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Checklist: Is Your Remodeling Business at Risk of Becoming Mediocre?

Posted by Shawn McCadden on Thu, May 21,2015 @ 10:12 AM

Checklist: Is Your Remodeling Business at Risk of Becoming Mediocre?

Improving a remodeling businessAs you grow your business day to day management and leadership considerations can quickly creep up on construction business owners.  Profitably growing a remodeling business to any volume, but in particular growing past the $1M threshold in produced work, definitely requires advanced business skills.   Growing and running your business by the seat of your pants is a sure way to create a mediocre business that will never generate maximum profits. This article offers several ways business owners can determine if they and their businesses are headed for mediocrity.  It also offers options to help you and your business get back on track.

 

Mediocrity Definition

 

Here is a checklist of indicators that your business is becoming mediocre:

  • Your business lacks written policies and procedures.
  • Even if you have policies you do not have predetermined consequences for violating them and or you do not enforce them.
  • You complain about things customers and or employees do or don't do; but then do nothing about them.
  • Concerned employees point certain concerning things out and you do nothing to address and or correct things.
  • Your employees point things out to you and you actually make them feel guilty for doing so or that they are annoying you by pointing them out.
  • Your customers offer feedback or complaints and you make excuses for why things happened, rather than embrace their help and use what they share with you to make improvements or corrections.
  • Long term customers stop doing business with you and you don’t bother to ask them why.
  • You create artificial harmony by ignoring culture deficiencies and or tension between team members and pretend everything is OK.
  • When something happens you always find a way to make it someone else's fault rather than take responsibility as the leader.

 

If these things are happening at your business you have two options

Construction employee complaintThe first is to let them keep happening.   If you allow things to continue you will likely lose customers, compromise your brand, have high employee turnover and you will never fully achieve creating a successful and profitable business.   Eventually, when your family and others ask you why you never really succeeded in business, you will again have to resort to rationalizing why it was someone else's fault.

Your other option is to recognize these things are happening and start addressing why they are happening.  Only until you know and recognize why they are happening will you be able to work on preventing them from happening.  

 

Preventing these things from happening may require two different solutions

The first is to stop certain things from happening all together by no longer tolerating them.   Put your big boy or girl pants on and be the leader you should be.   To hold others accountable make sure you create and follow through on consequences.

The other is to change how you do things so they just don't happen anymore.  Put policies in place and make sure they are enforced.   Those policies should also include clear consequences for violating them.

Lots of remodeling businesses are becoming mediocre as they try to grow in this improving economy. Will you join them or will you stand out from the crowd by becoming the reference standard for what it means to be a professional contractor in your marketplace?

 

Want help growing your business in a profitable and manageable way?

Options:
Consider joining our Construction Business Owner Peer Group Program scheduled to begin in September to be held at Middlesex Community College in Bedford MA.

 

 

If you prefer on-on-one help specific to your business email Shawn now to set up a time to discuss your business and the help you are looking for. Or call Shawn at 978-726-6531.

 

Topics: Employee Relations, Business Management, Success Strategies, Business Growth, Sage Advice, Business Considerations, Breaking $1Million

To Sell Your Contracting Business Someday: Should You Build A Spec Or A Custom?

Posted by Shawn McCadden on Tue, Mar 24,2015 @ 06:00 AM

Selling a Contracting Business: Are You Building Yours On Speculation, Or Is It A Custom?

selling a remodeling businessSince selling my remodeling business in 2004, many remodelers have asked me for help and insight about how I did it and how they too could sell their businesses some day. They ask great questions. The challenge is that there is no easy one size fits all answer. In this article I will share a few big picture considerations to help guide you.   In a follow up article I will discuss typical buyer types you can consider as possible prospects to sell to.

 

What kind of business should you build?

Most remodeling businesses were not designed, they evolved. Each business will be unique because each owner is unique and has unique motivations that drive the evolution of his or her business. In addition, each buyer will be looking for specific characteristics when assessing which businesses to look for and ultimately buy.   These are facts that became clear to me as I thought about and planned for the eventual sale of my business.

