When people lose their jobs, many decide to start their own business.
While I am all for entrepreneurship and the opportunity to make it big, I want to remind potential new business owners that there is a lot more to starting a construction-related business than meets the eye. Historically, 94 to 96 percent of all new companies in the construction industry fail in the first 10 years. Over 30 percent fail in the first year alone and even more by the end of the second year. So, if you or someone you know is in the position of starting a new construction-related business, here are a few things to consider to prevent joining the majority, and instead become one of the smart businesses that succeeds.
Advertise 365 Days A Year: You must continually promote and advertise your business. You can’t “work by referral only” in the construction industry over the long haul. When business is good, it works. But when business is slow as it is now, referrals can dry up. Advertise. Nonstop.
Focus On Sales: Stay focused on sales, not production. If you get out, promote and sell your company, the jobs will take care of themselves. You can hire a job supervisor, but only if sales exist. Nothing happens until somebody sells something at a profit.
Pay Yourself A Regular Salary: You and your spouse have an obligation to provide for yourselves and your families. You can’t do that if you do not take a regular fixed salary from your company. Don’t depend on your spouse to support you, it would be better to draw unemployment until you find that next job. If you are going to own a business, run it like a business, not a hobby, and that means drawing a salary.
Pay Your Bills: When you sell a job, set aside the money that it will take to pay the job costs and all the overhead expenses, and recognize that the money left belongs to the company. It is not to be spent on toys or stuff. If you consistently have the discipline to do this, you won’t get behind on your bills.
If you don’t think you can pay yourself a regular salary AND pay your bills, you aren’t charging enough for your work. Learn how to price your jobs to cover your job costs, overhead and make a profit. Read the book, Markup & Profit; A Contractor’s Guide, watch the 6-hour class. It’s a small investment to make your business profitable.
Continue Your Education: Take the time to read at least one hour every day on some aspect of business management, sales or estimating. Those are the three key areas to keep up on as you migrate through the day-to-day issues in your business.
Pay Your Taxes On Time: Figure out the amount of taxes you owe on any given sale and set that money aside in your accounting system. This is not to be touched for any reason. This includes sales taxes, payroll taxes, income taxes, or any other taxes you are responsible for. You don’t want to face a tax bill from the government without the funds to cover it.
Avoid Construction Related Franchises: Contrary to what you may read, franchises are not the answer for construction related businesses. They may work fine for businesses involved in other enterprises, but for construction they simply don’t work. Avoid them.
One or more of these seven items figure into the failure of almost every construction-related business. Run your business like a business and you will not have to worry about your next career change.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.
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