Monthly Archives: June 2011

The 5% Factor: Produce More To Make More (part 1 of 3)

In the good old days, construction companies were owned and run by builders. These proud, tough, hard working men (and women) learned their trade in the field, had years of practical experience, and knew what it took to get their projects finished on-time. If they didn’t produce quality workmanship, they didn’t last long. Back then it was all about getting the work done no matter what it took to meet their obligations. It was about delivering solid structures with unsurpassed craftsmanship. The contracts were negotiated face to face and enacted with handshakes based on integrity, reputation, trust, one’s word, and doing what’s right. It was all about building a project the contractor could remember, be proud of, and then rely on their customers for recommendations and new work.

Fast forward to today. Now successful construction companies are run by professional managers, engineers, and accountants. These business leaders are focused on the bottom-line and following what is only required by the contract. These managers have college degrees and little or no construction field experience. It’s now about paperwork, documentation, notices, claims, and tracking systems. Building the project isn’t as important as getting the work, doing the paperwork, and getting paid, even if it involves litigation.

Combine this lack of real field construction experience at the top of many companies today with the lower and lower profit margins. Years ago there was not enough qualified construction companies to handle all the work available in the marketplace. Under this business climate, contractors could afford to always do a little extra to insure a perfect project and still make a good profit.

More demands = less profits!
But over the last 40 years, the number of contractors has tripled while the total amount of construction has stayed relatively flat (adjusted for inflation). Therefore now there are more contractors than needed to do all the work required by the market. This has created a price squeeze and reduced contractor’s ability to do more than the minimum required by their contract. In addition, with increasing competition, construction customers are now demanding more than ever before. They now demand faster schedules, safer projects, better quality, more communications, better technology, all at much lower prices.

These added customer demands on contractors who are willing to sign contracts for less than they should, have killed the construction business as it once was. Add to these demands poor architectural plans, problematic engineering, incomplete specifications, conflicting contract documents, material shortages, price fluxuations, more regulations, added paperwork, lender’s requirements, third party inspections, construction managers, and red tape, has all but eliminated a fair profit for the risk contractors take.

It’s time to refocus on the field!
These issues have put pressure on contractors to save more and more money in the field. The average crew size has increased, while the number of experienced field workers on the crews have decreased. Training is a thing of the past as most employers have eliminated it as an unnecessary expense. Superintendents and foreman are younger than ever which also translates into less experienced field leadership and less efficient crews. This has resulted in poor or flat field productivity improvements over the last twenty years. Consider your challenges fighting against competitors who charge less than they should, have inexperienced and untrained field crews, and building projects that now require more paperwork and increased risk. A need now emerges for contractors to refocus on improving field productivity as their only viable solution to compete and improve their profit margins.

Construction profitability is about reducing risk. Contracts require contractors to assume more risk than ever today. Have you considered what’s at stake?

Types Of Construction Business Risk:

– Project Loc. & Access – Project Type & Sz
– Project Sch. & Duration – Constructability
– Customer – Architect, Eng. & Consultants
– Contract Terms – Financial , Funding & Pymt.
– Regs & Inspections – Subcontractors & Suppliers
– Material Costs & Aval. – Plans & Specifications
– Approvals & Acceptance – Project Management
– Supervision & Coord. – Manpower, Prod. & Safety
– Quality & Workmanship – Estimate & Budget
– Factors Beyond Control

So how do you reduce risk and increase your bottom-line? Your choices are many. But consider which will give you the biggest return on your time, energy, and money. In other words, where can your company gain the biggest advantage over your competitors?

– Lower Material Costs
– Better Subs. Costs
– Better Equipment
– Better Supervision
– Better Project Mgmt.
– Labor Productivity
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Can You Build Your Business Alone Or In A Vacuum?

Eastern USA Executive Round-table Peer Groups Forming Now

Business has been tough over the last few years. But the economy is finally at the bottom of the decline. Many of you have restructured and retooled. Some have made extensive changes and redrafted your business plans. And some of your competitors have closed their companies.

My expectation is that it can’t get any worse and now is the time to start regrouping and getting back into business in a bigger way.  Think about where you are now (not where you were). And what you need to do to double your current business over the next 3 to 4 years. Perhaps you need a new strategy, team, marketing plan, services, or customers. Whatever you need to do, one thing is for sure:

You Can’t Do It Alone!
With that reality in mind, I am starting a regular peer group program where you can meet with like-minded business owners to help each other see and do what it takes to meet your goals. I am opening the group to my Profit Builder Circle graduates and clients first and we will cap the group at 10 to 14 companies. So far I have 7 reservations including very successful business owners: masonry contractor, civil contractor, commercial general contractor, landscape maintenance company, apartment renovation contractor, mechanical contractor, steel building contractor.

I am personally inviting you to join us!
You understand the Profit-Builder philosophy and would be a valuable part of this dynamic group. I know you don’t want to spend the $$$ or time, but you need to invest in your future to get where you want to go. A few days twice a year will invigorate and energize your growth and allow you to actually talk to others facing the same issues you do. Plus it will be fun and you’ll build lasting friendships with other business owners you can call on during the year.

This is designed for business owners like YOU!
I highly recommend you consider this Executive Round-table Peer Group offer to join.  You will be a part of a compatible group of 10 to 12 focused company owners and can learn from how others make their companies work.  The group will meet twice a year for 2 days plus I will Phone Coach you several times between the meetings.

Join us at the first meeting in Atlanta – September 29 & 30th, 2011.
Please call or send me an email to reserve your place as a member of this group.

