The Design Builder's Blog

5 Success Limiting Actions Contractors Should Avoid To Maximize Long Term Profitability

Having grown my own contracting business and worked with hundreds of business owners seeking to do the same I have come to recognize five specific things I think dramatically limit a business owner’s success and potential long term profitability.   If you plan to grow your construction business deciding how you will address these five actions can set you on path that is more likely to support your long term professional and personal levels of success. 

Not having an exit strategy

If you have no idea where you want to end up any path will take you there.   On the other hand if you think about where you want your business to be in 10 to 15 years, and what role you as the owner want to have then, it’s more likely the decisions you make along the way will support and maximize your ability to get there.   Consider going down the wrong path will eat up a lot of value time and money that could have been used to help grow your business and will reduce your potential retirement funds.

Hiring for today without thinking about tomorrow

Many contractors hire for today.  By that I mean they hire the help they think they need for the projects they have on the books and the current size of the business.   If you plan to grow your business these employees may not have the skills or desire to grow with the business.   If you think about how much you want to grow, the organizational charts you will need at different stages of growth, and the job descriptions for each position on the organizational charts, you can make better hiring decisions.   And, long term, you will have less employee turnover and therefore lower training related expenses over time as well.

Not setting goals and metrics

Letting your business grow without having measurable goals along the way can lead you and you’re your business down a path to mediocre results.  Without a goal for example for work produced and sold per month you won’t have an objective target to hold you and your employees to as business happens.   Without goals and metrics the business may just accept whatever level of performance happens by chance.  On the other hand, by having established goals that need to be answered to, if you come up short of your goal in one month the new goal for next month can be increased to make up for the shortfall and get you back on track.  Knowing you are behind on your goals you and your team can make alternate plans and the changes required to catch up.

Not establishing your target customers and project types.

Being the” Jack of All Trades” to everyone who calls your business may work for a self employed handyman or carpenter, but that’s not a good strategy if you want to be a construction business owner with a growing business.   Deciding your niches can help you streamline and personalize your business systems so they serve both your business as well as your customers in a consistent and reliable way.  For example becoming a Design/Builder may limit who will do business with you, but on the other hand making a commitment to that business delivery method you can develop a marketing and sales process that generates the qualified leads and sales you need and will help your business become known as a Design/Build expert in your desired target market area.  My own experience made it obvious to me that consumers are willing to pay more for experts than they typically will pay for a “Jack of all Trades”.

Not getting the professional help you and your business need

Successfully growing a residential construction business is not easy and takes time.   If you go it alone you will likely attend many sessions at the “Lumberyard School of Hard Knocks”.  That educational institution can be expensive, frustrating and may require you scrap a lot of what you have done in your business because it will no longer work well enough as you grow the business.  With the right professional help and guidance you can reduce the overall long term cost of your path to success and you can get there much faster.   Considering the principle of compounded interest, the more profit dollars you earn and keep each year along your path, the bigger your nest egg can be when you are finally ready to exit your business. 

A final thought

If you find and work with the right construction business coach and or mentor your investment of time and dollars working together can have tremendous ROI.  Just make sure he or she teaches you to fish so you and your business won’t become dependent on their assistance to stay in business. 

Let me know if you want my help.

10 Causes of Construction Business Owner Financial Anxiety and What to Do About Them

Anxiety affects our whole being.  It affects how we feel, how we behave and has very real physical symptoms.   It can be exhausting and debilitating.  Mild anxiety is vague and unsettling.   Contractors with lower total sales volumes might be suffering already from what I call mild financial anxiety.   Then, as the number of dollars going through the business increases, say above $4-500K, a contractor can suffer from severe financial anxiety, which for some business owners can be extremely debilitating.  Not only can it be personally debilitating, it can also have devastating effects on the health of the business.

Below is a partial list of causes of financial anxiety for construction business owners.   I see these causes all the time when I work with contractors to eliminate them.  If you already have financial anxiety consider how many of these describe you and your business.   If you plan to grow your business make note of these causes.   You might want to address them before you grow.

