Many contractors today are asking how to manage the growth they’ve seen, or plan for the growth they see coming. Growth is inevitable when you successfully market your business and have solid business practices but growing a construction business brings a few challenges along with the blessings.
Let me share a few things you should keep your eye on to keep your company operating efficiently and profitably.
Managing Leads
Smart construction-related business owners know they need to market their business for it to grow, but when they do, they often find themselves with more leads than they can handle. When you see more leads coming in, you need to take steps to handle those leads quickly and efficiently. One person should be assigned to handle all new leads. This requires training on how to take a lead. The goal is to keep quality leads in the pipeline and moving forward, culling out those leads that will waste your time.
Become a Specialist
You should also begin to be more selective in the type of work you do. Specialize in one thing, with maybe two backups. Don’t try to be all things to all people; clients today want specialists, not generalists. Figure out what type of work makes the highest percent of profit for you and focus on that type of work. You might make the most money remodeling kitchens, or maybe it’s building decks; it won’t be the same thing for everyone. Look at your past jobs, figure out what jobs were most profitable, and focus there. Let the other leads go to another contractor.
Avoid Debt
Watch your cash flow, and don’t use credit cards unless you can pay it in full each month. Establish a payment schedule on each job that allows you to pay for the job as you go along using the client’s funds, not yours. We talk about this in our book Markup & Profit: A Contractor’s Guide Revisited.
Hire Slowly
Don’t add new field people because you suddenly have five new jobs. That seldom works out well in the long run. Have a game plan first. As you hire more employees, you’ll find productivity goes down, and it’s also easy to bring on more employees your sales volume can afford; that’s a recipe for business failure in the long run. I’m a strong proponent of using subcontractors rather than employees to get jobs built, it’s simply more profitable. You can read more in our articles “Most Profitable Construction Business Model: Do You Need Employees?” and “Structuring Your Construction Company”.
As business increases you may be tempted to start hiring management employees. Two positions come to mind, that of a production manager and a sales manager. Before you take that step, make sure you need that position. Then, calculate the markup and additional sales that will be needed to cover the added expense of either or both of these positions Then and only then should you consider hiring more management help. We cover the mathematics of hiring new employees in our online class, Making the Numbers Work in Construction; hiring wrong will cost you far more than the class investment.
Vehicle or Equipment Purchases
When business picks up, don’t start buying equipment without thinking it through. The general rule of thumb is: If you use a tool or piece of equipment fewer than 24 times a year, rent it. If you use it more than 25 times a year, go ahead and purchase it. Balance that with common sense by comparing the cost of rental to the cost of purchase, but if you have tools or equipment so dusty you can write your name on them, you should have rented it.
The same goes for new or used vehicles, which are so expensive right now I probably don’t need to say this. Vehicle purchases should be planned for when you set your budget. If they aren’t in the budget, you’ll need to increase your total sales so the increased overhead expense can be recovered. More money flowing through your company because of the increased workload doesn’t mean you have a blank check for more toys.
Don’t Accept Excuses
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.
Keep an Eye on 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, and you must keep track of your money along the way.
It’s your responsibility, not your bookkeeper’s, 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. Review this article on safeguards to protect your business from fraud and embezzlement.
Get Help if You Need It
Find someone you can talk to, a mentor or a business coach. This isn’t a self-serving comment for our coaching service; it’s a reminder that as much as you know, it helps to have input from someone else who’s been down the path you’re on. It helps to have someone to talk to who’s had the same problems and can give you advice or another point of view.
Be careful who you hire. There are a lot of people who are coaches because they’ve found success in another industry and figure construction should be easy. They’ll tell you about the thousands of businesses they’ve helped, but they don’t have a clue about the issues in construction because they’ve never dealt with it. 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.
Growing a construction business isn’t easy, but it’s incredibly rewarding. Let us know if we can help.
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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