Contractor Tip of the Month
It’s Finally Over!
You’re probably thinking I am talking about the recession. I wish I were, but unfortunately, I am not. The fact is, some areas of the country still are hurting badly and will for years, while other areas are improving slowly. However, I believe one thing is almost over in all parts of the country, and it’s something everyone reading this article can help bring to an end more quickly: bidding work under costs.
The results are in
When you bid work under your costs, you lose money. It’s really no surprise; contractors have received these results for the last 100 years. Yet, it appears that no one read the history books on business success. Instead, hundreds, if not thousands, of contractors throughout the nation have fallen prey to this method of bidding work below costs. This probably did keep their people busy, but they lost their tails! I have to tell you a secret: For a short time, I did it, too.
Hell, three years earlier, I had written a contractor tip telling contractors not to take on work below their costs under any circumstances. Then, the economy got so bad, I did it myself – and I got the same results everyone else did. In the process, I wounded my company by not listening to my own advice. Hopefully, and with the scars I am trying to heal, I’ve really got it this time.
The old method of getting through a slow time was to take work cheap, to keep your people busy. Then, as soon as work would pick up, one could recoup money by still having good hands-on staff to do this more profitable work. That hasn’t worked this time. After buying our way through the slow time and thinking it was over, opportunities for work worsened. That left us all with a basic choice: Dig a deeper hole by taking on work at no profit and spending cash we didn’t have, or downsize to fit the workload available.
Here’s where we all went wrong: We didn’t face the reality of the situation and downsize to meet the jobs that were out there. We didn’t preserve cash. And, as odd as it sounds, sometimes the best way to preserve a future position for your best employees is to bring your staff levels down in the bad times, and ramp back up as the jobs out for bid allow. There can come a time when we have to lay off even our best people, until we get that next job, so we don’t dig that deeper hole. It’s one of my least favorite things to do, but there comes a time to face facts, cut quickly and hire back when the storm passes. Did any of us learn anything? Will we remember what happened 10 years from now? I sure hope I do!
The good news
Most contractors have gotten their last few years’ financial results back, and they now know that if the numbers were too tight at bid time, they can’t make it up while doing the job. Plus, before they figured this out, the hole got deeper, and they spent any extra cash they had to keep people working for the sake of keeping people working. Now, they know they must raise prices where they can to insure they make money on future projects or go bust, as there are no cash reserves left to buy them out this time. As they all do this, it will make profit opportunities better for them and their competition.
When the tide turns – and I believe it is turning now – there will be money to be made in this business again. You won’t see this coming when it first happens, so price your work the way you know you should, and do it right now to take advantage of the turn. Otherwise, the next beating you (or I) take may not only leave financial wounds, but also fatal consequences. Remember, it’s finally over…the working-below-cost game, that is!