You may be running your business correctly and making a profit, but with just a little fine tuning you could be making more profit, with less effort. Consider these:
- Education is critical. You weren’t born with the knowledge and ability to run your business, it’s something that needs to be learned. Continue to work on your knowledge base so you can improve your ability to run a successful business. The one common thread among successful contractors is education.
Business isn’t a hobby, and practice rounds are expensive. If you want to be successful, then you need to do things in a manner that has proven effective and profitable. That requires daily working on your education.
- Do your math, calculate your markup and use it. That is Cardinal Rule #7. Pricing jobs to be competitive, aiming to be in the lowest bid, will price you right out of business. You can’t be both competitive and profitable. You need to be profitable to survive.
That means you’ll need to learn how to sell what you provide. You have to effectively communicate the differences between your company and others. You need to build value into your jobs to get the markup or the sales price that you need for your business to survive, and you need to know how to communicate that value. 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 won’t make money in this business working with the tools. 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. If you are working with the tools, who is running your business?
- Watch your overhead expenses and don’t waste money on new vehicles. All the tax exemptions in the world won’t 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’ll find one; it’ll be the vehicle another contractor bought new and went broke trying to make payments.
If you think driving a new vehicle makes you look better and helps your sales, check your sales ratios before you bought your new rig and after. We’ll bet your sales to leads ratio won’t improve at all. Clients aren’t impressed by new vehicles; they’re impressed by well-kept vehicles and a salesperson who listens to them.
- Don’t build jobs on Cost Plus or Time & Material. You may succeed for awhile, but sooner or later you’re going to get bit by a client who doesn’t want to pay and that job will wipe out any possible gains you have made. Save yourself the heartache and use only fixed figure contracts with a well-written contract. Your client will have the security of knowing the final price (unless they make changes), and with regular progress payments you have the security of knowing you’ll get paid.
- If you have more employees than your volume of work sold, built and collected will support, you’ll lose. This is critical 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. That’s not my opinion, it’s 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”.
Business Owner, or Hired Labor?
Construction Cash Flow and Business Success