Patrick Finn is an entrepreneur who came to the United States as an Irish immigrant with skills in the construction trades. Like so many other immigrants before him, Patrick decided that the path to a better life for himself and his family was to create his own business from the skills which he possessed. Patrick A. Finn, Ltd., which specializes in home remodeling and custom home building, was born out of a dream but built from the master craftsman skills of Patrick Finn in 1991.
Today Patrick A. Finn, Ltd., has earned a reputation as a top remodeling company in the Chicago area and was selected by Professional Remodeler magazine as one of America’s Top Remodelers of 2013. The magazine chooses the top remodeling companies in the top 20 remodeling markets in the United States.
Under Patrick’s leadership, Patrick A. Finn, Ltd., recently won 12 awards for “Excellence in Design and Construction” presented by the Home Builders Association of Greater Chicago.
Patrick’s success did not come without major challenges. Like so many other home remodeling companies, Patrick A. Finn, Ltd. was hit hard by the Great Recession. Patrick credits the methods, systems, controls and incentives installed in his business by the consulting company GPS as one of the major reasons he succeeded in weathering the economic downturn.
What follows is an interview with Patrick Finn about his journey from craftsman to entrepreneur and what it took for him to succeed over the long run when so many other home remodeling companies failed after the economy went into a tailspin.
Before you started Patrick A. Finn Ltd., how did you get started in the construction trade?
I got started in London, England at the age of 18. I emigrated from Ireland to England because there were no jobs in Ireland at the time I graduated from high school. My goal had always been to come to America. When I was eight years old, I decided I was going to emigrate to America. My grandfather, who had worked on the docks in New York in the 1920s before returning to Ireland, used to take me down to the shores of the Atlantic on the Irish coast and have me put hands in the water and run my fingers back and forth in the ocean. He’d say, “Patrick, on the other side of the Atlantic is America.” So at the age of 20, I realized my long-term dream of emigrating to the U.S.
What motivated you to start your own business and become an entrepreneur?
I always wanted to work for myself. My father had a small excavating business back in Ireland. When I was in high school during the summer holidays, I would work about 55 to 58 hours a week with him. He agreed to pay me on a pay-performance basis. I made a lot of money working this way—enough to put myself through boarding school the last two years of high school. I also did his books at night and on the weekends. I always wanted to work for myself. I thought that was the only way to go.
When you first came to the United States, did you get involved in the construction business then, as an employee? Did you work for somebody? What was the initial experience you had in the construction business in the U.S.?
When I came to the United States, I made a conscious decision that I was going to work for myself. With that in mind, I wanted to learn every aspect of every trade as much as I possibly could. So I set about doing that. I was a carpenter in England, so I started out in carpentry here, in residential. After a while, I started doing some commercial, and mixed them back and forth. While I was doing that, I was learning about other trades, as well. I didn’t practice the other trades, but I learned how things were done correctly. I became a superintendent for the residential contractor I was working for, so I met with inspectors and managed the trades to make sure they were doing their jobs correctly. That was a great proving ground, or practice, for me before I went into business for myself.
When did you begin your own business, Patrick A. Finn Ltd.?
I started when I was 25 years old. It was October 1991.
Did you have any background running a business before you started Patrick A. Finn Ltd.?
Only the little bit I had with my father’s business and what I picked up from reading books on business management, leadership and things like that. When I was working with my father, he would take me on sales appointments, and I would help him with basic accounting and estimating. Because I would go on sales appointments with him, I became pretty good at reading people, as I would accompany him on a lot of his sales calls. That is a skill that has served me well over the years, especially since I’ve been in business for myself.
Did you put in place any management systems when you first started your business, or did you try to run the business just on the knowledge you had at the time?
I had no management experience, so I didn’t know about systems and processes. I ran the business out of my checkbook and on a cash in and then a cash out basis—basically, flying by the seat of my pants.
That’s so common with entrepreneurs. Your experience is very similar to what we find with our clients.
