George Hedley
If I followed you around for a day, what would be your focus? Would you be spending your time scheduling crews, making sure materials are ordered and delivered, pricing bids, visiting jobsites, calling subcontractors or suppliers, and telling supervisors what to do? Do these busywork activities really make you profitable or grow your business?
Ask yourself this question before you start doing the many day-to-day activities it takes to run your business: “Where’s the money?” Is there something else you should be doing that’ll make you more money and give you a higher return on your time? If so, then someone else in your company should be doing what you’re doing. Are you a Money-Maker or a Money-Saver?
Money-Makers are focused on MAKING money: seeking profitable sales, developing loyal customers, implementing written standardized BIZ-Systems, building an accountable responsible management team, finding higher margin work, and investing in the future of their company.
Money-Savers are focused on SAVING money: getting work done for the lowest cheapest price possible, maximizing field crew and equipment efficiency, reducing costs at every level of the operation, hiring low cost employees with as few benefits as possible, providing the minimum acceptable service required per plans and specifications, saving as much money as possible on everything, and running their business with too few people to do a professional job.
Which type of owner or manager are you? Do you spend your time trying to save every dollar possible? Or are you focused on building a profitable construction company by investing in experienced managers, supervisors, employees, systems, and great customers? Money-makers make more money. They do things to increase the value of their company, build their image, increase customer loyalty, train employees to become better, improve field productivity, and allow their company to make more money.
You can’t save your way to making big money.
Let’s look at the hotel business. Luxury hotels are 100% committed to giving guests a great experience from the minute they enter the front door until the time they check out. These top hotels treat customers as valuable guests and strive to give them what they want with impeccable service. Hotel managers don’t focus their time trying to save as much money as possible or scheduling people based on running the most efficient hotel operation. They focus on creating extremely satisfied customers who’ll come back over and over again. This investment and customer priority creates profitable, repeat, loyal customers. It also stops high-end customers from shopping around for the best price when choosing their next hotel room.
Low priced hotels are money-savers and do whatever they can to pinch pennies. The furniture is bolted to the floor, they only offer one thin towel, no morning newspaper, the clothes hangers can’t be removed from the closet rods, hot water is turned down to lukewarm, and it seems like the front desk clerk’s goal is to make customer’s lives miserable with their stupid policies and attitudes. These budget motels offer poor service, low quality, and cheap prices.
Guess what? These low price hotels are like most small construction businesses. They sell low-prices to win work, only do the minimum required by customers and contracts, and don’t have loyal customers who give them most all their work at a fair price. They also constantly struggle to win enough work, generate enough sales, and make any profit as they try to save their way to success.
What’s your BIZ-Focus?
Are you a money-maker investing in your future by developing a great team, going the extra mile, doing more than the minimum required, finishing projects ahead of schedule, doing your own punch-list, charging fair prices on change orders, giving customers a great experience, and offering the best quality workmanship and quality? Or have you forgotten making money starts with customers who give you the opportunity to perform and meet their goals? Profit starts with revenue. And revenue comes from customers who are willing to business with you, and are treated as valuable clients by your managers and employees. Profitable revenue comes from very satisfied, loyal customers who want what you offer and will pay a little more for your excellent service or quality from your professional managers and field crews.
What are 2 top reasons to own a company?
- Make high profits and return on investment for the risk taken.
- Enjoy the freedom and benefits of owning a profitable organized business.
BIZ-BUILDERS want to create an organized systemized management team run business, have loyal customers, make a huge profit, create wealth, and own a business that works without them doing the work. To achieve these goals, the first thing you need to do is revolutionize how you think about your role and priorities. Your current company is running and you have people employed to help you get the work done. Your job is NOT to DO the work. Your job is to professionally manage the business, provide leadership, maximize profits, seek high margin loyal customers, set your company apart from the competition, and grow your business.