Rather than share specifics about what I did, I think you will find more value in the related considerations I discovered that helped shape the direction I eventually went in. Perhaps by considering my suggestions below, you can make a plan for and evolve your business in a specific direction to increase its potential salability and value.

 

selling a residential construction business

Begin with the end in mind

First, I suggest it is best to be thinking of your exit strategy now so you can keep your future options open. By planning now you can identify what you will need to do to get your business ready for sale in the future.  The idea is to always be getting your business ready to sell, even if you never sell it.  If you do it right, in addition to the selling option, maybe someday it will be worth keeping. If you keep it you can collect the net profits, while someone else leads the business and manages the day to day.

Put your strategy in writing

To get started, I suggest you write an ad today to describe the company you will be offering to sell some day.  When writing your description, think about the things that will make the business worth more money and at the same time more attractive to your target buyer.  By writing the ad I suspect you will be able to identify and list the positive characteristics your business already has and should work to keep. Then you should list those characteristics you will need to work on and or add to make your for sale ad valid by the time you want to sell. 

 

Consider who you will sell to

buyer for a remodeling businessIf you’re considering selling your business some day you will need to consider the types of buyers out there as well as their typical motivations for buying one business versus another.   In my next blog I will discuss the two typical buyer types you will want to consider as you make you plan and write your for sale ad.

Subscribe to the Design/Builders Blog

If you haven’t done so already consider subscribing to my blog so you will be notified by email when new blogs are posted.

 

 

Topics: Success Strategies, Differentiating your Business, Business Planning, Sage Advice, Business Considerations, Selling your Business

Correct These 3 Remodeling Business Dysfunctions Before You Grow Past $1M

Posted by Shawn McCadden on Fri, Jan 16,2015 @ 06:00 AM

Correct These Three Remodeling Business Dysfunctions Before You Grow Past $1M

Dysfunctional remodeling businessNewton’s Law of Momentum states that “A body in motion tends to stay in motion and tends to continue in the same direction.” Remodelers who downsized their businesses during the recession might want to consider Newton’s law.  

Your remodeling business may be back in motion again now that the economy is improving, but if you continue in the direction it is currently headed will you reach your personal and professional goals? And, if you were already at or had crossed the $1Million per year threshold before you downsized, thinking back, was it really the right path to be on to help you keep growing profitably? If you are not realizing the success you hoped for when you started your remodeling business you might want to consider and address these three indicators of a dysfunctional remodeling business before planning any additional growth.

 

Dysfunction #1: Constant Crisis

If you wake up every day wondering what fires you or your employees will have to put out you’re probably already deep into constant crisis.   Lack of planning and a lack of standard operating procedures causes constant crisis. Once in constant crisis it can be difficult to get out because addressing each crisis eats up the time your business needs to plan, develop and implement procedures that would have prevented the crisis to begin with.   For example, if you keep underestimating or under pricing your work because you lack a quick and accurate estimating system you will forever be trying to find ways to reduce your production costs to make up for it.   Also, consider it might only be a matter of time before employees, subs and vendors get fed up with constantly having to do and give more because your lack of planning has become a way of doing business, rather than just a phase you’re working through. Maintaining constant crisis often leads to staff and sub contractor turnover. Losing and replacing resources will help keep you in the constant crisis whirlpool as well.

 

Dysfunction #2: Tolerating Relative Success

Building a successful construction businessIf you have convinced yourself that your business isn’t really all that bad when you compare it to other dysfunctional businesses that are worse off than yours, yours will never achieve true success. Being less bad is not good. Rather than judge your business on relative success, you should judge it based on absolute success.   Again this requires planning, but also requires establishing metrics against which you, and anyone else who reads your plan, can measure whether your plan is working and is actually leading you towards predefined success. Keep in mind that being better off than you used to be might not be a great place to be either.   Think of it this way;

“If your business is ten feet under water and drowning, but your improvements get you to two feet below the surface; your business is still going to drown!”

