There are more consumers and fewer contractors today than we had ten years ago. There are more homes and buildings, and stricter codes that require updates to those homes and buildings. If you’re running your business like a business and not a hobby, you’ll start getting more leads, and it’s exciting to watch your business grow
We’ve heard from more than a few clients that they’re getting 2-3 phone calls a day just from their website. They’re taking Brian Javeline’s advice on how to improve their website and are seeing amazing results. Others are going beyond the website and using the marketing advice Bernie Heer offers to get their name in front of potential clients, and it’s paying off for them.
Increased leads and sales don’t just bring more money in the door; they also bring new challenges. How do you plan for and manage growth in your business? Let me share a few things you should keep your eye on to make sure your company operates efficiently and profitably while it grows.
Manage Those Leads
When you starting seeing an increase in the number of leads coming in the door, you need to handle those leads quickly and efficiently. Consider assigning one person to handle incoming leads. That person is responsible for taking, qualifying, and assigning the lead (if needed). You need a system that tracks the progress of good leads and culls out the bad leads.
You also need to be more selective in the type of work you do. Specialize in one thing with maybe two backups. Trying to be all things to all people simply doesn’t work. Customers today want specialists, not generalists. Figure out what jobs you make the most profit on and focus on those jobs.
Don’t add new field people because you suddenly signed five new jobs. That approach never works out well in the long run. In our book Markup and Profit Revisited, Chapter Six, we have graphs on the number of employees it takes to build a given volume of business. Every new employee is an added responsibility, and you need to know you can maintain the cash flow necessary to support them. Use our graphs to help you keep the number of your employees in line with your revenue.
As business increases you may also be tempted to start hiring management employees, either a production manager and/or a salesperson or sales manager. Before you take that step, make sure you need that position in your company. Then calculate the markup and additional sales needed to cover the added expense of any additional management positions. Then and only then should you consider hiring. We cover the mathematics of how to hire new people in our Making the Numbers Work In Construction class; hiring wrong will cost you far more than the class investment.
Evaluate Before You Purchase
When business picks up, it’s easy to start buying equipment. The general rule is this: If you use a tool or piece of equipment 24 times a year or less, rent it. If you’ll use it more often, then purchase it. That rule, of course, needs to be balanced with common sense, but if you have tools or equipment in your shop with enough dust on them to write your name, you should have rented them. Just because you’re seeing a lot of money flowing through your company doesn’t mean you have a blank check for more toys.
Speaking of toys, don’t buy new vehicles right off the bat, either. Vehicle purchases should have been planned when you set your budget last year. If they weren’t in the budget, then you need to make sure you have enough increased sales to pay for the unplanned expense. Purchasing a vehicle is a long-term commitment that you shouldn’t go into lightly, even if you can pay cash up front. Remember, when you do purchase additional vehicles, a used vehicle with good maintenance records is always a much smarter purchase than a new vehicle.
Stay Out of Debt
It’s easy to wander into debt when you see your business start to grow. It costs money to hire new employees and purchase additional tools and equipment, which is why it’s important to do those things slowly and carefully. You’ll also get phone calls from finance companies offering to provide capital to “help you grow your business.” Just a reminder: they aren’t calling because they care about helping you. They’re calling because they want to profit off your debt. Avoid debt if at all possible; it’s seldom a good idea.
Don’t start using credit cards. Those will get you into debt faster and easier than almost anything else. Every contractor having financial problems who has come to us for help over the last 18 years has been deep into credit card debt. It’s not uncommon for them to have maxed out three, four, and even five credit cards. Don’t use a credit card unless you can pay it off in full every month. Use your checkbook, use cash, maybe trade one of your kids for materials, whatever it takes, but don’t go into credit card debt.
As your workload increases, you will notice a marked increase in the excuses of why things didn’t get done right or at all. Don’t buy into it. Hold everyone accountable for doing the job you are paying them to do. Pay them fairly and expect them to do a good job. Then make sure they are doing it.
Watch Your Accounts
Too many business owners ignore or stop checking their accounts when business starts to pick up, and they regret it later. It’s important to review invoices, accounts payable and accounts receivable each week. Yes, you do have the time. Business isn’t about what you like to do, it’s about making money. You provide a service and make a profit doing it.
So it’s your responsibility, not your bookkeeper’s responsibility, to keep your company financially solvent. You need to know if your company is running up big bills at the suppliers or buying from the wrong companies. You need to know if equipment is being purchased that you aren’t aware of, if overhead expenses are getting out of hand, or if employees are being paid more than their work justifies. These are all things that a regular check of your invoices, accounts payable and accounts receivable will bring out. We published a newsletter article in April of 2003 written by a CPA on steps every construction-related company should take to protect themselves from fraud and embezzlement. It’s important to keep your finger on the money: where it comes from, where it is going, to whom and when.
Don’t Do It Alone
Find someone you can talk to, a mentor or a business coach. This isn’t a self-serving promotional comment for our coaching service. It’s a reminder that as much as you know, it helps to have someone else’s input, someone who’s been down the path you’re on. It helps to have someone to talk with who’s had the same problems and can give you valuable advice or another point of view.
Be careful who you hire. There are a lot of people in this industry who’ve found success in other industries so they figure they know everything about construction as well. They know just enough to promote themselves, and will tell you about the thousands of businesses they’ve helped, but they don’t have a clue about the issues we face in construction because they’ve never dealt with those issues.
A page on our website outlines questions to ask when looking for a coach or mentor. Find out what to look for and get them on board.
You’ve worked hard to get your business to this point. You don’t want your hard work rewarded with more debt, too many employees, unhappy clients, and a lack of sleep while you worry. Let us know if we can help.