by Michael Stone
In my experience, too many contractors refuse to let go of their way of doing things regardless of the cost to themselves and their business. They don't want to be confused with new ideas.
You may be running your business correctly and making a profit, but with just a little fine tuning of your "tried and true ways", you could be making more profit, with less effort. Why not take a look?
- Education is critical. Business takes effort and work. You must constantly study and try to improve. You were not born with the knowledge and ability to run your business, it is something that must be learned. Do you continue to work on your knowledge base so you can improve your ability to run your business? The one common thread among successful contractors is education.
This is not a hobby. This is not a practice round. This is the real deal. If you want to make money, then you need to do things in a manner that has proven effective and profitable. You must continue your education on a daily basis.
- Do your math, calculate your markup and use it. That is my Cardinal Rule #7. Pricing your jobs to be competitive will price you right out of this business. Successful builders and remodelers understand this and price their jobs accordingly.
If your price is in the same ball park as other companies, no problem. If your price is higher than others, you are selling a different kind of job or service and you may have to change your clientele and/or your advertising to get to the people willing to pay for the service you provide. Most important, you need to work on your sales skills. You have to effectively communicate the differences between your company and others to "sell" your services.
You must build value into your jobs to get the markup or the sales price that you need for your business to survive. The National Association of Home Builders surveyed over 2000 residential clients and found price was #7 on the list of considerations for owners when selecting a contractor. Clients will pay for quality work.
- You don't make money in this business working with the tools, period, end of conversation. Put the tools away and start running your business. "YaBut, I like to work with the tools." That means you have an expensive hobby.
You may make a living working with the tools but you physically can't work enough hours or charge a high enough rate working with the tools to make a profit. And if you are working with the tools, who is running your business?
- Forget buying new vehicles. All the tax exemptions in the world do not make up for poor cash flow and the monthly payments that accompany a new vehicle purchase. Plan ahead. Put money aside each month and when you have enough, purchase a good used vehicle. You know, the vehicle another contractor bought new and went broke trying to make payments.
For those who think a new vehicle helps you sell better, check your sales ratios before you bought your new rig and after. We will bet your sales to leads ratio has not changed. If you are still not convinced, read Dave Ramsey's book, "Financial Peace".
- Don't do Cost Plus or Time & Material jobs. They are losers, and always will be.
You may do a few and take some money home, but sooner or later, you are going to get bit and it will wipe out any possible gains you have made. Save yourself the heartache and use only fixed figure contracts. There are good reasons that when we do arbitration's, 9 out of 10 are on Cost Plus or Time & Material contracts.
- If you have more employees than your volume of work sold, built and collected will support, you will lose. This is a critical factor, but so hard for many to accept. It is difficult to let employees go, but if you don't have a positive cash flow, eventually the whole business will go under.
This is not subject to opinion. It is math. If there isn't enough volume to pay all salaries as well as material costs, overhead, profit, etc., how can you survive? This holds true no matter what type of construction related business you have. This topic is covered in detail in the book, Markup & Profit, A Contractor's Guide.
Run your business like a business and not a hobby. Pay attention to those who spent money (unwillingly) to learn this stuff. No more "YaButs".
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Richard Hillard replied on 03/20/10:
I think I learned all these the hard way. Good stuff though. The nitty gritty truth
randy replied on 11/16/10:
painful, but true...thank you
patrick hayes replied on 04/17/11:
just the plain simple truth-keeping it real