Operating Turnaround, PE-Backed Property Restoration Company

Context

This was a residential and commercial property restoration company in the Mid-Atlantic, running as one of several regional companies underneath a private equity backed platform. It carried mitigation, environmental, contents and reconstruction service lines, all working a single market, and it had just over 60 employees when I started. I came in as General Manager reporting to the regional president, with the P&L, five department heads, and one instruction, which was to make the company profitable inside the year.

The Situation

The business lost $2.2 million in the calendar year before I got there, and my first month ran at negative 26% adjusted EBITDA. The causes were structural rather than effort related, because the crews were working and the phone was ringing. A large share of the volume came in through third party administrator programs, and those programs hand you work in exchange for control of the pricing, the scope approval and the payment timeline, so the company stayed busy without ever being in charge of its own margin. Deposits were not being collected when a job sold, which meant we were financing the customer and then chasing the money afterward on work they had already received. Job costing was reviewed at month close instead of at estimate, so by the time an overrun showed up the material was installed and the labor was paid and the only thing left to decide was how to book it. Underneath all of it there was no SOP book, no departmental scorecard and no weekly operating cadence, so the department heads were being held to outcomes that had no agreed measurement behind them.

What I Did

Rebuilt demand off the administrator channel. I exited a national administrator program, brought the remaining relationships in house so they were managed directly, and moved the freed spend into organic search and a referral partner program paying a tracked $800 per converted referral. Organic share of leads went from 54% in April to 88% in July, online lead volume rose 63%, and administrator sourced work fell from 27% of leads down to 8%. Total lead volume finished above where it started, so the mix moved without the funnel shrinking underneath it.

Moved cash collection to the point of sale. I rebuilt the customer work authorization and services agreement, the rebuild work order and scope addendum, and added a limited power of attorney for insurance endorsements after a file audit turned up a two party check that had sat unprocessed until it expired. The project managers got a deposit standard instead of a suggestion, and I tracked capture by name every week so the number had an owner on it. Deposit capture on sold jobs went from 31% in April to 91% in June, and jobs sold with no deposit at all went from 42 in a month down to three.

Rebuilt the cost base line by line. January controllable cost ran $501,538 for the month, which annualizes to $6,018,453, and that is the number I measured everything against. By June it was $340,352, a 32% reduction, and the second quarter settled into a $383,102 monthly run rate. Carried through the back half of the year against actual first half spend, that puts the year roughly $925,499 under the January base, with a further $299,895 identified by category and assigned an owner and an effective date. Subcontractor cost of sales came down 64% over the same window and bad debt expense came down 26%.

Took the reduction out of overhead instead of the field. A cut of 17 positions had been decided before I was hired and it was executed in my first five weeks, so I inherited that piece and owned the redesign built around it. Across the period the organization went from 64 people to 37, and 24 of the 27 positions that came out were overhead and indirect labor. Overhead headcount fell 48% while direct field headcount fell 18%, so the back office got materially smaller and the field stayed largely intact.

Installed the operating system the company did not have. I built a 31 KPI scorecard across the five department heads and tied the quarterly bonus gates to it, so the scorecard carried consequences instead of being a reporting exercise. Project manager commissions moved onto gross profit tiers with a 35% floor before any commission is paid, which put the person selling the job on the same side of the margin as the company. Work in progress review went from monthly to weekly, and I set a 24 hour estimating service level, a 72 hour mitigation billing packet, and a competitive bid requirement above $10,000. None of those rules came off a template, because I audited 310 project files at line item level first and wrote each one against a pattern I could point to.

Results

What It Proved

By April the business was running 14% adjusted EBITDA against a plan of 3%, on the platform's own monthly reporting. That is the proof I care about, because it says the model works at the rebuilt cost structure and the rebuilt lead mix, and the pieces underneath it are the ones that stay put. The cost base reset holds no matter what the top line does next, the demand engine is owned instead of rented and it is carrying a lead volume above where it started, and the cash comes in at signing instead of ninety days later. Reconstruction, which is where the margin actually lives in this business, more than doubled monthly and finished at a 32% gross margin against a 25% quarterly target and a 30% full year target.

The Trade-Offs

Two things in the back half of the period came directly out of calls I made. Exiting the administrator channel meant giving up pre-qualified volume before the organic funnel had matured, and administrator work arrives screened where organic work does not, so close rate fell from 72% in April to 49% in June and came back to 56% by July as the qualification step caught up. That was the price of owning the channel and I would pay it again, although I would build the qualification piece first next time so the shift lands on a sales process that can already carry it. The second one is that a large work in progress derecognition in June corrected revenue that had been recognized against unbilled work in earlier periods, which is a balance sheet cleanup and not an operating month.

The Transferable Part

The decisions that set margin in a business like this one all happen before anybody reaches the job, and in most cases nobody is watching them at the moment they get made. The channel the lead came from, the deposit taken at signing, the cost review done at estimate and a named owner on every number all sit upstream of the crew. Six months is enough time to reset the cost base and take back the demand channel, and those two hold.