Causes of financial anxiety

1. Not knowing the true costs of being in business as your business grows and being surprised about the costs when the bills come in.
2. Not knowing in advance if you will have enough money to pay your bills and or meet payroll when they become due.
3. Not knowing how much of the money in your checking account is profit and how much is unearned income for work not yet completed.
4. Not knowing which project types are making money and which are not.
5. Not knowing how much workers compensation insurance will actually cost you until you get audited.
6. Not knowing if you made or lost money all year until your accountant does your taxes.
7. Guessing at what to charge for labor rates.
8. Guessing at what markup you should use.
9. Wondering whether you will be selling or buying a job when negotiating price with a prospect.
10. Fill in your own anxiety trigger(s) here: _______________________________________

What contractors can do to eliminate the anxiety

All of the causes listed above can be solved by creating a true financial system for your business.   With a properly designed construction business financial system, and an accounting software program like QuickBooks to support it, your business can have the ability to:

1. Predict overhead and direct costs
2. Predetermine your mark-up and labor rates
3. Track actual expenses against budgeted using the same format as when they were determined
4. Make apples to apples estimated to actual job cost comparisons
5. Track revenue and gross profit margins by cost categories (IE: materials, labor, subs, equipment...)
6. Predict and track actual Workers Compensation exposure
7. Potentially reduce workers comp costs if your state and or insurance provider allows you to use multiple classifications for the same employee
8. Track accounts receivable and accounts payable to know in advance if receivables will cover payables
9. Tell you if you are ahead or behind your customer(s) regarding money collected versus work performed
10. Track revenue and earned gross profits by profit centers (IE: residential vs. commercial, remodeling vs. new construction...)
11. Compare produced margins for project types your company performs (IE: kitchens, baths, roofs, decks, handyman...)
12. Fill in your desired function here: _____________________________________________

Get the help you need to do it right!

Just as most home owners shouldn’t design and construct their own home, most contractors shouldn’t attempt to design and construct their own financial system.   Without the proper knowledge and experience to do so you could be putting your business and your own personal health through unneeded anxiety.

If you see yourself in what I have described here, get the help you need to improve your business financial system and your health.   Find an expert to help you.  The cost to do so may be far less expensive than the health care bills if you don’t.

5 Ways to Take Your Remodeling Business From Less To More

It’s real easy as a construction or remodeling business owner to get burned out as you try to keep up with everything.   This is particularly true now that the remodeling market is picking up.  After downsizing to stay in business, and putting in lots of extra effort and hours to make a profit during the recession, many business owners are once again trying to grow their businesses.  However many of them are still using the "do more with less" mentality they used during the recession.  Maintaining this mentality as they seek to grow will definitely add to the burnout they are already experiencing.

For a good number of these business owners doing more with less may have made sense as sales shrunk and overhead expenses had to be cut back.   To clarify things the idea was to do more of what you were already ready doing with less.  Now that the economy seems to be improving if you want to do more business than you have been doing you'll need to do and add more inside your business to support that growth, not less.

Five things remodeling business owners can do to take their businesses from less to more:

Get serious about your management style

If you have lost focus or lack the discipline to put business systems in place and stick to them it’s time to commit to and practice new attitudes and behaviors.  Before you grow your business consider the adequacy of your financial system to predict and measure results.  Do you have a formal marketing plan to guide you or are you winging your marketing?   Do you have well thought out job descriptions you can use to recruit, qualify and hold new hires accountable to?  Have you established benchmarks for the performance of your business systems?  If you don’t have or do these things what example are you setting and what type of employees will join and or stay with your business?

Don’t spread yourself too thin

If you plan to grow your business it and your employees will need your attention and guidance.   If your focus is being watered down by other outside activities like a second business, community activities, politics or even involvement at your church; the leadership and oversight needed at your business may be compromised.   There’s nothing wrong with being involved in outside activities, but make sure you put qualified middle management and business metrics in place first.

