retained Earnings no less than 6 months of overhead
- Demonstrate the ability to manage business cash flow
III. Sales and Marketing
Maintain and execute a marketing plan that is updated at least annually, including:
- Maintain a website with up-to-date information on the business
- Communicate regularly with past clients and prospects
- Formally track sources of leads and results of marketing activities
Use a documented sales process, including:
- Pre-qualification process
- Presentation process
- Follow-up process
- Tracking closing ratios
- Process for hand-off from sales / design to production
lV. Quality, Compliance, and Training
- Have a customer satisfaction monitoring process that addresses any issues identified
- Maintain at least one MCR/CR, CKBR, or another top tier certified remodeling professional on staff
Conduct, maintain, and document an internal training program that addresses:
- Health and Safety requirements
- Professional development
- Maintain an Injury and Illness Prevention Plan as defined by OSHA
V. Production / Field Operations
- Operating Procedures
- Document and utilize standard operating procedures
- Maintain an explanation or policy on how those procedures are implemented and maintained
- Use a production manager, project manager, or lead carpenter for project management
Types of Spaces Typically Remodeled
- Exterior enhancements
- Dining/Living/family rooms
- Laundry rooms
- Specialty: staircases, closets,
The contract is a critical step in any remodeling project. This is the one item that holds the job together and ensures that all parties involved agree to the same vision and scope for the project.
Elements of the contract:
- Be sure the contract includes the contractor’s name, address, phone and license number (if applicable), and client name, address.
- Detail the scope of the project and what the contractor will and will not do.
- The contractor should detail a list of materials for the project in the contract. This includes size, color, model, brand name and product.
- The contract should include the approximate start date and substantial completion dates.
- Include the required plans. Ask your client to approve them and that they are identified in the written contract before any work begins.
- Federal law requires a contractor to provide written notice of your client’s right to, without penalty, cancel a contract within three business days of signing it. This is provided it was solicited at someplace other than the contractor’s place of business or an appropriate trade premises such as the client’s home, for instance, or has financing provision.
- Make sure financial terms are understood and spelled out in the contract. The total price, payment schedule, and any cancellation penalty should be clear.
- A warranty covering materials and workmanship for a minimum of one year should be written into the contract. The warranty must be identified as either “full” or “limited.” The name and address of the party who will honor the warranty (contractor, distributor, or manufacturer) must be identified. Make sure the time period for the warranty is specified.
- A binding arbitration clause is also a good inclusion in the event a disagreement occurs. The arbitration may enable you to resolve disputes without costly litigation.
- Make sure your client thoroughly reviews the entire contract and understands it before signing it.
- Consider the scope of the project and make sure all items the client has requested are included.
- A legal professional should review your standard contract before using it.