Facility Costs - How to Protect Property Owner Profits
Many property owners find themselves in a quandary. They want to address the needs of their building, but economic uncertainty creates apprehension. There is a paralyzing internal discussion as to what to do and when. This "internal discussion" often leads to indecision and nothing at all gets done.
Since money isn't growing on trees and the costs of general repair and maintenance continue to rise, what is a property owner to do? In this month's newsletter, we will consider some insights from a contractor's point of view that may help you move from a point of indecision to taking quick action.
The typical cost equation is defined as 'an equation that seeks to identify and account for all of the costs that a business will incur while creating a product or service.' Why is this equation important to understand? Because a business needs to sell their product or service at a price that is above their total costs to produce that product or service. Making more than you spend to create that product or service is called profit. If you're not making a profit you cannot stay in business very long.
I'm not here to be political, but the fact is businesses are not in business to provide jobs, they're in business to make a profit. An ethical business that makes a profit is in a much healthier position to create the very jobs that it needs to Cost Equation generate the profit. It's a win-win. But it all starts with profit, and making a profit starts with spending less than you take in. Having a good understanding of this cost equation is the very essence of common sense. Unfortunately, too many people - and even businesses - struggle to grasp it.
So, you're a property owner? Believe it or not, that means you are in business. Whether you have a tax ID, a secretary, or even an office, if you are concerned with spending less money than you take in - which is a simple definition of profit - then you're in business. One dictionary defined business as "the purchase and sale of goods in an attempt to make a profit." But as a property owner, profit can be elusive and there is a real struggle deciding (1) what to spend your money on and (2) when to do it. Being able to make a wise decision in this regard requires a reasonable understanding of what indecision can cost.
The Real Costs of Being a Property Owner
I don't want to overstate the obvious here, but if you have ever purchased an existing building (or built a new one) - a house, an apartment complex, manufacturing facility, etc. - then you are in business. Why do I say that? Because you have the constant struggle of making sure that the VALUE of your facility - or the profits on the products and services for which that building is used - is more than the amount you spend on keeping it in existence. (Note: If you paid to have your facility built, then you must add that amount to the overall cost as well.) For example, let's say you spend $1,000,000 over the course of your ownership on a building to keep that building in good repair. Then what happens at the end of that period of ownership when the building is worth only $50,000?To Profit - Act Now!
In this example, you would have lost money unless that $1,000,000 spent enabled you to make a profit on the products or services for which that building was used. Those profits would have to exceed the cost of the building, the costs of maintenance and repair, as well as all of the costs associated to create your product or service. Remember the cost equation? Even if you are independently wealthy and cost is not a concern, spending money on a facility without that money adding to the VALUE of the facility is just not good business sense. The maintenance and capital investment costs that you spend have to pay off. They have to increase the VALUE of your facility or the profits on the products and services for which that building is used. If not, then all you're doing is spending money you can never get back. Too often, though, many business don't spend enough money. How could that be?
An Expensive and Business-Poor Trend
As a roofing contractor, we come in contact with many business and property owners. There is a common fear that permeates these individuals: the economy. There is so much apprehension as to what the economy will do 'tomorrow,' that a lot of these people are holding on to their money - money that would otherwise have been spent on the needs of their facility. This, of course, trickles down to the contractors typically employed to address those needs. No money spent at the top means no money is used to employee those that provide the products and services used by those particular owners. It's a simple economic truism. But there is also another unfortunate side-affect, which directly relates to the information presented above.
In this economy, it is never a good policy to spend money you don't have on things you don't really need. But is spending money on the repair and maintenance of your facility "a need?" Is the cost to mitigate problem areas on your building "a need?" Unfortunately, many property owners and facility managers don't think so. They are hedging their bets that they can avoid spending money now without any negative consequences in the future. That's rarely the case, however. In fact, there are almost always some kind of negative consequences in waiting to act on something that would typically be considered "a need" during better economic times. Those consequences are in themselves much more costly then most realize. Let me give you an example.
