Monthly Archives: October 2010

Fall Forward & Spring Ahead!

This past month I had the pleasure of speaking to several diverse groups of business owners around the country. Each had a different take on the state of our economy and how they are coping or innovating to either stay in business or change their companies in a positive way.

At the annual convention of the California Sign Association, the buzz was about trying to generate more service and retrofit work with their existing customers.

In San Antonio, I presented my program titled: “Get Your Business To Work In A Tough Economy!” to a group of the largest plumbing contractors in the USA who are members of the Plumbing Heating Cooling Contractors Association. They each talked about how the economy is affecting their business in each of their markets.

What I learned was that those companies who have a diverse customer base and provide many different types of services are the best off. Those who only focused on doing one type of work are hurting most. For example, plumbing companies who focused 90% on housing were down considerably. While those who had a broad range of services including new construction, remodeling, public works, ongoing service accounts, and design-build were much better off. The moral is to not have all of your eggs in one basket.

This year we move our clocks back on November 7th. But don’t make the mistake to keep falling backwards by waiting for the economy to turn. Go out and find some new customers in new markets and offer some new services to spring ahead!

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Rebuilding is sometimes the best thing to do.

If you could listen in on a seminar, you’d hear…..

“There is good news, and then there is really good news, said George Hedley at his recent seminar to a large group of contractors in California. “The worst days of the recession are behind us,” said George enthusiastically. “Now we get to rebuild and start over!” Despite the chuckles from the attendees, that last bit was the really good news. It may sound like it’s not, but according to George, now is the time to take a hard look at every aspect of the business, make some tough decisions, and create a written blueprint for success which will guide and focus each business owner in building a much more profitable business.

“Make a resolution that 2011 will be mighty fine,” George said with a smile, “and that in 2012 you will not be a has-been.” It all begins with having a blueprint for success. That does not mean having an idea in your head of what you want to accomplish. It means having a written plan. Business owners who have a written business plan are twice as likely to succeed as those who don’t.

The first thing needed for a successful plan is to know exactly what you want from your business. What are the reasons you decided to go into business in the first place? Included in the handout materials George gave each attendee was a fifteen point list of why people start their own business. On that list are personal goals such as attaining freedom, building personal wealth, and having more time for family and social events. “The only way you are going to get what you want out of your business,” George pointed out, “is if you know exactly what you want from it.”

In order for your business to succeed, as you rebuild it, you need three key things:
1. You need to know what you want.
2. You need a written plan to get there.
3. You need to monitor results to make sure you and your business are on target.

Once the goals and objectives of the company have been clearly defined and written out, the next step is to implement. That, according to George, means making some tough decisions. “As you redesign and rebuild your business, you need to make the tough decisions. Are you going to cut back your business to your comfort zone? Down-size and be stuck in the ditch, with your head down, working hard for the rest of your life? Or, are you going to grow your business? Get out of your comfort zone? What exactly,” George asked, “are you going to do different as your rebuild your business to make your company be exactly what you want it to be and give you what you want?”

The number one reason why businesses fail is that owners won’t change. “Great generals have great lieutenants, and good companies have good employees,” George pointed out. Every business needs four basic types of people: a visionary leader, excellent managers, quality accountants, and superior workers. If you, as the business owner, are the superior worker, than, George says, “you will never get rich because you have your head stuck in the ditch.”

Knowing how to do the work is not the same as knowing how to make a business grow. No one is great at everything. Having a great team to support the business is critical. “Know your strengths and weaknesses,” George advised the group, “and then replace yourself in those areas where you are weak with strong employees who will make each of the four aspects of your business shine.”

As part of the seminar, George covered the eight critical business-builder success factors. One of those factors is having a “passionate purpose and inspiring vision.” Another is having “clear written targets and goals.” But, the most important of the eight factors is for your business to be “different, unique, focused on your delivery system, services or products.” “If you are not offering something different or better,” George said, “then you are just selling price, and you can’t build wealth selling price.” Finishing up his seminar, George gave business owners this bit of advice: “Spend more time with your customers, and less time stuck in the muck.”