My father used to say (and this is what motivated me to start my own business and become an entrepreneur), “When you’re working for somebody, do it as if you’re working for yourself.” My father added, “Work as if you were doing it for yourself, and one day you will be working for yourself.”
So establishing my own company was a realization of a lifelong dream. I just made it a reality. That’s how I got started in business for myself. My father used to drill into me—no matter who we work for, no matter what kind of work we were doing, no matter how much we were getting paid—always do it as if I was doing it for myself. When I started doing it for myself, it was a realization of those dreams and aspirations.
What were the challenges you faced when you first started out, and what problems confronted you?
I didn’t know that business thing that was called overhead. It never crossed my mind to charge for overhead; and even if I did, I didn’t know how to figure it out correctly. I lost a lot of money the first three years in business. Finally my accountant said to me at the end of the third year that I needed to make a decision. That was to a) work for myself and learn how to make a profit, or b) go work for somebody else because what I had been doing for the first three years wasn’t going to work. I was losing money every year. From that moment on, I made a conscious decision that I would work to make a profit. For the next couple of years, I broke even paying myself a salary and what not. But eventually it got to a point where I was able to figure out my overhead and included that in my estimates and started to make a profit. So I was lucky I made it through the first five years. As you know, many businesses go out of business in the first five years, but I managed to make it work in year four and five.
In terms of the evolution of your business and the evolution of your understanding of what you needed to do as the owner, managing the business, why did you decide to bring in a management consulting company to help you with your business?
When the sales person came in from your company, he had a questionnaire about a lot of things… such as project management, how to figure out how to break even, and how to put in place the proper systems and processes. I realized then that I had very few of these in place. I was doing about $3 million a year, at the time. This was from 2000–2007. I wanted to double my company up to $6 million. I knew that the knowledge I had that got me up to $3 million was not going to work to double the size of my company. I had reached the absolute limit of my capacity and my knowledge base. I wasn’t able to go any further, no matter how hard I tried. I could get a bit higher than $3 million, but I couldn’t do it consistently.
That’s an important self-assessment that you made that a lot of business owners fail to see about themselves, that they’ve reached their own capacity and need some help. That was a great decision that you made. What gave you the confidence to bring in the consulting company for a business analysis?
I knew that I needed to develop systems and processes. What scared me about how I’d been operating up until the time I brought in a management consultant company is that I knew I had a blind spot. I just didn’t know how big it was, and I didn’t know what I didn’t know. That concerned me. When I hired your firm to help me, my number one thing was to reduce my blind spot. The things that I didn’t know, I started to learn so I could reduce that blind spot.
What did you learn from the initial business analysis about yourself and the way you were running the business?
The analyst quickly pointed out that I had revenues of about $12 million in the previous five years; and apart from a good salary, I had no retained earnings. And—because of inefficiencies and lack of processes and procedures, job descriptions, proper cash management—hundreds of thousands of dollars had slipped through my fingers. I couldn’t account for it. I literally had squandered hundreds of thousands of dollars in the previous five years.
What management systems did the consulting company put in place for you, and how have they helped you?
The management consultant came in for six weeks for the first engagement, and I’ve had multiple engagements with your firm since. On the first engagement, the first thing he had me do was list out all the things that I did personally. The second thing was he helped me create a job description for all six things. He said, “At the end of our six-week engagement, we will have you doing just two things. We’ll have delegated four of the other things to other people, successfully, and they will be doing them. You won’t have to worry about it. The two things you’ll be left with are 1) to manage your money, and 2) to manage your managers.” I didn’t believe him. But week by week we created job descriptions, and we’d assign each job to somebody else. Sure enough, at the end of six weeks, I was there wondering what the heck I was going to do with all my free time. I now had a ton of it, and all I needed to do was manage my money and manage my key people. It was fantastic!