Be sure to think and act like a professional

A growing business that wants to attract and keep good employees needs to act professional.   This means having a proactive and strategic marketing plan in writing.  It means preparing a financial operating budget and staying within it.  It means investing in training and mentoring your employees to be the future leaders your business will need.  It means creating a profit sharing strategy and or compensation strategies based on performance. It also means operating legally and safely.

Develop organizational charts, career paths and improve your recruiting process

If you think it’s expensive to train your employees only to have them leave and go elsewhere, think of how expensive it will be if you don’t train your employees and they stay.   If you plan to invest in training your employees make sure you can share your business plan with them.   Your business plan should show how you plan to expand your organizational chart and the opportunities they have if they are willing to grow with the business.  Your goal should be to offer opportunities that are mutually beneficial to the employee as well as the company.

If you want to step back make sure your business and the new leader are ready first

Before you as the leader can step away from your business the business needs to have a new leader already in place.   Many business owners are forced back into leading and managing their businesses because the person they hired to do so did not have adequate leadership skills and or wasn’t yet seen as the leader by the other employees.   Don’t make this mistake at your business.  Before you step away make sure there is a successful transition of leadership from you to the new leader; in the eyes of the employees as well as your customers.  Also, make sure you have a way to measure the performance of the business and the leader before you pull away.   Again I suggest you have this in place and confirm it is working before you transition out of your office and your roles at the business.

3 Considerations Before Working With A Construction Business Coach Or Mentor

Working with a coach or mentor to improve your construction business can help you avoid potential challenges, particularly those you might not know to watch for yourself. It also can help speed up your path to success while at the same time reduce the cost to get there, particularly if your "go it alone" path ends up being the wrong one.

Click here to read about the difference between a coach and a mentor.

Here are three considerations for contractors looking to work with a coach or mentor

Be cautious of who you choose to work with

A business coach or mentor should have proven success in their areas of claimed expertise.  However, there are many consultants and coaches out there who failed at their own businesses or may have never actually reached success with their businesses before becoming a coach.   Check the business history and actual level of success achieved by your prospective coach or mentor before you commit and invest in hiring him or her.  Also, if you are not sure of the coach’s reputation, check with his/her current and previous clients about their experiences.  As with other business investments, your best bet may be to ask for a referral from other contractors you respect who have already worked with a coach or mentor.  The reality is if you work with the wrong coach and or mentor you own the responsibility for that decision.  If it’s not working out with your coach first be honest with yourself about why, then either change your approach to working with him or her or find a new coach to work with.

Make sure to have a way you can both measure success

To make sure you will get a return on investment make sure you and your coach agree on how you will measure results.   Help with soft skills like leadership and people skills will be challenging to measure because changes and results may be seen as subjective and might be measured differently by different people.  However many changes can be measured in an objective way.   For example when I was first growing my business I worked with a coach on a financial system and the related QuickBooks setup required to support it.   Although he seemed to have the right experience he couldn’t offer me a reference specifically from a construction company.  After some discussion we agreed his compensation would be conditional on results and we made a list of desired outcomes to measure.  After several months we mutually agreed his system didn't serve the intended purpose and I got the majority of my money back.   Unfortunately I lost a lot of valuable time.   I assume he did too.  However we both learned a lot from the experience, I minimized my risk by agreeing on how he would be compensated, and I still had the money I needed to hire another expert to get it done.

Decide whether you want to remodel your business or do a tear down and start over

The business owners I work with as a coach and or mentor typically already own businesses that have been around a while and most already have pretty good business systems in place. These business owners come to me to help them remodel and improve their businesses so they can increase profits and or grow to the next level.  

In addition to working one on one with remodeling businesses and their owners I have also worked in the corporate side of franchising. Joining a franchise can be a great option for the right business owner. For example, if you’re an entrepreneur who wants to carve out your own path and direction and evolve your business systems on the fly a franchise might not be a good option. On the other hand if your just getting started, or need to tear down what you have and start over again, and you want to adopt an established and tested business model, and you are willing to actually follow it, not question it, a franchise can be a great way to go. 