 

Dysfunction #3: Broken Behavior-Consequence Strategy

If your business requires you to do almost everything because if you want it done right you have to do it yourself, your business is dysfunctional but so are you.   If employees or subcontractors can’t or won’t do and or follow through on certain tasks, why are they still there? What sense does it make to establish rules for doing business if you don’t also establish clear and actionable consequences for not following them? For example, why give a salesperson a commission for closing a sale if he or she hasn’t completed all the paperwork required to hand the project off to the production team? Or, if employees don’t get their time cards in on time and or fill them out correctly, why do you pay them on time?

 

Owning and running a remodeling business requires leadership

Without proper and adequate leadership from the owner a business can quickly and easily become dysfunctional. If any or all of these indicators are happening at your business it’s time to step back and away from your situation long enough to develop an “outside view”. You should definitely do this before you allow your business to pass $1Million in installed sales.

 

Perhaps consider these words of wisdom I found on a bumper sticker:

 

“The minds that created our problems are not likely the ones who can help us solve them.”

If you can’t or won’t eliminate the reasons for dysfunction, find someone else who can.

 

(Note: This is the fifth article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales. Click here to see a list of all the articles in the series that have been published.

Topics: Business Management, Business Growth, Business Planning, Sage Advice, Breaking $1Million

Five Remodeling Business Myths That Get In The Way Of Growing Past $1M

Posted by Shawn McCadden on Wed, Jan 14,2015 @ 06:00 AM

Five Remodeling Business Myths That Get In The Way Of Growing Your Business Past $1M

Myth_or_Truth-wrThere are many remodeling business myths that seem to have become truths for way too many remodelers. That’s too bad. Believing those myths may be holding them back from being able to grow their businesses. Allowing these myths to remain in place will definitely prevent remodelers from successfully growing their businesses past the $1 Million installed sales threshold.

 

Schema leads us to believe what we experience as true

In an April 2010 Remodeling magazine article I defined and discussed schema. We all have our own schema. Schema is our way of interpreting things and information based on our past experiences.   Without previous experience with something one cannot have schema in that area. We can also have a limited schema about certain subjects if our experience in those subjects is limited. With limited schema our definition of what is true may also be compromised. In other words, if you have schema, but it is limited, you may end up believing something to be true, even though it is a myth.

 

I suggest the video below makes my point

 

 

Here are five remodeling business myths that are easily debunked with some schema

Myth #1: I have to be competitive on price to sell jobs:

If you don’t do marketing to expose how your business is different you will be perceived by consumers as being the same as most other contractors. That puts you into price competition to get jobs. Check out these two articles and try what is suggested to gain some new schema on this topic: Generic Contractors Are Fading Away, Brand Names Are Shining and Why Some Contractors Can Raise Their Prices But Most Others Can’t

 

Myth #2: Home owners won’t pay for estimates:

Most contractors say they can’t charge for estimates in their market place because all the other contractors do them for free. First, that is not true, many contractors successfully charge for estimates. Second, remember your mother: “If all the other kids jump off the bridge on the way to school does that mean you should jump off too? Maybe learning some ways to do it and them giving them a try could change your perspective about charging for estimates. This article can help get you started: Tips For Contractors On Ball Park Pricing and Charging For Estimates

 

Myth #3: Contractors have to wait until each phase of work has been completed before getting paid for each phase:

pocket_change-wrAgain, will you jump off the bridge, too? Will Delta Airlines let you pay after you land?   Completing remodeling services without being paid for them before you do them is in my opinion foolish, and a huge risk for most remodelers.   It instantly creates cash flow challenges in a business where cash is king. Breaking $1M without good cash flow might be the death of your business. Here is how you can create payment schedules that keep you ahead of your customer: Payment Schedules That Create And Protect Cash Flow

 

Myth#4: There are no good employees out there to hire:

Finding good employees is tough and doing it well requires a well thought out recruiting process. However most remodelers get bad employees because they don’t establish well thought out job descriptions before seeking to hire. When that is the case the job description is often being created during the interview, perhaps by the candidate. Check out this article published in JLC magazine for some help in this area: One Simple But Powerful Tip For Hiring The Right Employees 

 

Myth #5: If I give my employees too much training they will leave and start a business of their own and become my competition:

I personally found just the opposite happens. If you don’t give them enough insight and schema regarding what it takes to own, run, lead and finance a business they will leave to start their own. In addition to the training offer them leadership positions at your business, along with a good performance based compensation package. Doing so will make it more likely they will stay. These two articles will offer you some options to address this myth. The first was published in Remodeling magazine: Shared Responsibility: Advantages of Creating a Team of Leaders and Helping Employees to Think Like Owners

 

Looking to gain some schema?

By participating in the Construction Business Owner Education and Peer Group Program beginning in March you can gain the knowledge you will need to try new ways of doing things. The program also includes one-on-one assistance and coaching to help and guide you as you work through the changes.

 

(Note: This is the fourth article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales.  Click here to see a list of all the articles in the series that have been published.)

 

 

Topics: Success Strategies, Worker Training, Business Growth, Opinions from Contractors, Leadership, Sage Advice, Breaking $1Million

Breaking Past $1M in Remodeling: Getting Ready To Do It

Posted by Shawn McCadden on Sat, Jan 10,2015 @ 06:00 AM

Breaking Past $1M in Remodeling: Getting Ready To Do It

We_Broke_1_Million-wr

 

(Note: This is the third article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales. Click here to see a list of all the article in the series that have been published so far.)

In a previous article I discussed how important it is that a remodeler decides whether he or she wants to remain a contractor or become a construction business owner before passing the $1 Million threshold in remodeling. Again, either choice can be a good one, but if you want to keep growing your business and offer growth opportunities to great employees, you need to become a construction business owner.

In yet another article I stressed the point that putting off that decision can lead you and your business from controlled chaos into disorganized chaos. The disorganized chaos happens because the labor intensive and disparate systems being used that got the business to $1M are no longer adequate to handle the increase in activities that come with the additional growth and inherent risk.  You can read my article titled "Invest In Your Remodeling Business Now Or Pay Forever" for more on this topic.

 

Before you decide to become a construction business owner

Becoming a construction business owner can be very rewarding for many reasons.   It’s also not a very easy thing to do successfully. It will take time, money, patience, vision, leadership skills and diligence.   Before you make the jump check out the business owner considerations and the business goals below. These are the kinds of things you will need to work on to help get yourself and your business on the path to successfully break past $1M and increase profits at the same time you grow.

Remember, growing your business faster than your systems can handle is the most common reason for construction business failure.

 

Business Owner Considerations during the Take-Off Stage:

  • Remodeler training for business growthOwners should seek to put a more refined structure in place for the purpose of better, faster, and more accurate information. This is a critical step towards the owner’s ability to evolve away from the micromanagement of employees.
  • The owner should develop measurement milestones and incremental check points relative to a achieving a refined long term vision for the business.
  • The owner must learn to recognize, adapt to and take advantage of changes in the market place, because a lot of changes will happen over the time it takes to grow the business.
  • The owner should seek to add mid level management employees as soon as possible assuming earned gross profit and/or reserve funds can support the required overhead.
  • The owner must focus on implementing critical and timely business adjustments identified by business reports, trends and the opportunities brought to light due to an advancing schema.

 

Goals during the Take-Off Stage:

  • Develop the ability to track business activities without relying on the hard drive capacity of the owner’s CPU (brain and memory).
  • Start the process of developing written job descriptions for how business should be happening.
  • Increased use of standard repeatable methods and create supporting documentation and forms.
  • Remodeler financial reportsGive salespeople the support they need to support sales less on their own, sell more and keep them selling profitably.
  • Develop standard contracts and agreements, reviewed by legal counsel to protect the business.
  • The ability to collect supporting data company wide electronically.
  • The ability to manipulate and interpret the data.
  • Add and ramp up a full time sales person to relieve the owner of some sales volume, allowing the owner to concentrate on other high level activities.
  • Train and allow lead carpenters to be owners of their projects and managers in the field.
  • Identify a production manager candidate, preferably from within the existing lead carpenters.
  • Mentor the production manger candidate into a full time role.
  • Accumulate cash reserves adequate to finance your ability to grow into the next stage.