We evaluated a roof for a potential client a couple of years ago. At that time, their SPF (spray polyurethane foam) roof was in a severely deteriorating condition, which was actually responsible for a couple of leaks. As with most SPF roofs - because they are so hard to do right - it was not in a restorable condition. The only option on the table at that point was to do a reroof. We picked a single-ply product and strategy that would work over the top of that SPF roof. The cost at that time was about $40,000. To must of us, $40,000 is a lot of money. But it must be considered in terms of the cost equation mentioned at the outset. This particular business did not want to spend the money at that time. It could have been because they didn't have it - I certainly didn't. But more times than not it stems from an inherent hesitancy to spend that kind of money. It is often borne from a failure to fully understand the wide-reaching affects of the cost equation. Most financially successful (and ethical) people recognize a basic truth: It takes money to make money. Of course, there also needs to be the business smarts to know when to spend that money and on what.
But regardless of the reason(s), the fact was that the roof needed to be addressed two years ago, and it was not. They failed to act. That indecision cost them upwards of $60,000. Why? The roof now has taken on so much water and has deteriorated beyond the point of doing a simple reroof; it now requires a complete tear-off. So failing to spend $40,000 when it would have really counted, this roof will now cost that owner close to $100,000. This doesn't take into consideration the damage caused to interior equipment because of all the roof leaks. So what really was the "need?" Looking back now, they "needed" to do a reroof two years ago. Indecision cost them $60,000 at a minimum. Now their facility must endure more roof leaks and is therefore less functional to provide the products and services for which that building is used. That can affect the morale of the employees and certainly can affect the profits that business was hoping to achieve. The roof got worse, profits no doubt took a dive, construction costs continued to rise. And you know what? The roof still needs to be addressed. So waiting didn't solve the problem. It only made it worse.
Really knowing when to spend your money and what to spend it on is a business sense that is incredibly valuable. If you don't do it right the first time and at the time when it counts the most, all you're doing is wasting money. Granted, it's not my money and it is none of my business what someone does with their money. But spending money now to avoid spending even more money in the future seems like good business sense to me. We are all for "buying" time. But too often the attempt to buy that time is much, much more expensive than just doing the right thing when the "need" arises. The example mentioned above is not an isolated one.
How Can RTN Roofing Systems Help You As a Property Owner?
We are a full-service roofing contractor. Roofs are what we know, roofs are what we do. So, yes, I'm a little bias. But it puzzles me why so many people will spend so little money addressing the needs of their roof, when it is their roof that is the primary means of protecting all the stuff that they spend all their money on. I have a foreign friend that made a very interesting observation about us Americans. He noticed that we often protect all of our "junk" in our garages, while we let our $40- and $50,000 vehicles sit unprotected out in the driveway. So maybe it's genetic; maybe it's just an unusual American mentality. But when you think about, protecting our junk at the expensive of the truly important stuff is really kind of stupid.
Make a Decision But it's the same with our roofs. Out of sight is far too often out of mind. Then, when a problem develops, instead of spending money to fix that problem, the problem is nursed along - sometimes over many years. The costs of all the minor repairs that eventually fail lead to a total roof failure that ends up being more costly to address than if the problem was addressed early on.
Unfortunately, contractors have a bad reputation. There are a lot of 'fly-by-night' and dishonest people. "Roofers" may actually have the worst reputation in the construction industry. This skepticism has caused at least some of the indecision on the part of property owners. When you can't trust the information you're given, you're often forced to get multiple opinions. Then what do you do when you have a bunch of conflicting opinions? Property owners either get so confused that they just don't act at all, or they simply choose the least expensive option, thinking they're doing the right thing.
You can trust RTN Roofing Systems to be straight-up and honest with you. If you don't need a new roof, we will tell you. If you do, we'll do our best to clearly outline your options so that you can make an informed decision. Don't wait until you have visible evidence of roofing problems. That often means you waited too long. It's kind of like getting thirsty. If you are thirsty, it means you are dehydrated. It has been determined by some neuroscientists that a 10% dehydration factor can cause a reduction of up to 50% of your total cognitive ability. The point? Act before there is a problem because evidence of a problem usually means more money needs to be spent to fix it.Let RTN Roofing Systems Help
We our roof restoration experts and have been able to use this method to restore roofs and extend their lives. But waiting too long could cause an otherwise restorable roof to pass the proverbial 'point of no return.' This takes away your cost-effective options, leaving you with only expensive ones.
Let RTN give you a free rooftop evaluation even if you feel the condition of your roof is questionable. We may be able to help you establish a repair and maintenance program that will extend the life of your roof even more. Make sure you are getting the best information. Make an informed decision. Let RTN Roofing Systems help. Give us a call today at 970-593-1100 to schedule for your free rooftop inspection and evaluation.
Have a great day, and as always, thank you for your time.