If you are tired of running your company alone, join us! You need a trusted group of advisers, like a personal Board of Directors who’ll help you make the right decisions how to grow your business and make more money. You can be part of a small group of compatible business owners in a regularly structured support group discussing & solving your issues.

Every business owner or principal can benefit from a personal board of advisers that meets on a regular basis. Today’s business executives face increasingly difficult challenges. Competition is fierce, resources are stretched and every day it gets tougher. Its lonely running your company yourself and making every decision without the benefit and input from other people who face the same challenges as you do. Now you can tap into the ideas and wisdom of a small group of success driven entrepreneurs in a professionally lead ongoing board of director’s style setting. As a member of an ongoing Executive Roundtable Peer Group, you’ll generate fresh thinking, new ideas and clear perspectives on what decisions you need to make.

The first meeting will be held in Atlanta and then rotate between member’s locations. (If we get enough West Coast members, we can then split off a Western USA group as well.) The locations will be from Central USA to Chicago to Washington DC to Atlanta and east.

SPECIAL OFFER
Join before July 15th, 2011 and receive a 10% discount on you first year’s dues. Plus the initial one time $500 start-up fee will be waived.

Shall We Talk To See If This Is For You?
Please call or email me to talk about how this program can help you build your business.

George Hedley CSP LPBC
Certified Speaking Professional
Licensed Professional  Business Coach
Author of ‘Get Your Business To Work!’

 HARDHAT Presentations
Hardhat BIZCOACH
– Helping Entrepreneurs & Contractors Get Their Businesses To Work!

     Email:  
gh@HardhatPresentations.com
Website:
www.HardhatPresentations.com

The Worst Case Scenario: What If You Lost All of Your Clients?

When work was plentiful, it was easy to stay busy doing the same things over and over to the same customers. You didn’t have to look for new ways to improve your business, new services to offer, or new customers to build relationships with. Just bid enough jobs to your same five or ten customers, you’ll get your share, and make enough money to stay in business. You really didn’t have to be the best, creative, or innovative. You just had to be as good as your competition. The old saying: “A rising tide lifts all boats” applied during the good times. But now as the tide goes out, all boats will go down as well.

During one of my recent “Profit-Builder Circle” two day business owner boot camps I hold every few months, I asked the attendees what they could do to make a profit if they lost all of their business in the next few months. Most didn’t have an answer. They were so used to doing the same thing and business the same way for so long, they were stuck. Most said they would just try to survive. Survive? Survive doing what? I again restated the question and asked them to consider that all of their sources of past business would be non-existent and they would have to do something different. Still no real good answers. Do you have an answer to the question?

As I started to dig deeper, David told us he was an underground utility, sewer, water, and storm drain contractor in Florida. Ninety percent of his customers comprised of track home builders and ten percent were public works and Cities. The good news was that over the last ten years he had built a large successful and profitable company doing over $8 million in annual sales. He had over 25 managers and supervisors, 150 field employees, 100 pieces of equipment, a large yard, an equipment manager, two full time mechanics, and a net worth in excess of $5,000,000.  The bad news his home builder customers had put all of their projects on hold indefinitely and he was now pursing more public works projects to keep his equipment and crews working. On these projects, the bid lists had grown to over twenty bidders, and the only way he could win any contracts was to price lower than his actual costs. Plus his $1,000,000 annual overhead expenses were starting to eat away at his net worth he had built up over the last five years. David didn’t know what to do.

I asked David how long he would last waiting for something good to happen. He said he could probably hold on for at least a year. How much would it cost? He said he would lose at least $2,000,000 per year trying to keep everyone working. I asked him if it was worth it to give up everything he had worked for just to keep his long time loyal employees and managers working while his nest egg depleted. His simple choice: keep the money or give it to employees hoping the economy comes back fast. Not an easy decision. Then I asked what his equipment was worth. He said he could sell all 100 pieces of his equipment for around $5,000,000 net after debt.

Now the real question for you: Why are you in business? Is David in business to put pipe in the ground, grow his equipment fleet, and pay his overhead expenses? Many business owners forget the purpose of their business is not to cover their costs, do work, and keep busy. It is to give them what they want. Do you want to only break-even by working hard, and keeping yourself, your crews, and equipment busy? Or do you want to own and build a company that produces a constant flow of money, passive income, equity, wealth, and freedom to you as the owner? Your business is a tool to deliver the results you want and fulfill your dream of business ownership.

David and I discussed his options in detail. Keep doing what he had always done and watch his future disappear. Or consider a radical change. If he sold eighty percent of his equipment; reduced his overhead by 20 people to one project manager, an estimator, and a few office staff; and just kept a few crews working; he could stay in business at a reduced break-even level of $1,500,000 in annual sales. That way, when the economy turns for the better, he could jump right back into the main business he excelled at and his company would be one of the last underground contractors still standing. Then he could take at least $3,000,000 generated from selling his equipment and invest it. I suggested he start looking to buy under-market and under-valued fixer upper homes in good locations that could rent out easily to families at break-even lease rates. I recommended he seek single family homes in clean and safe neighborhoods near business centers, schools, shopping centers, hospitals, and government offices. He could utilize his crews during down times and when work was slow to do the repairs and refurbishment on his investment properties.

David made a goal to sell much of his equipment fleet and invest $3,000,000 to purchase 100 houses (100 houses @ $125,000 average price = $12,500.000 in value) within the next six months. If each home appreciated at least 25% over the next three years, his $3,000,000 investment would reap him at least $3,125,000 in net profit. This is a lot more than his construction company would have ever made, even in good times. David realized that his business was not the end, but a means to an end to ultimately get what he wanted.