Boost Your Bottom Line! 20 Business Tools To Build Bigger Profits

1. Buy Low and Still Sell High
2. Double Every Discount!
3. Be Low & Then Charge More!
4. Buy In Bulk!
5. Get Another Quote!
6. Mark-Up Your Mark-Up!
7. Trash Your Tools!
8. Estimators Are Not Professional Visitors!
9. Empty Your Yard!
10. Finish Faster Quicker!
11. Clean Out The Dead Wood!
12. Do More to Get More!
13. Markup Smaller Bigger!
14. Fire The Deadbeats!
15. Collect Your Cash!
16. Multiply Your Money!
17. Stop Giving It Away!
18. Two Heads Are Better Than One!
19. Accurate General Conditions
20. Motivate With Money!

Increasing your bottom-line is a tough task. Many competitors price work too low  which doesn’t allow you to charge enough for the service and quality you want to provide. Your employees aren’t as efficient as you want them to be. The weather and other trades get in your way and slow you down on the jobsite and hurt productivity. Poor plans and specifications stop your progress while you get clarifications from the architect or engineer. And then, trying to get paid is not an easy task either.

Every dollar counts. Every penny wasted is precious and can add up to thousands of dollars at the end of the year. So what are you to do? Maximizing your profit must be a top priority right along with getting your projects completed. By taking a little time focusing on increasing your net profit will boost your bottom-line and allow you to make a lot more money. When you’re too busy working, don’t forget to take enough time to focus on your finances, financial tools, and business strategies which will make you more money. Consider implementing these tips and tools to grow your bank balance.

16. Multiply Your Money!
When I ask construction business owners specific questions about their finances, many respond they don’t really know much about their numbers. They let their wife or bookkeeper worry about the money. To me this is an oxymoron! Work all day stressing and struggling trying to get things done but don’t really care or know much about how much money they’re making. The main purpose for owning and managing a company is to make a profit and increase its’ net worth. In order to make this happen, you should also focus on your numbers as part of your everyday activities to stay on track and get the results you want.

A simple way to multiply your money and increase your net profit at the end of the year is to manage your cash aggressively. It doesn’t take much time, but can return a nice sum of money for your efforts. If your company is generating $3,000,000 in annual sales, you will average $250,000 in monthly revenue. Most likely you collect your money throughout the month but only pay your bills twice a month. This means, on average, you should have a bank balance of around $125,000 at all times. If you average $50,000 monthly in materials and are offered a 2% discount for quick payment, this will generate an extra $12,000 annually. And if you invest your cash balances in interest bearing accounts or programs, you should be able to make another $5,000 to $15,000 every year. Not bad for a few minutes a week of time focused on your money.

Make an appointment with your business banker and discuss the many options and programs they have to maximize the return on your bank balance. Ask them about “sweep accounts”, “overnights”, “money market accounts” and “T-bills”. A good banker wants you to make as much money as you can. After the meeting, decide how your company will invest their money and then delegate the task to your accounting manager. Track your monthly progress and watch your money multiply.

17. Stop Giving It Away!
If you had ten dollars for every extra work item your company, project manager, field superintendent, or foreman did without a signed change order before the work was performed, could you have retired several years ago? When your customer asks for extra work, why is it so hard to get it in writing? Everyone knows the contract requires signatures on change orders prior to starting extra work. But when you postpone getting a formal approval for extra work until days, weeks or months after the event occurred, you have no leverage. And when you have no leverage, your customer is in a great position to negotiate the final price with you, change their mind, or decide the work wasn’t really extra and should have been included in the original contract.

Present a complete cost breakdown for every proposed change order your customer requests in advance of starting the work. Use a standardized format and cost template to make sure you include everything the additional work actually costs. Every time extra work is performed, the followings costs occur:
   – Project Management to process the paperwork
   – Supervision to supervise the work
   – Accounting to pay for the work
   – General condition costs – job takes longer to build
         • Trailer & toilets
         • Power & power poles
         • Utilities
         • Truck
         • Equipment
         • Small tools, ladders, etc.
         • Small items: nuts, bolts, hardware, etc.
         • Temporary protection, barricades, etc.
     – Liability insurance
     – Overhead
     – Profit

Don’t short change your company by not asking for everything you deserve. I see most change order requests presented as labor, materials, and subcontractor costs plus a markup without extra costs for the many items listed above. If your company does $3,000,000 in annual sales of which $300,000 is performed as change orders or on a cost plus basis, not charging for everything you spend can cost you as much as $30,000 or more per year in lost revenue for things that you actually had to pay for.