 

Topics: Business Management, Success Strategies, Team Building, Business Growth, Business Planning, Leadership, Sage Advice, Breaking $1Million

Breaking Past $1M in Remodeling: Typical Characteristics of the “Take-Off Stage”

Posted by Shawn McCadden on Thu, Jan 08,2015 @ 06:00 AM

Breaking Past $1M in Remodeling: Typical Characteristics of the “Take-Off Stage”

 

Growing a remodeling business past $1M

 

(Note: This is the second article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales. Click here to see a list of all the articles in the seriesthat have been published.)

Every remodeling business and its owner are different from other remodeling businesses and their owners. This is because remodeling businesses are typically not designed, they just happen.  As a result, both the business and the owner evolve forward based on and limited by the skills and knowledge the owner brings to the business.  

 

Successful growth of the business depends on the owner

Hard working entrepreneurs have what it takes to get the business going, but most entrepreneurs lack the business skills, practical experience and insight to successfully grow a remodeling business past $1Million. This doesn’t necessarily mean they shouldn’t do it or they should replace themselves as the business leader.  It does however typically require they get the outside assistance and guidance needed to help make the required changes happen.

Successful construction company growthThis stage of business growth is what I refer to as the “Take-Off Stage” for a remodeling business because either the business takes off successfully, or it doesn’t.  Another way of looking at it might be either the business owner commits to doing it and doing it right, or accepts the status quo of accidental and unplanned growth.

In this article, from a high level perspective, I want to share some typical characteristics of a remodeling business on the doorstep of the Take-Off Stage.  If your business has already started on and or put these items in place your business is at that critical point where you must decide to remain a contractor or become a construction business owner.  Putting off the decision can lead you and your business from controlled chaos into what I call disorganized chaos; where discovering and dealing with fires everyday overwhelms the business owner and prevents proactive business growth activities.

 

Typical Characteristics of Take-Off Stage

  • Produced volume somewhere between about $750K to $1.2 Million of installed sales. Note: Volume can range because for example if your markup is really low (10%) you might be installing as much work as a remodeler using a very high markup (75%)
  • Getting a remodeling business ready to growThrough experience an advanced schema has developed in both the owner and a few key employees. As a result:
o   The business has learned to identify who their ideal customers are and why.
o   The business has begun to focus on customer and project niches that help stabilize sales, production and profitability.
o   The business is purposely beginning to use systems and processes that serve the customer, not just the business; such as Design/Build, prescheduled project meetings and the Lead carpenter System.
  • Computer and software use has increased dramatically, but consists of segregated off the shelf solutions.
  • The owner is working many hours, performing multiple job descriptions and for the most part is just keeping up with day to day activities.
  • The owner realizes what he he/she is currently doing will not take the business to the next level.



Topics: Success Strategies, Business Growth, Mentoring/Coaching, Business Planning, Sage Advice, Breaking $1Million

Invest In Your Remodeling Business Now, Or Pay Forever

Posted by Shawn McCadden on Mon, Jan 05,2015 @ 05:00 AM

Invest In Your Remodeling Business Now, Or Pay Forever


Business improvements for remodelers

 

The New Year is here again. For many it’s a time to plan and make commitments for the changes and improvements needed to make the coming year better than the last.  Then there are the remodelers who say they and their companies are too busy working to take the time to remodel their own businesses. What they may not know is that if they don’t invest now to either train employees or restructure their businesses, they will be paying for not doing so for a long time to come.


What am I referring to?

