The firm did not begin generating income until 2003 after it was given a $60K painting contract as element of a $3M estate home building job in the upscale Wakefield community in North Raleigh. That first year in business QC grossed $190K in total revenue which yielded approximately 25% in pretax profit.
With no salesman on working and staff with a nominal marketing budget, sales grew at an uninspiring rate in 2005 to $294K, yielding less than anticipated gains.
During the business' third year of operation Mr. Phillips decided to left the residential sector entirely and pursue only commercial1 and industrial2 opportunities. Mr. Phillips took out low budget advertisements in The Blue Book, an advertising publisher targeting commercial general contractors, commercial property owners, and property management companies. While working almost exclusively in the industrial and commercial markets, the company grew by another $100K in 2006. The move from residential to commercial projects resulted in immediate increases in profit margins.
By 2007 QC installed elaborate coating systems for really big and distinguished corporations including Progress Energy, Pfizer, Becton Dickinson, and Merck.
It quickly became obvious to Mr. Phillips that the company should only run within the bounds of the commercial/industrial marketplace. After spending several years working in the high tech world of Printed Circuit Board manufacturing as An Excellent Engineering Supervisor, the Creator was able to identify a level of professionalism and quality control in industrial building which was entirely absent in the residential market. This provided an opportunity for Mr. Phillips to showcase his ability to develop and execute ISO5 compliant operating procedures and, once implemented into the firm's operations, recognize QC from all of the other regional painting contractors.
QC has now established itself as an industrial painting contractor. It recently invested $6K in website upgrades, business card redesign, new logo and tag line, and a redesign of firm clothes, i.e., t-shirts, golf shirts, and safety vests, etc. These changes are part of a renewed focus on building the company brand.
QC's active customer base includes commercial/industrial GCs and CMs, together with industrial production firms (OEMs)6. Maintenance painting agreements with Sara Lee, Tyson Foods, and Herbalife include the application of industrial, high performance coatings. Due to the complexity of the services provided, its customers are now billed by QC at a relatively high speed, particularly compared to the residential market. Higher rates are well warranted and pricing aspects are discussed in the subsequent section. The same essential factors that drive the cost of industrial and commercial painting up are also variables that pose hurdles for smaller, less established contractors attempting to enter the marketplace.
Price Factors and Entry Barriers
The purpose of the plan is not to chide the residential construction industry. There are a lot of subcontractors and contractors operating very successful companies working exclusively in the residential marketplace. However, it is vital to point out the differences in a variety of sectors of building--if for no other reason than to underscore QC's competitive advantage possibility. Most residential building is performed by self employed (self-performing) builders and subcontractors. Other than superficial reviews conducted by local municipalities, there is absolutely no regulation or oversight on residential jobs, particularly when it comes to painting. There's rarely a written contract between subcontractor and GC. Since there is no contract, there are really no change orders, so additional work is done in the subcontractor's expense. Residential projects are infrequently audited by OSHA7. There are no proper processes for invoicing, scheduling, quality reviews, submittals, or closeout.
Conversely, in order to compete in the industrial sector, painting companies must comply with strict rules and regulations administered by OSHA, SSPC8, EPA9, Providers, Project Owners, CMs, Surety Businesses, as well as The Department of Labor. Nearly all small businesses simply don't comprehend these mandatory regulations, refuse to comply with, or either cannot afford.
QC has finished the pre-qualification process using lots of CMs and continues to pre-qualify for important projects in the region. Since 2006 the firm has been developing standard operating procedures, security policy and forms, and workmanship standards which meet or exceed industry requirements. The business has compiled an on the job safety record which fulfills all industry benchmarks. As expounded on later in this strategy in Section 2.4, QC continues to put together a complete quality and security operating system, or Total Quality Management system (TQM)10, which is positioning the company as a unique organization--one much sought after by serious businesses competing in today's quality and security preoccupied work environment. It is a goal of the institution to acquire multiple certifications with the major accreditation companies OSHA, SSPC, and NACE11.
Process and Product Knowledge
High priced materials and high performance present difficulties for smaller, less seasoned painting contractors. Even the possible issues can burn the seasoned contractor these products introduce. It is vital that installers have a thorough grasp of the explosive product features and also the complicated procedures required to successfully apply high performance coatings. Product knowledge, procedure, and cost are the key components that keep a lot of painting contractors from competing in the industrial construction arena. In reality, it is what keeps QC from competing in certain subsectors of the industry, e.g., water towers, cellular towers, and nuclear power plants.
It is not unusual to spend more than $350 for a single two-gallon kit of high solids polyurethane, and high temperature coatings can run in excess of $400 per gallon. An ill prepared surface can easily result in a large number of dollars in wasted time and materials --not to mention the irreparable damage to the reputation of one. It is difficult for CMs and project owners to accurately qualify a coatings contractor for a specific project requirement or application. QC is now in the method of compiling a group of certifications and records which will provide the information they want to completely measure the qualifications and abilities of the firm to project managers.
Administrative and Overhead
During the transition from residential and light commercial to industrial painting of QC, the overhead and administrative costs became clear very quickly. There were readily forty hours logged simply preparing the paperwork needed to do the contract. The quantity of office support required to support the field operations is significant and requires a certain degree of practical ability to perform properly. Training records, NDAs, Drug Screens, Schedule of Values, Insurance Certifications, Material Submittals, Change Orders, Security Plans, and Federal, State, and Local Government files all need to be filed with the customer before any crews are mobilized. This can be really taxing on small businesses and presents another entry barrier for a lot of painting companies.
Other expenses that are read more banal to industrial painting contractors are insurance conditions with $10M coverages, bid bonds, payment and performance bonds, legal fees, bookkeeping services, equipment leases, and journey. Most jobs necessitate the leasing of heavy equipment including swing staging, scissor lifts, booms, and scaffolding.
QC spent $100K on travel in 2014. Most of the work of the company is outside the Triangle Area. All these are costs that are paid upfront which eats cash. Managing cash flow is crucial to being successful, with sixty to ninety day payment terms being the standard for the majority of firms. This is among the more remarkable barriers to entering into, and successfully competing in, the industrial painting marketplace. Resort, per diems, fuel costs, and idle time for lack of work are all genuine expenses which need to be financed well ahead of time of progress payment receipts.
The preceding high level overview of the history of the firm highlights a few of the obstacles QC has surmounted in its first decade of conducting business. The company has managed to browse the entry barriers of the industrial construction, and while doing so has created a decent customer clientele. Coming off a record year in profit and sales, the company is poised to take good advantage of its current situation and create significant increase over the following five years.
With the right staff, legal and fiscal partners, advisors, and accounting firm, QC should make rapid progress toward becoming one of the premier painting businesses in the Triangle Area. The Creator expects the company to make critical improvements in the next two years, as laid out in the resulting plan.