He also helped me put in a variable management report so that I could do a budget. He helped me create a budget, which I hadn’t done in 15 years. He helped me struggle through and create my first budget. And then we created a monthly variance report that I could check to see where I was, versus my budget. He also helped me establish some benchmarks—weekly gauges like what cars have on the dashboard, so I could check them on a weekly basis to make sure my company was hitting all the metrics that we needed to hit on a weekly basis. I felt like a monthly basis was too far out. This let me course-correct a lot faster. The consultant helped me create a cash management system, helped me figure out my profit for each job, and explained the difference between margin and markup, making sure I was allocating enough money to overhead properly.
One of the most important concepts he gave me was “pre-planned profit” or “profit engineering,” making sure that the number one thing I put in all of my estimates was that pre-planned profit, and how to figure it out, and how to make sure it was working correctly. That was huge. I learned a ton of stuff.
Now that you are managing your managers and managing your money, give me a summary of how you are managing your business differently today compared to the way you managed it before you brought in our consulting company.
Before, I used to do just about every single thing except for the bookkeeping. Today, thanks to the consulting, I have a project manager in place, an interior designer in place, and an office manager in place. They have job descriptions, they know what they’re supposed to do, they come in and do their job. To manage my company, I check in with my project manager and interior designer on a daily basis. And then I leave them to do their jobs.
We have a weekly management meeting which gets me up-to-speed on what’s happening on every job. In the past, I would go by every job, every single day. Now I go by the jobs maybe once every other week, and I know exactly what’s happening all the time. If a client calls in, I know exactly what’s going on; and if there’s a problem, I can address it right there because I know exactly what’s happening, without me having to set foot on the job. I have great confidence in my leadership team. I express that to my clients, and they know that one of our selling propositions is that they’re not just getting me, they’re getting a true company. They’re getting a team of professionals and our years of experience and collective knowledge. While they may spend a bit more for that, they realize they are getting better value. Because, working as a team, there’s a lot of advantages. Everybody brings a lot of strengths to the table, and it better serves our clients’ needs.
Today, in managing your business, what are the reports you regularly look at, and how do they help you manage your business better?
Things I look at today: cash management. My office manager inputs all the data into that, and we look at that once a week to decide who’s going to get paid what and how much. We can check receivables, we can check payables and the recurring bills. We always know what our cash position is. I have my office manager send me my bank balances every single day so I know what my cash situation is. That’s a big concern of mine: making sure we have enough money in the pipeline to pay all the bills. I have nine metrics that I track on a weekly basis: leads, quotes, sales, sales dollars per hour (which is an efficiency metric on our employees’ productivity), sales backlog, my throughput, my overhead, my net profits, my income. Also, from our yearly budget, we create a monthly budget with seasonality built in because now we have several years of tracking seasonality of our business. Our budget varies every month, due to the seasonality of our business. With our BBP report, our internal management report, we’re able to track the variance from that with our actual numbers. That’s very helpful in guiding me on which way to run the business.
Prior to that, I was using my accountant’s quarterly accounting statements; and by the time I’d get those, it would be a month and a half after the quarter had ended. It was very hard to course-correct because it felt like I was looking out the rearview mirror. With the reports I have today, I’m looking out the front windshield in the car, and I’m driving a lot more effectively because I can course-correct to make changes as I need to on a far quicker basis. So there’s more of an impact.
As you know, maintaining a positive cash flow is necessary for any business to be successful. How have the new reporting systems the consultants put in place helped you manage your cash flow better than when you were previously working out of your checkbook?
The cash flow system we have in place today allows me to see my receivables and payables on a six-week rotating basis. Using this tool, I’m able to forecast a lot better how to conserve or spend my money. It also allows me to let my vendors know exactly how they will be paid and how much. Because we always follow through on our word, they never have to worry about getting paid from us, as we have a proven track record with them.
Because of this, we’re getting great service from our vendors and service providers. They know we’re going to follow through. Even as things get busy, our subs and our vendors always make sure we get priority in their selection of who they’re going to service and who they’re going to work for.
Have the consultants helped you in other ways with your business?
Yes, indeed. I’ve had multiple consultants from your firm. The consultants have helped me with tax planning. They’ve done a business valuation with me, which I’m about to update—both the tax plan and business valuation because both of them are now six years old. They showed me how I can save a substantial amount of money by avoiding paying taxes legally. The tax plan alone saved over $200,000 in taxes over five years. I’d highly recommend the tax planning to anyone and everyone.