Most franchises offer some level of business coaching, just be sure it will be enough for you to achieve your desired level of success. Before joining a franchise I recommend you look into how much one on one support and coaching you and your new franchise can expect and will receive from the franchisor. If they offer a system, but not enough training and support to help you adopt it, you might want to keep looking.

2 Critical Business Investments for Contractors Looking To Grow Their Businesses

Good news!  Confidence in the future for remodeling contractors is starting to pick up.  A recent surge in new sales and leads being reported by many in the industry is a welcome change that will help businesses strapped with aging accounts payable and uncomfortable loan balances.  As welcome and helpful improved cash flow can be, be sure you prioritize how you use it.  Remodelers should not only catch up on dept with this money, but it is also important to direct some of it to invest back into your business as a way to prepare for an improved marketplace. 

Below are two critical areas remodelers should consider investing in as their finances improve and before the remodeling marketplace rebounds. Sure, both will cost money and require a commitment of your time.  However consider the lost opportunities and lost income you could be enjoying for the rest of your career if you invested in your business now.

#1, Think past the present and develop a long term perspective:

If contractors knew how to prepare for this recession, they would have been ready for it and the actual impact wouldn’t have been as dramatic on their businesses.  Knowing what you now know, use the lessons learned to better predict and deal with the next recession.  Also, start thinking about where you want you and your business to be in the future.  Be proactive and create a plan, don't wait to see what happens and where you end up.  Rather than do it on your own consider finding a mentor with a track record of success, someone who can help you and will invest the time required to understand you and your business and will invest in you. 

This should be an on-going commitment.  Don’t get started with a mentor unless you are willing to really embrace making changes and commit to the time it will take.  Establish a consistent schedule to interact with your mentor and stick to it.  You may be lucky enough to find someone who will do it at no cost.   If not, expect to invest at least an hour or more of your time a week to interact and at least $5000.00 over the course of one year to pay this person.  It is better to predict and control your future than to be subject to whatever happens.  The right mentor will have already successfully gone down the same path you are looking to get started on.

Check out this article about working with a coach or a mentor

#2, Improve your sales skills:

Consider this.  Contractors earn profits when they sell, they earn wages when they wear a tool belt.  If you want to make a lot more money you should learn how to improve your sales skills.

Selling isn’t what it used to be.  Memorized responses to prospects’ objections won’t cut it anymore and emailing your proposal is not selling; it makes you an order taker.  Find a sales training coach or program that will help you understand and take advantage of the psychology of sales and selling.  I took three years of sales training on a weekly basis during the early years of my business.  Sticking with the training and having a coach to guide me helped me “own” a sales system.  That system became second nature to me and dramatically improve not only my ability to sell at higher margins, but also allowed me to become more selective about who I would ultimately choose as my customers. 

If you join a training program expect to invest about two hours a week in the class and about $5-7,000 a year for the training.  If you have multiple salespeople consider doing in-house training and working with a remodeling specific sales coach and assume you will invest at least $7000.  If you choose the right trainer and embrace what you learn, it will be an investment, not an expense.

Should You Work With a Business Coach or With a Mentor?

I'd like to offer you something to think about if you are considering a business coach to help you with your business.  It’s something I learned by trying out several coaches when I owned my remodeling business. What I learned was that there are completely different reasons and purposes for working with a business coach versus a mentor.   

I definitely wish I knew this before I hired my first coach!

A few considerations about choosing a coach for your construction business

Many coaches can help a variety of business types in different industries. For example I worked with a business coach many years back who had never owned or worked in a remodeling business, but that guy sure knew how to help me assess and improve my marketing.  With his help we accomplished my goal of changing my business’ customer and job types so I could increase my margins.   On the other hand I worked with another coach to help me with improving my business’ financial system.  He was a smart guy, and knew his accounting, but I eventually figured out he had no exposure or experience with how a small construction business needs to do accurate job costing.   After a lot of lost time and money I found a new coach to work with who had remodeling industry experience and the difference was night and day.

