QC Commercial, LLC (henceforth QC) was founded by Russ Phillips in 2002 as Quote & Jacket Painting. After filing the company as a sole proprietorship on August 1, Mr. Phillips spent the next six months composing the startup strategies and performing an array of startup activities. After it was given a $60K painting contract as portion of a $3M estate dwelling construction job in the upscale Wakefield community in North Raleigh, the firm did not start generating income until 2003. That first year in business QC grossed $190K in total revenue which yielded approximately 25% in pretax profit.
During the very first three years of operation QC competed exclusively in the residential new construction and existing house repaint marketplaces. With no salesman on staff and working with a nominal advertising budget, revenues grew at an uninspiring rate in 2005 to $294K, yielding less than expected earnings.
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 ads in The Blue Book, an advertising publisher targeting commercial general contractors, commercial property owners, and property management companies. The company grew by another $100K in 2006 while working almost entirely in the commercial and industrial markets. The move from residential to commercial projects resulted in immediate increases in profit margins.
By 2007 QC installed elaborate coating systems for celebrated and really big corporations such as Pfizer, Progress Energy, Becton-Dickinson, and Merck.
It quickly became clear to Mr. Phillips that the business should only run within the limits of the commercial/industrial marketplace. After spending several years working in the high tech world of Printed Circuit Board production as An Excellent Engineering Manager, the Creator managed to recognize a degree of professionalism and quality control in industrial building that was completely absent in the residential market.
QC has established itself as an industrial painting contractor. It recently invested $6K in web site upgrades, business card redesign, new logo and tag line, as well as a redesign of company clothing, i.e., t-shirts, golf shirts, and safety vests, etc. These changes are a part of a renewed focus on establishing the business brand.
QC's active customer base includes commercial/industrial GCs and CMs, as well as industrial manufacturing businesses (OEMs)6. Care painting arrangements with Tyson Foods Sara Lee, 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 rate, especially compared to the residential market. Higher rates are well justified and pricing aspects are discussed in the subsequent section. The same essential factors that drive up the cost of commercial and industrial painting are also variables that introduce obstacles for smaller, less established contractors trying to enter the marketplace.
Cost Factors and Entry Barriers
The objective of the plan is not to chide the residential construction industry. There are a lot of subcontractors and builders operating very successful companies working alone in the residential market. Nonetheless, it is necessary to point out the differences in various sectors of building--if for no other motive than to underscore QC's competitive advantage potential. Most residential building is done by self employed (self-performing) builders and subcontractors. Other than superficial reviews conducted by local municipalities, there isn't any regulation or oversight on residential jobs, especially when it comes to painting. There is seldom a written contract between GC and subcontractor. There are no change orders, so additional work is performed at the subcontractor's expense since there is no contract. OSHA7 seldom audits residential jobs. There aren't any proper processes for scheduling, invoicing, quality reviews, submittals, or closeout.
Conversely, to be able to compete in the industrial sector, painting companies must comply with strict rules and regulations administered SSPC8 by OSHA, EPA9, Suppliers, Project Owners, CMs, Surety Businesses, as well as The Department of Labor. The majority of small-scale businesses refuse to comply with cannot afford, or just do not comprehend these compulsory regulations.
QC has successfully finished the prequalification process using a number of CMs and continues to pre-qualify for important projects in the area. Since 2006 the company has been developing safety policy, standard operating procedures and types, and workmanship standards which meet or exceed business requirements. The company has compiled an on the job safety record which satisfies all industry standards. It is a target of the company to acquire multiple certifications with the major certification businesses OSHA, SSPC, and NACE11.
Procedure and Product Knowledge
High performance and high priced materials present problems for smaller, less seasoned painting contractors. Even the seasoned contractor could be combusted by the potential difficulties these products present. It's vital that installers have the complex processes needed to successfully implement high performance coatings and also a thorough knowledge of the volatile product features. Product knowledge, process, and price are the key elements that keep lots of painting contractors from competing in the industrial construction arena. In fact, it's what keeps QC from competing in certain subsectors of the business, e.g., water towers, mobile towers, and nuclear power plants.
It's not unusual to spend more than $350 for an individual two-gallon kit of high solids polyurethane, and high temperature coatings can run in excess of $400 per gallon. An ailing prepared surface can certainly lead to a large number of dollars in materials and wasted time --not to mention the irreparable damage to the reputation of one. It's not easy for CMs and project owners to accurately qualify a coatings contractor for use or a specific project condition. QC is now in the method of compiling a set read more of certificates and files that will provide the information they want to completely assess the qualifications and capabilities of the organization to project managers.
During the transition from residential and light commercial to industrial painting of QC, the administrative and overhead costs became clear very quickly. There were readily forty hours logged just preparing the paperwork required to perform the contract. The quantity of office support needed to support the field operations needs a specific degree of technical skill to perform properly and is large. Training records, NDAs, Drug Screens, Schedule of Values, Insurance Certifications, Material Submittals, Change Orders, Security Strategies, and Federal, State, and Local Authorities files all need to be filed with the customer before any teams are marshalled. This can be really taxing on small businesses and presents another entry barrier for lots of painting firms.
Other expenses that are trivial to industrial painting contractors are insurance conditions with $10M coverages, payment and performance bonds, bid bonds, legal fees, accounting services, equipment leases, and traveling. Most projects require the leasing of heavy equipment including booms, scissor lifts, swing staging, and scaffolding. Using this equipment adds added paperwork, insurance requirements, and training costs, e.g., fall protection plans, security plans, operator training, and a variety of Personal Protection Equipment (PPE).
QC spent $100K in 2014 on traveling. Most of the work of the firm is outside the Triangle Area. These are costs that are paid upfront which eats cash. Managing cash flow is vital to being successful, with sixty to ninety day payment conditions being the standard for the majority of companies. This is among the more notable barriers to entering into, and successfully competing in, the industrial painting market. Resort, per diems, fuel prices, and idle time for lack of work are all genuine expenses that need to be financed well beforehand of progress payment receipts.
The preceding high level summary of the history of the company emphasizes some of the hurdles QC has already surmounted of doing business, in its first decade. The business has managed to browse the entry barriers of the industrial construction, and while doing so has created a commendable customer clientele. It's had its share of down and up years but has managed to remain financially healthy and has kept its great standing intact. Coming off a record year in sales and profit, the organization is poised to make the most of its current situation and create substantial growth over the following five years.
With legal and fiscal partners, the correct staff, advisors, and accounting firm, QC should make rapid progress toward becoming one of the premier painting businesses in the Triangle Area. The Founder expects the business to make major improvements in the next couple of years as laid out in the ensuing strategy. Within the next five years QC painting crews are going to be a familiar sight on industrial construction jobs all across North Carolina and its bordering states.