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Archive for the 'insurance' Category

How to Profitably Scale Your Business Using a Salary Cap

Integrating and Implementing a Salary Cap in Your Business

Sports fans understand the concept of a salary cap because most of the major professional sports leagues have some version of a salary cap. In business the term salary cap is used to define a determined payroll limit that restricts the amount of money to be spent on wages and salaries for a specific period of time. Some restoration business owners do not think about how their business could benefit from establishing a salary cap.

As a restoration business owner your single biggest expense is likely labor– the salary/wages that you pay to your employees (including yourself) and the money paid out to subcontractors or vendors for labor. If you want to impact your overall success and your profitability, then you need to start by looking at your labor productivity as the biggest component in your business.

In a growing business, labor costs can quickly balloon out of control. When small businesses are making the transition to medium-sized businesses it is possible to fall into a dangerous feedback loop of borrowing and spending. As you scale your business, your costs will grow, and it is tempting to see break-even (your previous measure of success) as sufficiently safe growth.

Greg Crabtree is the author of Simple Numbers, Straight Talk, Big Profits, and one of the great ideas in his book is the recommendation that every business should self-impose a salary cap just like the one that NFL teams deal with every year.

How to Calculate Your Salary Cap:

To keep the math easy we will use an example of a business that generates $1,000,000 in revenue. In this example the business owner has determined that they want a 10% pre-tax profit from the business after paying themselves a reasonable market wage.

The non-salary costs were calculated by adding up all the fixed costs like materials and subcontractors, and operating expenses like rent, utilities, insurance, communications, and advertising, etc.  This would also include the cost of goods (less labor and management labor) for $1,000,000 in revenue. In this example the non-salary costs are $400,000. As you can see, that means the salary cap is $500,000, which includes all labor costs.

A simple calculation can help you determine the total labor costs allowable with your current revenues.

Labor CAP Formula:

LC = (total revenue) – [(0.1 x total revenue)] – (non-labor costs)

($1,000,000) – [($100,000)] – ($400,000) = $500,000

Here is an example:

If the current payroll expense is more than $500,000 (and the other numbers are correct) then this business is not going to hit the profit target and the business is at risk. That gets us back to the labor productivity idea- the key is to generate $1M in revenue from that $500,000 of labor, and if you want to be more profitable than 10%, then you either need to cut your salary expenses without impacting your productivity (do more with less) or grow your revenue without increasing your salary (again do more with less…or technically the same in this case).

At BDA, we believe that every restoration business owner has the right to expect that their company can deliver to them what they want out of life- freedom and the ability to create wealth.

Make it a prosperous month!  Stay tuned for next month’s article.

Will Proposed Insurance Bills for New York Backfire?

Insurers fear that a collection of nine different insurance bills up for consideration in the New York state senate will backfire, placing the state on the “worst insured markets” list.


Lawmakers, looking to help insured affected by Hurricane Sandy, have recently approved a post-Sandy insurance reform package that has several methods to better serve policyholders affected by Sandy and other related disasters. This includes:

-Establishing a “homeowner’s bill of rights”
-Creating standards for hurricane windstorm deductibles
-Restricting an insurer’s ability to cancel or not renew a homeowner’s policy
-Reducing time frames to settle claims

One group that has been vocal in the fight against these bills passing is the American Insurance Association (AIA). Believing the legislation is “misguided”, the AIA warns legislators and the public that this group of bills can create a scenario similar to that of legislation that passed in Florida after 1992’s Hurricane Andrew, also intended to help and further empower policyholders who suffer from catastrophic weather. Those laws backfired, creating a 40% decrease in insurers in the state of Florida and consequently, shrunk the insurance marketplace.

For New York, AIA warns that following in the same footsteps similar to Florida will create a tight marketplace where insurance will now come into a situation of high demand, low supply and increased premiums to the policyholder. Part of the increased cost to policyholders may come from the fact of putting more litigious power in the hands of consumers against insurers, which will get passed back down to the policyholder’s premiums eventually.

AIA also stated that insurers have closed 95% of all Sandy related claims with $5 billion going directly to New York with a 1% complaint rate, further defending AIA’s stance that this legislation is unnecessary.

With two weeks left in the legislative session, it remains to be seen if the Senate will bring the measures to the floor.

Maryland Joins Other States In Banning Contractor Rebate Offers

Earlier this month, Maryland joined other states that are putting the kibosh on contractors who offer rebates to homeowners as a way to secure the repair contract. These contractors typically come with a shady motive behind the rebate, as they will perform substandard and inflated work, leaving the homeowner with a property not restored to pre-loss condition and affecting the overall value of the home.

