In 2006-2007, I thought we had it all figured out. I thought there was nothing that could stop our company and the sky was the limit.
We were “making it!”
Just as we were riding high, and even before the recession hit us, we got hit in the face with something else: the consequences of everything that we had done wrong up to that point.
Previous to this slap in the face, we had purchased a couple machines. Because of our growth trends at the time (and our 18 foot tall and bulletproof attitude), we thought we would be just fine.
To our surprise, it wasn’t long before we were in crisis mode. Our main issue sprang from the fact that we simply had too much debt for a new company.
Ultimately, we did not lose the whole company, but we came closer than I ever care to go again. Not only was it frustrating, it was embarrassing. However, many folks lose more than their pride in this situation.
“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett
How to Make it in the Cabinet Industry
In this article series, we will peel back the layers of the loaded question “how do you make it in the cabinet industry?” and uncover the key tactics that can change your trajectory from stress to success.
When it comes to “making it” in the cabinet industry, we all default to the same strategies: Increase Sales and Increase Capacity.
We know that we have to have more sales to grow. Build a sales plan that will grow with your capacity.
Once we add sales we have to add capacity. If you make a logical decision about increasing sales we need to apply the same logic towards our capacity.
Both strategies are correct, both are necessary, but both are detrimental if not guided by a third strategy: maintain low debt and reserve cash.
You Need Cash in the Cabinet Industry
According to a U.S. Bank study, a whopping 82% of businesses that fail, do so because of cash flow problems. If we are burning our cash financing receivables and debt, there is not enough left over to fuel our growth engine.
We must redefine what it means to grow and implement the type of strategy that doesn’t lead to cash flow crisis and destruction. Growth is not only a top line deal. If we only focus on sales as our primary indicator for growth we will subordinate all of our decisions to that ideal.
For example, if you are looking at a new saw that will gain you capacity, but it’s going to cost $100,000, the only decision you have to make is, “will you create enough extra monthly sales to cover the cost?”
I'm here to tell you there's a flaw in your logic.
There is no safety valve built in for if and when things go bad or slow down. No debt is not reasonable, but an unreasonable amount of debt will destroy your business.
Is Low Debt Possible in the Cabinet Industry?
Okay, on paper, low debt seems great, but is it actually possible?
We go into debt to fund our increase in sales and increase in capacity, not to mention to hopefully gain a profit.
What if I said that I knew a way that you could double your top line sales without spending a dime on capital improvements such as space or equipment?
Would you call me a snake oil peddler or a liar?
Outsourcing in The Cabinet Industry
Outsourcing is the only way you can double sales without adding any debt, labor, or additional capital expenses.
For example, if you have a 3 person crew and you do $300k/year in sales, you are maxed out. You can’t take on any more work and all of your time is consumed with your production schedule and managing your crew.
Now, what if your 3 crew members only had to assemble and deliver the final product?
You’d be able to toss out your production schedule, win more jobs, and focus on working on your business rather than working in it. With all the extra time and energy, doubling sales becomes realistic.
Buying outsourced components can get you there.
Some people think that it is more expensive to outsource their production, but when you drill into the numbers, outsourcing in the new economy makes a lot of sense. Read our article, *How to Make it in the Cabinet Industry: Part 2*, for a detailed breakdown of how outsourcing is changing the cabinet industry.
Key Strategies in the Cabinet Industry
Once you’ve begun outsourcing capacity needs, your debt risk is not only minimized, but you are also then freed up to practice the next key strategy to making it in the cabinet business: delegation.
As you begin to delegate, you’ll find you finally have time for another key strategy to making it in the cabinet industry: standardizing.
Maintaining low debt and reserving cash is the first, and most critical key to “Making it in the Cabinet Industry” and outsourcing is one of the most practical ways to do so. Once in place, delegation and standardizing, two other critical tactics to making it in the Industry, can actually come into play.
If you haven't figured out the right formula for “making it” in this industry, try the steps outlined above and put your business on the fast track to success. You can drive your business in the direction you need to go rather in the direction that your current workload drags you.
What about you? What have you learned in the cabinet industry that you consider to be a critical element to your success? Have a question about outsourcing, delegation, or standardizing? Leave your answer and any questions in the comment box below and we will be sure to reply.