When is The Right Time to Add Overhead Positions? Part 1
I am regularly asked, “when is the right time to add overhead positions? And when you add these positions, which ones first? How much should they cost? And how do you go about finding and hiring these people? How do you motivate and manage them?”
My name is Scott Lollar, I’m a DYB Coach, and I want to answer these questions and help you determine the right time to add overhead or non-producing field staff.
In order to do that, I want to first look at the stages of business growth in your painting company.
Stage 1: The Owner/Operator Stage
This is the inception of a business and the owner wears all the hats including the Painters hat.
He or she might hire a helper or two but most of the effort and energy is spent on actually painting.
I usually see revenue at this stage from 0-$300,000.
The organizational chart is flat. There is little need or money to add any non-producing overhead.
The growth strategy is to paddle faster. Most of the business is word of mouth and unfortunately it’s not only because you do a great job but also because you are cheap but don’t know it… yet.
The reality at this stage is the owner/operator is working 60 hours a week and getting paid for 40…maybe.
There is fixed overhead in this size company. Vehicle. Phones. Insurance. Some equipment.
It is very difficult to recover the cost of your overhead and earn a significant after-tax profit for the owner.
This person most likely could make more money working for another contractor. If this is you, be encouraged.
Mostly every painting company started here and it’s ok to learn the business here but don’t stay here for very long.
Stage 2: The Development Stage
In this stage, the company starts acting more like a contracting business and less like a mom and pop business.
I put the revenue of this stage between $300,000-$800,000.
The organizational chart is still pretty flat with little true administrative or non-producing field overhead.
An area that will need early and constant attention is hiring and management of painters which the owner will typically be responsible for until the next stage.
The math is simple here.
To complete the projects and increase your revenue you will need manpower and will need to continue to add painters as long as you are growing not to mention replacing painters that turnover.
Besides painters, the most cost effective and practical addition to your admin support at this stage is to start outsourcing specialists to handle some of your needs.
Some areas that are great places to consider for outsourcing include Marketing including Web design, web maintenance, and SEO support, bookkeeping, and HR functions as you onboard new hires.
Virtual Assistants can also help with managing some of your office work like setting appointments, processing proposals and contracts, requesting deposits, and even setting up tech processes that can streamline your operation.
Growth in this stage will require more strategic thinking, planning, and implementation than in the first stage.
Word of mouth growth that was sufficient to fill your pipeline in the first stage will not support your growth path to $800,000 and beyond.
This stage will be heavily dependent on a robust high-ranking web site combined with excellent reviews over multiple sites.
Networking will also be an area where you can begin adding to your lead flow.
This can be in a leads group like BNI as well as chambers or other similar groups.
In addition to marketing, your systems and processes will need to be developed for a consistent outcome for every project.
These processes will be critical for your consistent and predictable trajectory while insuring you survive this stage.
The business becomes more formalized with planning and action steps.
If this stage is you, you are in good company.
This is where many contractors are for a couple of reasons.
If you deliver a reasonably good product, answer your phone and show up, you can achieve this revenue level pretty easily.
You are far more sophisticated than the start up stage.
You most likely developed some systems and processes, have some marketing in place even if it is just a web site.
This is also where owners start feeling the stress of needing to clone themselves.
It is possibly the most difficult stage to break through.
I often see companies expand or constrict but not stay the same here.
It is at this level that we encourage you to do what it takes to get past and beyond.
I find that while this revenue level is achievable simply by working hard and paying attention to details and being a decent boss, is challenging to stay here without either taking the steps to the next level or making some changes to your existing process.
You have built a small machine.
It will continue to develop more and more energy so there will be more organic pressure on the business because it will be difficult to stop growth unless you:
- implode and start doing things that will kill your company like poor quality and poor customer service or
- you fine tune your target customer and employee and only work for the bullseye in your target.
The second is a great option. The first? Not so much.
Stage 3: The 1st Growth Stage
In this stage, the company starts looking like a more traditional business. I put the revenue of this stage between $800,000-$1,500,000.
The organizational chart starts taking more traditional shape although the owner will still fill more than one role but others will start filling key positions.
These may include administrative hires to assist in office duties and administrative support.
An additional estimator/salesperson will most likely be required here as well as a Project manager so the owner can focus on more strategic thinking, planning and execution to grow the company.
Spending on marketing will likely increase and can include increased spending on website and seo, along with increased networking.
You also might use outside contractors for blogging, LinkedIn and Facebook posts and general online and social media assistance to continually get your company in front of the right people.
The growth stage can be a great season but will require more leadership by the owner than the previous stages.
The company can really start generating momentum in lead flow and sales that can catapult it to great revenue if you can develop the team to produce the work.
I often have said getting the work is the easy part in our industry. The hard part is getting it done.
Stage 4: The 2nd Growth Stage
I put the revenue of this stage at $1,500,000 and above.
The organizational chart starts to be deeper with less people reporting directly to the owner.
Departments or divisions start to take shape with team members being supervised and managed by department leaders or managers and these managers reporting to the owner.
More roles will be brought into the company as full time employees versus outside consultants or contractors.
These may include accounting, marketing and HR.
Additional estimators and salespeople will be required for the growth.
You may need to hire the next level of advisors like accountants, lawyers, or other top consultants.
The team that helped you get here may or may not have the skill set to get you to the next level so do an honest assessment of your team.
Additional field supervision also will be required. This will add costs to your budget that will need to be recovered and an increase in pricing will most likely be inevitable at this stage.
This is a great season and you should take a moment to celebrate your effort. You did not get here by accident.
You have built a great company and it will eat jobs and money.
Your company will require you to be vigilant to stay on course but enjoy the ride.
So which level do you most identify with?
Which level would you like to get to?
Which one do you have no interest in?
This will be the starting point of your next steps to achieve the life you want to create.
In part 2 of this video, I will outline the barriers to growth and how to determine what you want your company to be followed by Part 3 How to add overhead positions to grow your company.
I am Scott Lollar and as always, feel free to email me at Scott@DYBCoach.com with questions or comments or if I can serve you in any way.