One more consideration when choosing a coach is his or her past experience and level of success.   Unfortunately there are many coaches who became coaches after their own businesses failed or after they got let go by the business they worked for due to their poor performance.  Some of them may have learned from their mistakes and can still be good coaches.  However I suggest that someone who had a successful business and or a successful business leadership history is already a proven entity.  

Maybe what you actually need is a mentor

If you want help with your business systems and performance a coach is probably your best solution.  The right coach will be supportive and motivational.  However if it is you, the person, who needs help, a mentor might be a better option to work with.  
First, a mentor should be someone who has already done and was successful at what you are trying to do with your business.  Because the mentor has already personally experienced similar challenges and rose above them, the mentor already knows what you are and will be going through.  A mentor understands and knows how to anticipate the real emotional impacts the business owner will experience.   Having been a contractor as well, a construction industry mentor will probably have the exact experiences needed to help you.

Second, the right mentor will be empathetic, not sympathetic.  By that I mean the mentor will not take on your problems for you, rather he or she will help you wrap your head around what you need to think about and do so you can solve them yourself.  And, the right mentor will help you anticipate the emotional and personal challenges you might experience making the changes.  One example might be helping you figure out how to appropriately tell a long term employee you have to let him go for poor performance, without hurting his feelings more than needed and or triggering a law suit.   Another might be how to diplomatically deal with an irate client after your roofing sub’s tarp blew off in a thunderstorm last night and ruined every ceiling in the house (happened to me).  Essentially, it’s the mentor’s role is to socialize the mentee into his or her role and help avoid learning from the lumberyard school of hard knocks.  

If you’re looking for help from an expert I suggest you consider which would work better for you and your business, a coach or a mentor, before you decide on how to go forward.

One last thought: Maybe you want both in one person

Also, consider that there are some out there who can serve both purposes, at the same time.  I recommend you consider a coach who also has real life and successful experience as a construction business owner.  A mentor can warn you in advance about what it will be like to live through and implement the changes you want to make, while at the same time help you with actually creating and implementing new ways of doing business.  By working with one person who can help you in both areas, the odds for success are much higher, the results will likely happen faster, and you can avoid a lot of sleepless nights worrying about what is happening and how you feel about things. 
Hope that helps!

An Opportunity For Contractors Seeking To Remodel Their Businesses

Now that the economy seems to be improving and spring has sprung many contractors are seeing increase leads and sales as home owners are spending money on remodeling again.   Tired of living with their homes in their current condition, many home owners are once again investing in their homes to improve their lives.   Because home owners are now confident enough in the economy to pay contractors to improve their homes and change their lives, it’s also a good time and an opportunity for contractors to invest in and improve their businesses and their lives as well.   A Connecticut trade association and several well known businesses not only agree they are willing to help as well.

Starting on Thursday April 3^rd, The Builders and Remodelers Association of Eastern Connecticut (BAEC) will be hosting a five week “Remodeling My Business” Spring Boot Camp at their Salem CT location. The boot camp sessions are being offered to association members and other serious contractors who want to invest in themselves and their businesses.  Only a limited number of attendees will be allowed to participate due to the cozy size of the association’s learning lab and registration is required.  

To make the boot camps possible these three businesses are investing in the event and their contractor customers 

Some thoughts about remodeling your business

Just like a home owner considering a project, the scope of work for making changes at your business will depend on how much of a change is desired.  Before you make any changes I suggest you consider whether your business only needs to remodel certain areas, needs a whole house remodel, or may be in poor enough shape that a tear down and rebuild makes the most sense.

Just like any other project it’s wise to first assess existing conditions, consider practical realities like available time and money, and put a plan together with a defined scope of work.  Then decide if you should build your project all at once or in phases.  Like a good builder however, a good business owner will begin the project always keeping the end result in mind.