These contractors use rebates of the homeowner’s insurance deductibles as a way to dangle the “carrot” so to speak in efforts to secure the contract. The homeowner, who sees savings of hundreds of dollars, believes they are getting the deal of a lifetime. In the end, they are disappointed to find that subpar materials and questionable or downright improper repair was performed.

In the cases of area-wide catastrophic weather damage, storm chasing contractors of the predatory nature will knock on the doors of homeowners who are under a great amount of stress and need even more urgent repairs. Once the shady contractor is able to get in and secure the contract by offering the rebate, they again perform substandard repairs, or in some cases, ask for a large amount of money up front and disappear completely with no work done, and never to be seen again.

It’s also important to note that a homeowner’s policy may not cover the repair of the fraudulent work done by the shady contractor. (To read more about Maryland joining the fight to stop scrupulous contractors in their tracks, click here.)

This type of fraudulent actions tarnishes our industry and makes it harder for honest contractors to assure their customers that they will follow the Standard of Care and follow the guidelines, ethics and practices set forth by our major industry associations and institutes. In order to help protect their reputation in the community, restoration contractors can use a variety of methods to get out their “good news stories” and spread customer testimonials, both online through their website and social media platforms. There’s also more direct marketing tactics you can use as well to spread the good word about your company.

Are you facing sales and marketing challenges that you need help with in order to grow your company? If so, reach out to us at info@theBDAway.com or, call us at 777-773-9956 and we can setup a brief time to talk about them and how BDA might be a good fit to help you get to the next level.

“Zombie Properties”-Not Just in Movies and “The Walking Dead”

For all you zombie fans, when we mention the phrase “Zombie Properties,” your mind might be conjuring up images of the disheveled and abandoned homes you see in zombie flicks or the popular TV Series, “The Walking Dead.” The homes are left unattended and have basically begun to rot away due to lack of care and possibly being exposed to the elements. The home’s owner has fled for safety or unfortunately, become a zombie (or a zombie snack).

In reality, the term “zombie” properties does refer to the vacant homes that have indeed been abandoned by their owners due to foreclosure by the banks (sans any actual zombies). In fact, a recent Reuter’s special report has indicated that there are 301,874 zombie properties across the nation, with Florida topping the list, and Illinois and California coming in second and third, respectively. Florida’s #1 spot in the zombie property rankings could be due to the longer than average time for the foreclosure process to complete, causing the homeowner to become frustrated and walk away all together.

With another 10.9 million homeowners at risk of foreclosure, a spike in these zombie properties could be apparent, as many homeowners continue to struggle with payments in a tough economy and owe more on their home than its actual worth.

The report also found that although the homeowners walked away from their homes due to financial hardship, they did not realize that they were still responsible for the associated taxes and bills of that property. Even worse, some of the homeowners who fled their homes due to receiving a foreclosure notice from the bank later found out that the bank never pursued the foreclosure fully, thus abandoning their home and letting it succumb to unnecessary damage.

Zombie properties are known to attract the criminal element and become a inviting place for squatters and vandalism, thus worsening the condition of the property–all this on top of whatever damage is being incurred from improper or complete lack of the home’s upkeep. Upon returning to their property, the homeowner will not only find letters stating they owe back taxes, but also services for graffiti cleanup, property repair and more.

For the company charged with restoring these properties, these properties can be extremely difficult to deal with, as the extent of damage can be severe and the party responsible for paying them might have a different take on what’s necessary to bring it back up to par. Plus, until the home is sold, the same people that vandalized it in the first place could likely return after the damage was initially repaired. In some cases, the responsible party will want the contractor to perform only wants necessary to make the property look cosmetically presentable-without getting to the root of the problem and truly restoring the property to the Standard of Care. (e.g.: “just paint over that mold-the next buyer will never know”).

It’s extremely important for anyone restoring these types of properties to effectively communicate to the respective party what the proper Standard of Care means and why the property should be restored as so. If the respective party wants you, the contractor, to cut corners, would you walk away or cut the corners, thus compromising the safety and health of those involved? That’s a big gamble to take on the latter option!

What’s your experience with these types of properties? Post your feedback or comments!

And, if you’re looking to predictably grow your business without relying on those that compromise the integrity of your restoration company’s practices, programs, weather or good luck, Business Development Associates, Inc. might be a good fit for you. We are a sales and marketing agency specializing in the restoration industry, generating millions of dollars in new business with proven and effective systems. You can learn more about us by visiting our website here.