How did the consultants help you manage your crews better?
We’re a system-dependent company now, and everyone knows the role that they have to play and they play it. We see ourselves as a team. And as a team, we all play to win always, and we do win often. My project manager holds my lead carpenters accountable, and my lead carpenters hold their direct reports accountable. We’ve been able to drill things down so far that now all of our staff hold themselves and each other accountable. We have a plan in place, and we work the plan. Everyone knows the role they’re playing; and they take responsibility for themselves, and they play that role correctly every single day, always.
Did the consultants help you improve the productivity of your crews?
Yes. They helped me create an incentive plan. I just had a consultant in for the last couple of days helping me redo the incentive plan. She helped me create an incentive plan that allows us to split any excess profit we earn with our field employees. We have a set amount of time that we’re trying to get the jobs done by. If we get it done quicker, we have excess profit. And we split that profit 50/50 with our crews.
What is the biggest benefit you’ve received from changing the way you manage your business?
I’ve managed to cut back the amount of hours I work to 50 hours a week. I know that I can trust my employees 100 percent when I’m not in the office or on vacation. I know that the needs of my clients are always being met 100 percent of the time without me having to get involved in every situation, every day. This one thing alone is huge for me. I can focus on the business of the business. And when I go home at night, I don’t have to worry about it because I have all my metrics in place, and I know my numbers. I don’t have to worry and think about it in the middle of the night, how things are going. I know everyday where things are at, which gives me great peace of mind.
How did the ups and downs of the economy affect your business, and how did you survive the Great Recession?
In 2008, my business took a hit of 68 percent from 2007. My attorney told me, at the time, to go bankrupt because my bank wanted to collect on all my loans. At the time, I was doing spec homebuilding and renovation. My bank called all my loans and, in 90 days, wanted me to repay $3.5 million dollars, which I didn’t have. I contacted my consultants and they told me not to go bankrupt. Instead, they came in and helped me work out a plan where every one of my vendors and subs got paid as promised. This was huge. I earned their respect and loyalty once again in what was a very challenging time. I survived because I believed in myself and had enough confidence in the systems and processes put in place by the consultants and in my people to make it through, though it wasn’t easy.
What do you see going forward for your business and the home remodeling industry?
I’m an optimistic person. I think 2014 will be a better year than last year, and I think we’ll continue seeing improvement in our industry. It’s improving slower than I’d like, but it seems to be going in the right direction, which is great. My business is perfectly positioned to grow at an accelerated rate as the economy improves. We have created a company with scalability that can quickly turn on a dime as needed, to grow quickly or scale back as required to adjust to the current economic conditions. We have a plan for both scenarios, and all we have to do is work our plan.
What would you say to a business owner who’s considering bringing in a management consulting company to help them with a business?
Have the courage and conviction to allow someone, a stranger, to come in and show you how you can do better in your business—with the same people in place, or hire some new ones, if needed, as it was the case for me. I would say the business owner must be open to change and must be willing to push outside his or her comfort zone to learn and to be able to grow and take the business to the next level.
Any advice on choosing the right consulting company?
It’s very important to choose a consulting firm that has a proven track record in being able to deliver on the results they promise. My consulting firm promised me a two-toone return on my investment. I have been repaid for what services I undertook many, many times over. I would also want to know that they have helped business owners, just like me, to succeed and grow and to prosper… and, at the same time, have a better quality of life in the process. Now I get to spend quality time with my wife and family, and I’ve never missed any one of my children’s sporting or school events because of my business. To me, that’s priceless. I know so many people who don’t have the opportunities that I have because they were an employee of some company or their time is not their own. I do what I do because I love it, and I am passionate about it. And I look forward to coming to work every day now because I am in control of my business, and it no longer controls me.
I live by the motto, “Do not follow where the path may lead, go instead where there is no path and leave a trail.”