Get the help you need to maximize your investment of time and money

If you are considering making improvements at your construction business this year make sure you get the help you need to do a proper design before you begin any changes.   Then look for industry best practices you can adopt into your business to help make the changes happen. To avoid false starts, frustration and reinventing the wheel, seek advice from experts in the industry who have already done it before.   Most of all make a commitment to invest the time and efforts needed to really do it and do it right.

If you want some help getting started and you live in or around the Salem Connecticut area consider attending these boot camp sessions. As you can see by the topic list below by attending all five sessions business owners will find plenty of helpful information and best practices across a wide variety of important construction business systems and functions.

BAEC Boot Camp Sessions Will Include:

Session #1: Thursday April 3, 2014 - Small Business Finances: Profit Strategies for Non-Accountants

Session #2: Thursday, April 10, 2014 - Choosing and Targeting the Right Customers and Project Types for Your Business

Session #3: Thursday, April 17, 2014 – Strategic Estimating: Know What You’re Selling Before You Sell It

Session #4: Thursday, April 24, 2014 - Smart Selling for Tough Times

Session #5: Thursday, May 1, 2014 – Production: You Sold It, Now You Have To Build It

Information and Guidance To Evolve From Being A Contractor To Being A Construction Business Owner

With remodeling spending expected to grow by double digits this year many remodelers can and will be taking advantage of the opportunity to grow their businesses and their market share.  If this includes you, be careful.  One of the most common reasons for small business failure is growing the business faster than the systems required to support that growth.

History shows us that as the volume of work increases at their businesses most contractors will be challenged to produce the work. Challenges will include important things keeping up with the workload, finding and keeping good craftsman, finding and keeping project managers and or lead carpenters, the handoff from sales to production, and managing allowances. 

Decision time: Will you remain a Contractor or become a Construction Business Owner?

My experience has shown me that those business owners who think of themselves as contractors will typically be the ones who experience most if not all of these challenges as they grow their produced volume of work.   Rather than do things differently they just try to keep up with the growth by doing more hours themselves and hiring more people who will need to be supervised.   On the other hand those contractors who seek to become what I refer to as “construction business owners” will be adding to and improving their business systems so they and their team members can share responsibility, work smarter and work together more efficiently.

The good news is that being able to charge enough money to first invest in putting helpful systems in place, and then also continually paying for them once they are in place, is becoming practical again for many more contractors.   According to a recent survey by LEK Consulting, discussed in an article by Craig Webb, Editor in Chief of Remodeling magazine, contractors are now feeling reduced price pressure from consumers and are enjoying greater opportunities to be selective about the jobs they do take.  This is great news if you have been waiting for a good time to risk growing your business.

Why I created the list of article links listed below

In mid April I will be headed out to the west coast to help one growing contractor and his team members create and implement the systems the business needs to improve their production efforts and take advantage of growth opportunities he is experiencing in his local area.   We will have a lot to cover in a few days together.  To help him and his team get ready for my visit I sent him a collection of links to articles I think will help them get the mental and creative juices flowing and will help maximize our discussions. 

As I was putting the article links together it occurred to me they would be good ones to share here at the Design/Builders Blog.  I also added a few more here than I had sent him.   If like my client you want to move from being a contractor to being a construction business owner I suggest you read them all and do so in the order they are listed.   I hope you find them helpful and enlightening.

Feel free to offer your own thoughts and or suggestions in the comments area.  

Links to articles for contractors who want to grow their businesses.

The Design/Build Remodeler’s 10 Step Plan for Success

3 Objections Your Boss May Have About Hiring an Industry Expert

Afraid To Hire Employees For Fear Of Running Out Of Work For Them?

Don’t Underestimate Your Estimating System’s Potential!

Tips for Reducing and Controlling the Effects of Construction Allowances

All I want for Christmas… Is a Real Production Manager!

An Overview of the Lead Carpenter System

Interesting Considerations for Putting the Right Employee on the Right Job

3 Good and 1 Bad Reason to Offer Profit Sharing Rather Than Bonuses

Checklist for Implementing the Lead Carpenter System