Climate Change High On The Radar for Insurance Carriers

With 2012 recorded as the warmest year on record in the lower 48 states and also noted as the second most extreme weather year in U.S. history, insurers have climate change high on their radar.

The recent Ceres report, Insurer Climate Risk Disclosure Survey, shows that while extreme weather is regarded as the new “norm,” many insurance professionals are just beginning to think about how this severe weather will change their business. Climate change is being seen as a major financial threat to the insurance industry. Insurance carriers are looking to put strategic plans into place to deal with the topic of climate change in the coming years as carbon pollution increases worldwide and contributes to the increased problem of global warming. These strategies are aimed to manage their risk from rising sea levels, extreme wildfire, more droughts and severe heat waves in the coming years and decades.

The survey explains that there are five primary motivations for insurers to take action on climate change including:

-Impacts on revenue and profits
-Emergent risks from the future events triggered by climate changes
-Exposure of their insured who are will be exposed to the effects of climate change, both personal and commercial lines

Developing CAT models that anticipate climate changes and the consequential effects, plus advocating and supporting the reduction of carbon emissions are among the suggestions to carriers from Ceres.

Other strategies could include rate hikes for both personal and commercial accounts in disaster-prone areas, especially if carriers feel they will have difficulty enforcing hurricane deductible clauses in their policies. Reducing the supply of policies available in a a given area is another avenue being discussed.

In the restoration industry, losses can originate from both natural and man-made causes. While counting on weather, programs or good luck is not a predictable way to grow your business, knowing how to “pay attention” to those that can refer you the work, and even more so, being prepared for those moments are key to predictably managing your business for optimal growth.

State Farm Fine-Tunes Risk Assessment, Decreases Rates

A.M. Best recently reported that carriers are looking at more than just rate increases to help them maintain profitability in a volatile property insurance market. Other risk-management initiatives that are being looked at include mandatory wind/hail deductibles, percentage hurricane deductibles and roof limitations based on the age and condition of the roof. Geo-coding and better understanding a specific home’s (versus an area’s) risk is also becoming a new trend in risk management practices.

Looking at “micro-zones” versus more broad measures is one way that State Farm in CA is able to manage the carrier’s risk while also offering more discounts to their client’s premiums. Beginning April 15th, State Farm, the largest homeowner insurer in CA, is dropping rates by an average 12.6% for more than a million customers. When looking at State Farm’s customer base in CA, that means 85% of the homeowners they insure will see an approximate $100 savings in their premiums. Renters will also see some savings upon renewal.

Instead of looking at just the zip code, State Farm’s new rate-setting system breaks down risk factors such as geology and fire danger, based on the exact geographic location of the home. This will position State Farm as having the ability to offer competitive pricing based on a fine-tuned set of risk assessments.

Free Webinar: Generating New Business

Register today for this free event, happening on February 27th at 3PM EST!

Brought to you by Cleanfax Magazine, this webinar will provide multiple guidelines and best practices for marketing your business in 2013 so you can position your company for growth this year.

Included on the panel of thought leaders will be Tim Miller, President of Business Development Associates, Inc. Other presenters include Chuck Violand, Steve Marsh and Jeff Cross.

See you at the webinar! Click here to register now!

Spending Increase on Personal Lines; Commercial Rates Remain Steady

According to new research by Bankrate.com, more than a third of Americans spent more on insurance last year, while 52% spent the same, and only 7% spent less.

Of those that spent more on insurance in 2012, 62% said they did so due to rising premiums. The second biggest reason for increased insurance spending, according to survey respondents, was due to the purchase of a new home, car, boat or recreational vehicle.

Spending increases on multiple types of insurance was also seen, including homeowners, renters, life, auto and health coverage.

On the commercial side, rates are expected to continue rising later on in 2013 due to above average losses, low investment returns and receding reserve releases. The occurrence of a hard market is not in sight as of now, as both competition in the insurance marketplace and capacity remains high, and price increases continue to differ across the board.

Some suspected that commercial insurance rates would have started to rise in early 2013, but Superstorm Sandy’s effect on the market is predicted to stall or even out current rates that at one point had seemed to be improving.

Insurers across several types of lines and industries will continue to adjust their pricing and coverage in efforts to maintain their profitability. In addition, the rising severity of losses means that carriers to look more closely when processing claims to ensure the claim and the circumstances that caused the loss matches the coverage currently carried by the insured. For restoration contractors, this could result in further challenges with insurance companies, uncovered losses and angry policyholders who didn’t realize their lack of or gaps in their insurance coverage.



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