Successful BIZ-Builders learned long ago that micromanaging people and processes don’t result in much or more profit. Profit is the result of staying focused on making money so you can grow your company. To make this happen you must know and track your numbers! Dedicate time to create financial targets, track them, and do everything possible to hit your numbers. BIZ-Builders know that cash-flow, working capital, job costs, accurate estimates, fixed overhead, mark-up, profit, and equity are collectively the key to their future. Most business owners are so busy working on bids, delivering contract commitments, providing enough crews and equipment to get projects finished, getting paid, making payroll, and keeping employees working, that they don’t spend enough time on the BIG $TUFF.
Most wealthy business owners got that way by spending money on the right things, making a good profit, and then investing it into strategic opportunities. Most poor business owners count their nickels, look for dimes, and keep track of the pennies, but don’t want to bother with their big financial matters. As a result, these small business owners only make a very small and totally unacceptable profit margin for their efforts, if any, after they collect their receivables, pay all their bills, and then give themselves a puny paycheck from the leftovers.
BIG $tuff matters including sales revenue, overhead, gross profit, net profit, accounts receivables, and job costs, are the real keys to make you lots of money. Not try to save every nickel, dime, and penny you can! The average construction business only makes between 2 and 4 percent pre-tax net profit. Not enough to grow your business and reach your long term goals. In contrast, the ‘Best In Class’ contractors make 5 to 10% net profit or more. Not focusing on BIG financial matters will keep you from making larger profits or having enough net cash-flow to grow your company. Doing great work without knowing and tracking your numbers doesn’t really matter or help you achieve your goals.
Dakota Builder’s Money Problems.
Michael owns a construction company in South Dakota. He called me looking for help and complained about customers always asking for lower prices. Also he noted there were too many cheap competitors bidding against him. Therefore his workload was slowing down and his business was hurting. He also stated: “I can’t win enough work at my old mark-up rates, so I lowered prices another 5% to try and get more jobs.” His lower prices still weren’t attracting enough new work. “What should I do?” he asked.
I asked Michael a few simple questions. “What’s the fixed overhead cost of keeping your business open every month? What’s the break-even sales revenue you need at the mark-up rates you can get? What’s your average job size, and how many jobs do you bid versus win every month? Do you know how many crew hours it costs to install your work per quantity?”
He had no clue. Michael didn’t know his job costs or track his numbers. His wife took care of the books and he took care of construction including estimating and bidding, scheduling crews, ordering materials, dealing with customers, and chasing money. Odds are his wife didn’t know the answers to those questions either, as neither of them ever discussed big financial matters in any serious or regular manner. So I politely said: “How can I help if you don’t have any idea what it costs to keep your business open or do the work?” He said he would call me back with the answers. Guess what? I never heard from him again. I’m sure he still isn’t making any profit.
Focus on the BIG $tuff first!
To build a profitable construction business, your top focus must be on your top line and bottom-line numbers. You must know how much sales and markup you need, your labor costs per unit of work, track job costs, collect your money, and always be sure you’re making a profit. You can’t rely on someone else or a bookkeeper to care about your money more than you do. You’re in business to make a profit, not work hard for little or no reward. You can have someone else pay your bills, send out invoices, prepare financial reports, and do accounting, but the owner or president MUST be responsible to know and track the numbers daily, weekly and monthly. Not just once a year when you meet with your accountant and find out too late that you didn’t make what you had hoped to. To get a handle on your numbers and what you need to know, email GH@HardhatPresentations.com to get a free copy of ‘Profit 101 For Contractors!’
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ABOUT THE AUTHOR
George Hedley CSP CPBC is a certified professional construction BIZCOACH and popular industry speaker. He helps contractors grow, make more profit, build management teams, improve field production, and get their businesses to work for them. He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available on Amazon.com. E-mail GH@HardhatPresentations.com to sign-up for his free e-newsletter, start a personalized BIZCOACH program, attend a 2 ½ day BIZ-BUILDER Boot Camp, or get a discount at www.HardhatBIZSCHOOL.com online university for contractors.
George Hedley CSP CPBC
HARDHAT Presentations BIZCOACH BIZSCHOOL
Email: gh@hardhatpresentations.com
website: www.hardhatbizschool.com
www.hardhatpresentations.com