Tag Archives: profit

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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Measure and Aim For What You Want!

Measure what you want!
Without numbers to track, it’s like playing baseball in thick fog. You continue to play ball and try your best. But in the fog, you can’t see past first base, where the hits go, or read the scoreboard. This lack of information makes the game rather challenging, perplexing, and dull because nobody knows how they’re doing or who is winning or losing. Without knowing the score, what’s the point?

Measure what’s important to you. Paying your bills, invoicing customers, and keeping your checkbook balanced isn’t enough to get ahead or be the best at what you do. In everyday life, you measure your weight, blood pressure, miles per gallon, the Dow Jones average, who won the football game last Sunday, or the dollar amount on your paycheck. What measurement indicators will tell you if your business is on track, serving your customers, achieving your goals, building wealth, or enjoying your life? Here are some numbers to track and indicators which will tell you if you are building an excellent company:

– Annual taxable business income & profit
– Company Net worth & equity
– Personal net worth annual growth
– Annual income from investments
– Annual company profit margin growth
– Sales from new, loyal & repeat customers
– Profit from new, loyal & repeat customers
– Customer complaints & referrals
– Employee turn-over & training
– Personal time off & vacation days

Aim at what you want!
Start with what you want to accomplish. The number one stress business owners experience is from not knowing where they’re headed. What do you want and where are you headed? Next, how will you achieve your goals? If you depend on hard work to deliver what you want, you’re going to be disappointed every time. Then set up a measuring system to keep track of your progress towards your targets.

For example, if you want to increase your net profit margin, there are many things you can do. You can lower your overall cost of doing business, increase your sales, or charge a higher price for the services you offer. At first glance, most business owners focus on cutting costs. This is futile and won’t work over the long haul. With lower expenses as your solution, you won’t be able to hire better people, add more services for your customers, do the little things that make customers want to give you more work, or help you reach you ultimate goal of more time off or freedom.

The second choice is usually to increase your sales volume by proposing on and winning more business opportunities. Winning more work should increase your total gross profit, but will keep you working at an even faster pace to accomplish the additional projects you have to manage. This is like running on a treadmill faster and faster going nowhere. This won’t move you towards your goal of earning more, working less and living the life you want. But it will keep you busier – is busy what you want?

Expand your business expectations. Learn how to measure your success.
Join me at Profit Builders Academy 2 Day Bootcamp

PROFIT BUILDER CIRCLES ACADEMY
2 DAY BOOT CAMPS!
APRIL 14 & 15, 2011, OKLAHOMA, OK
MAY 19 & 20, 2011, NEWPORT BEACH, CA
FOR A COMPLETE 18 PAGE BROCHURE
& REGISTRATION FORM EMAIL GH@HARDHATPRESENTATIONS.COM

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

Be On Purpose! Be On Target!

FACE REALITY

I sent this email to the President of a company I am consulting with. See if it can help your thinking during the slow economy.

1. Whether or not the note comes due doesn’t change anything for the next few months. The money is still due and deserves a return. More investment money will only enable you to limp along longer without accountability.

2. The economy is not an excuse for 4 years of no growth and no profits. The purpose of every successful company is to grow and make a profit. The more sales and profit, the more valuable the company.

3. The sole purpose of a real company is not to sell it, but to grow it. Entrepreneurs grow companies. Small business owners own a company that barely makes them a living.

4. CEO’s of companies who don’t steadily increase the value of their stock and/or grow their revenue get replaced fast. No excuses. They make it happen or find another job.

5. The meeting we had was the same meeting we have had at least 4 times over two years:  

  • No growth and not profit.
  • No positive sales results.
  • Not enough sales activity or impact to attract new customers.
  • For whatever reason, you have not hired more sales people to close enough leads

As you know, I study entrepreneurs and small business owners. 95% of them get stuck and can’t grow beyond a certain level that leaves them short of successful. Good intentions, hard workers, work 80 hours / week, care about their product, and very convinced their way is the best and only way. But these 95% of all small businesses don’t move beyond the owner’s ability to control all the work. This keeps them stuck at a level they can’t get beyond. They don’t know what to do next except try to work harder themselves. They get frustrated when questioned because they value working hard over getting results. They never can find any good help they can afford. They are slow to hire new people who will help them grow the company. They don’t put strong people around themselves because they think they cost too much. They can’t let go, can’t delegate, and micro-mange everything that happens every day.

The only way to break the cycle is for the owner to change their habits or be replaced by another manager who knows how to manage instead of doing the work. For example, my friend has started 6 companies and eventually gets replaced or fired by the investors when the company gets stuck. With new direction and leadership, the company gets back on track.

Now what is your solution?
I DON’T want to Survive for another year. You have a great product that saves companies money. The economy is not the reason for the lack of sales. It is a lack of enough excellent and qualified people selling. You can’t do it alone with weak players surrounding yourself. You must reshuffle your staff to make way for at least 1 more fully qualified sales closer to get the revenue back on track. Time is too short to hope for a big deal or another loan to bail you out for another 6 months. I will close this rant with one of my quotes:

“The results you get are a direct indicator of the leader of an organization.”

It is time to face reality. What BIG change do YOU need to make (and your company) to get different results.