18. Two Heads Are Better Than One!
As a progressive leader of a growing construction company, I wanted my key project managers and superintendents to accept more responsibility. As a result, I tried to delegate as much of the work to them as possible including writing subcontracts, ordering materials, signing contracts, and approving change order requests from subcontractors. Time went on and my inspection of their actual work became less and less as I trusted them more and more. But then the worst scenario happened and we experienced some major financial setbacks. A customer pressured a project manager to agree to some contract clauses that seemed innocent. Months later, when the project was nearing completion, the customer held us to these clauses which added lots of items into the scope of work we never had intended to do. Upon my review, it was obvious the project manager had agreed to contract terms he didn’t understand.

This caused me to take a hard look at how we do business. I discovered many problems with our ‘trusting’ system we were using. Some project managers were not getting the complete scope of work included in many subcontracts they were writing thus causing cost overruns on several projects. Some managers were not tracking their employee timecards properly and keeping track of all the vacation time they were taking. Some managers were approving expense accounts without reviewing all the bills in detail. The payroll department wasn’t charging costs accurately to the right jobs and cost codes. And I found some people were ‘stealing’ from the company using creative accounting. Oh well, some much for trusting your long term employees 100%.

It is my opinion people over time feel entitled to a little bit extra the longer they work for your company if you give them the chance to take advantage of the situation. Little things like leaving early without docking their own pay, asking a supplier for a little material for their home remodel, filling their car with gas using the company credit card, and lots of other little things add up to big bucks. In order to remedy the situation, we re-implemented our company policies and made it clear there would be no exceptions for anyone regardless of their tenure, relatives, or position in the company. Theses new rules required two people to review, approve and make every decision involving company contractual commitments, financial obligations, payments, or monetary transactions including the following:
      – All contract terms and conditions
      – All subcontract pricing, awards, terms & conditions
      – All checks issued
      – All change orders
      – All expense account approvals
      – All employee reimbursable items
      – All overtime pay or requests
      – All vacation or time-off requests
      – All payroll preparation
      – All sick time approvals
      – All project payables
      – All job purchases

19. Accurate General Conditions
Estimating accurate general conditions for projects can be a simple task when the estimator is accountable to get it right. Most estimators use unit prices which are never checked against the actual final job costs. For example, creating a budget for temporary toilets seems easy. An eight month job should cost 8 times $100 per month = $800. But when the field superintendent sees there are 40 men on the job, more than one toilet and more than one servicing a week is required. This might increase the actual job cost by as much as $200 per month. These extra costs will add up to lots of lost cash.

The estimator’s job is to calculate an accurate bid of what it will cost to build each project. After every job he must look at the actual job costs and see if he miscalculated any items. Before he prices the next job, he should get with the project manager or superintendent to determine what will be required to run the project he is currently bidding. Take a hard look to determine if you are charging the right price for:
     – Project manager, superintendent, and their vehicles
     – Project photos, sign, as-built drawings, etc.
     – Temporary facilities, trailers, toilets, sanitation, etc.
     – Temporary utilities, electricity, power poles, water, phones, etc…
     – Temporary fencing, gates, barricades, site lighting, heating, etc…
     – Safety, first aid, shoring, access roads, security guards, etc… 
     – Water quality control, dust control, etc….
     – Trash, cleanup, window washing, final punch-list

20. Motivate With Money!
I get asked about profit sharing programs at every convention I speak at. Incentive compensation can be broken down into two types: earned or arbitrary. Earned incentive compensation is based on a specific formula that rewards for results based on tasks, accomplishments, or results you want to measure. Arbitrary compensation bonuses are based on what the boss feels is the right amount to pay for good work, reward for a positive attitude, or a thank-you for a job well done. It is often based on what the boss thinks is expected to keep employees happy.

