On this episode of Ask The Expert, we’re joined by RIA members Phillip Rosebrook and Santosh Mohanan, who dive into the specifics of The Cost of Doing Business survey and what it means for restoration businesses of all sizes. Phillip is the President and Partner at Business Mentors and brings over 37 years of industry experience and is known for his work in business planning and organizational strategy through Business Mentors and Restoration Training Online. Santosh, CFO of the Canstar Group of Companies, who offers a financial and operational lens shaped by 16 years in the industry and an MBA focused on the Americas’ top economies.

The Restoration Industry Association’s (RIA) Cost of Doing Business survey, powered by KnowHow, results offer a comprehensive look at the financial health and performance of the restoration industry. This year's report, reflecting 2024, shows the industry has faced some adversity, here are some key stats 7% of companies are losing money and the average net profit margin increased by just 4-5% compared to previous years. Larger companies, those that are over $50 million in revenue, saw their net profit margins drop to around 6%, a concerning trend compared to the 15% margins for companies in the $30-50 million range. However, smaller firms under $1 million were able to maintain an impressive 69% gross profit margins, highlighting the advantages of a more focused approach in their specific region.

The key takeaways from our discussion of the survey results include:

• Some of the biggest takeaways from the gross profit margin and net income data:
  • The industry has been impacted by weather events, with revenues and margins spiking during major events, but declining with less severe weather
  • Third-party administrators (TPAs) and cost consultants have put pressure on margins
• The average time to get paid is affecting cash flow and financial stability:
  • Companies have seen improvements in the average time to get paid compared to last year
  • Longer payment times are still a concern, as cash flow and financial stability still remain important
• What the revenue distribution tells us about the current landscape:
  • Mitigation work is declining, while reconstruction work is increasing as construction companies enter the market
  • Smaller regional companies may have an advantage in their local markets compared to larger national firms
• How the shift in job size mix is impacting overall profitability:
  • Larger companies tend to have lower gross profit margins due to a mix of high and low margin work
• Whether scaling is still the key to overhead efficiency:
  • Larger companies tend to develop more layers of staff to support other staff, which can impact their overhead efficiency
  • Smaller companies may be able to maintain profitability by streamlining their operations
• How companies are investing in training and development:
  • Smaller companies are focusing more on technical training, while larger firms invest in process and software training
  • Companies need to be strategic about training investments and leverage internal expertise to improve profitability
• Overhead labor costs:
  • Regulatory requirements and increased taxes in some regions have impacted overhead costs, which may not be fully recoverable through rate