Want to Kill Your Business?
You’ve picked a tough business. 75% of construction firms go out of business within 5 years and 90% fail within 10 years. But chances are,
construction is the only field you know and you truly love the work — it’s just that you hate the business.
Regardless of whether or not you like the business end of things, that’s what’s going to decide if you can afford to keep doing the work you love. Here are some common business mistakes made by your competitors.
Assume It’s All About Price
I’ll bet you hate “selling.” You’re a contractor, not a salesman. Besides, it’s all about price, right? Wrong.
The biggest mistake that most contractors make is assuming that the buying decision is all about price. The truth is that clients, including general contractors, will buy based upon price until you show them that you’re worth more.
But how can you move beyond price? By becoming a problem solver. Incorporate these steps into every initial client meeting:
Ask Questions and Take Notes
Do much more listening than talking. The goal is to understand their concerns and pains. Don’t worry, they need help or they wouldn’t be talking to you. Basically, they’re meeting with you because they have a problem and they believe that you might be able to make it go away. If you ask about it professionally and politely, they’ll likely open up about it and appreciate your asking.
Quantify Their Pain
Once you understand what the issue is, try to find out the value that they place on fixing the problem. Ask something like, “How much is that costing you?”
Don’t be afraid to remind experienced clients about past headaches with low-priced contractors. You may be shocked to discover that the prospective client places a much higher value on the work than you’d ever think of charging for your services. If you’re client won’t quantify the problem, he’s not ready to buy.
Now tell them how you’d fix the problem.
Back Up Your Claims with Proof
As you go through your proposal with the prospective client, he’s thinking one thing. “Sure, that’s a fair price if you live up to your promises.” You need to be ready to supply testimonials and references at this point. Nothing you say will be believed, but your references will be, especially if your client talks to them. When you say “trust me” it’s ignored. When a satisfied client says “trust him” it’s gospel.
Make a Good Impression
Don’t disregard how you or your materials look. If you come across as unprofessional, the job is someone else’s. Emotion trumps logic, and little things matter.
Work for Bad Clients
Most clients want their work on time, in budget and perfect. They don’t care if you lose your shirt, & they’re the “good” ones. The bad ones want steak for hamburger price. They live by the golden rule, “He who has the gold sets the rules.” They use their control of your cash to get what they want.
You must stay away from clients who:
- Withhold payment as long as they wish
- Nickel and dime you to death
- Backcharge for “perceived” quality faults or verbally make changes and then refuse to pay a fair price for them once you’re done
Here’s how to recognize bad clients. First, check their construction history and ask for references. It’s unusual, but it conveys two positive things. First it helps convey the professional image you want. Secondly, it shows them that you expect to be treated with the same respect you show them.
Read Contracts
You don’t need a law degree, but you do need to understand contracts. After all, if you sign it, you’ve committed to living up to it. Above all, trust your nose. It takes guts to turn down work, but your business’ survival is much more threatened by bad clients than by slightly slower workflow.
Not Having a Large Enough Credit Line
The construction industry is notorious for slow pay. 60-day pay cycles are quite common, and this slow pay stresses your ability to pay bills on time, most of which can’t be delayed, such as payroll.
Talk to your banker about establishing a credit line that is at least 10% of your annual sales. Your banker will ask for your financial statement, but if you don’t have one ready, your accountant or the insurance agent who supplies you bid bonds can help. DON’T WAIT UNTIL YOU NEED MONEY. Deal with the bank from a position of strength, not necessity.
Not Knowing the Cost of Work
Few contractors really know what it costs them to get work done. Have you ever gotten deep into a job and realized that you were woefully short on man-hours. Let’s be blunt. You’re screwed unless you can consistently predict how long jobs will take and how much resources will be required. Here are a few suggestions that others have found to be helpful:
- Take a middle-of-the-road course. Don’t make your job tracking and estimation system so general that it has no categories. But by the same token, having too many categories is also a bad idea. You’ll spend too much time in “administrivia” if you use more than ~5 categories representing 80% of what you do, with a healthy “other” thrown into the mix
- Don’t lump equipment costs. This will lead to bad decisions, because whether you rent of own, there is a cost involved with operating every piece of equipment you use. Office expenses are overhead. Excavation costs are not. You need to know the average hourly costs of each piece of equipment and charge them to the appropriate job.
Not Having a Plan
Contractors are action-oriented people who usually find planning boring. But if you fail to plan, you plan to fail. Besides construction plans, there are three plans that you’ve got to keep if you want to run a profitable and efficient business. First, you need to have and implement a realistic sales and marketing plan for generating leads. if your marketing efforts begin only when you’re looking for the next job, you’ll never create the kind of backlog you’ll need to consistently reach your financial goals.
Second, you need to maintain a monthly cash management plan. It’s important to see coming financial stress coming at least a couple of months before they hit. Finally you should make work plans for labor, material and equipment. If you don’t, it’s easy to have the same person of equipment spoken for twice.
Not Avoiding Turnover
The construction industry is full of nomadic people. To be profitable, your crews must perform up to expectations, which they can’t do if you’re always changing personnel. Turnover kills.
Turnover leaves you running in place. You wear yourself out to end up right where you started. High turnover levels are often indicative of a management problem. The construction market is normally a sellers market, meaning that the workers have the bargaining power instead of you. The best you can do is be known as an employer of choice which comes from:
- Having a consistent backlog which provides steady work
- Treating employees fairly and honestly
- Listening to employee concerns and giving them with the tools to get the job done the right way
- Provide as good a benefits package as you can afford. This keeps spouses and significant others from encouraging your employees to look elsewhere for work