I don’t think arbitrary compensation encourages employees to do their jobs faster or better. But often it is expected as a part of the overall employee compensation package because other companies do it or employees feel entitled to something at year end. To me this is no more than a gift of generosity from the employer as it is not required. It’s a nice gesture and will keep some employees from looking for jobs elsewhere until after they get their year end bonus. But they usually don’t make the company any more bottom-line profit.

Extra compensation based on measurable results will produce positive bottom-line results. If employees know what’s expected and are compensated for hitting their targets, they will hit them.

If they don’t know the exact results expected and don’t have a reason to achieve them, why should they want to go the extra mile? This requires the boss to determine the exact results that will make the company more money. For example, if you want an eight month project finished in 7 months, a generous bonus for the crew or superintendent will keep the team focused on achieving the goal and motivate them to hit the early completion target. Without a financial incentive, the target is a nice idea but of no benefit to the crew to finish early or work harder.

Our workers compensation insurance rating was suffering due to field employee claims for jobsite injuries. We implemented a ‘Safety Bucks’ program to motivate the crews to work closely together and watch out for unsafe workers or conditions. Each worker received $1 per day if the entire crew had no accidents. If anyone on the crew had an accident, no one received the safety bucks for the period. We paid this cash bonus out quarterly. This instantly focused everyone on all of our field crews on safety and making sure their were no accidents on the jobsites. This program really worked as it kept everyone focused on the target. Plus I always enjoy giving out bags of bucks to my field crews for no accidents! Examples of measurable clear targets can include:
     – Total man-hours to complete a job
     – Hours without an accident
     – Project milestones completed by a date certain
     – Customer referrals
     – Project punch-list or close-out completion
     – Improving your bid-hit ratio
     – Customer satisfaction
     – Project profit
     – Project completion and sign-off by customer
     – Change order profit
     – Estimating accuracy
     – New customers signed-up
     – Average job size increase

Making the most money you can is fun if you make it your priority. Too often you get so busy you don’t have time to do the little things to boost your bottom-line. Give several of these twenty tips and business tools a try and you will make more money. See you at the bank!

Don’t Get Caught With Your Pants Down!

Last month I reported the recession is over. I received several emails responding that it is not over. Some of you even sent me articles and statistics showing the recession will last a lot longer into the future. I realize the business slowdown is here to stay. But, it is your decision to wallow in the negative or look for positive things you can do to grow your business and make a profit.

When the financial tides kept coming in for years, we were lifted up, up to our eyeballs in business, and making money was easy. When the tides went out, we were left standing in shallow water with our pants down. An ugly sight!

In an issue in Forbes magazine, it shows that most industries have bottomed out and are now making more profit than they were when the economy was booming. Why? They have trimmed the fat, increased efficiency, improved productivity, reduced excess inventory, eliminated poor performing products or services, and have intensified their focus on attracting profitable customers.

I am looking forward to 2011 as a fresh new beginning. Your choices are to “Be a has-been in 2010” or “Win in 2011!” I choose winning! When the economy was booming, most companies only had one source of revenue. The recession has shown us we need 3 types of income to weather the storms. Over the next few months we will be increasing our business in 3 different areas. First we will be expanding our ongoing continuing revenue and service business. Second, we will be seeking wealth-building investments that will bring in positive monthly cash-flow. And third, we will be working hard to improve our one time contract business.

What about you? Will you get caught with your pants down as the tide goes out some day in the future? As a thought, why don’t you consider joining one of our ongoing Executive Roundtable Groups. I am forming 1 or 2 groups starting in 2011. These groups of up to 12 other company owners and managers will meet 3 times per year in a peer group format. Everyone will get to share their challenges and get input to help them improve and grow their business. Shoot me an email to get the complete brochure: gh@hardhatpresentations.com.

Learn more about the Executive Roundtable Groups by clicking the link below

Profit-Builder Circles – Executive Roundtable Groups