  • I'm talking about proactively taking a look at how efficiently you run your company in order to get better returns on your investment of time, money and focus.
  • I am talking about assessing your company's cost effectiveness and taking into account if employees are properly trained to do their jobs so you don’t have to micromanage them.
  • I’m also talking about creating the ability to actually be “present” when you sit down to have dinner with your family or attend your child’s soccer game.

Retirement planning for remodeling business ownersYou can invest now to train managers or employees and to rework structural shortcomings within your business.  Or you can pay forever by running a shoddy show that won't give you the financial returns that it takes to stay in business and retire before your body eventually gives out.

If you don't do it now, how much profit will you possibly lose until you do set a plan into action?  If you don’t do it now how much will your procrastination cost you over the coming years you are in business; including the compounded interest you could have earned each year towards your eventual retirement? 

I know many remodelers who have no retirement funds at all.  How about you?


Don’t forget about lost opportunities

By sticking with the status quo many business owners are also missing out on opportunities they could have concentrated on if they were not constantly dealing with and fixing the same problems over and over again. For example, at a recent workshop for remodeling business owners I broke the attendees out into several groups and asked them to assess their business’ current status. One group of eight remodelers agreed their production slippage problems hurt them financially at a cost of at least 10% of total volume each year.

I then asked them to reference that in the point of view of being a $1 million/year company. They agreed this 10 percent production slippage loss would equal a $100,000 deficit each year. Would you want that to happen or keep happening at your business?


Here is a tough question to ponder

Does your spouse or significant other know you have such opportunities to make and keep more money?   Or, are you hiding that fact from them and others so you don’t have to recognize and address the shortcomings of your business and or your business acumen?

It's up to you. You can pay now, or you can pay forever.

Topics: Remodeler Education, Contractor Training, Worker Training, Careers in Construction, Business Growth, Retirement Planning, Earning More Money, Production Considerations, Business Planning, Leadership, Sage Advice

5 Success Limiting Actions That Limit Long Term Profitability

Posted by Shawn McCadden on Thu, Oct 02,2014 @ 01:15 PM

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

Making more money as a contractor

 

 

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

Hiring tip for contractorsMany 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.

Target marketing for contractorsBeing 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

Making more money as a residential contractorSuccessfully 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.


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Topics: Success Strategies, Business Growth, Retirement Planning, Business Planning, Sage Advice

7 Reasons Most Contractors Will Never Retire On Their Own Earnings

Posted by Shawn McCadden on Tue, Aug 05,2014 @ 06:00 AM

Seven Reasons Why Most Contractors Will Never Be Able To Retire On Their Own Earnings

Why most contractors can never retire

 

Here is a wakeup call prediction for contractors and for tax payers as well;

Most residential construction business owners will never be able to retire.  They will have to work until they die or are too old to work anymore.  If they don’t or can’t work until they die, then they will have to get on the government dole so they can get housing and food to keep them alive. 

Retirement advice for contractorsThe same is actually true for most Americans.  According to an article on the Money Morning web sitecurrently retired Americans have less than $25,000 or less in savings and investments, and 31% have less than $1,000.  It’s sad to me to think though that construction business owners, after years of owning and running a business, won’t have enough money or investments accumulated so they can support themselves and their significant other during retirement.

Here is another scary fact found in that same Money Morning article.  47%, of current retirees were forced to retire early, mainly because of disabilities, poor health, or the loss of a job and the inability to get a new one.

 

Let me offer just a few reasons why I am so sure most contractors may never be able to retire:

  1. In many of my seminars I ask contractors to raise their hands if they are on the path they need to be, financially, so they can retire.   It’s rare that 10% of attendees raise their hands.  I also think many assume they will be OK and raise their hands.
  2. Most contractors don’t charge enough to properly run their businesses and pay themselves for their efforts.   They seem satisfied with earning just enough to stay afloat in business and in their personal lives.  In fact, when they take into account the number of hours they work each year, most admit they earn less per hour than most of their employees.  Some even admit they make less per year than their carpenters.  I know a good number of them, probably out of embarrassment; don’t admit their financial short comings.
  3. A good number of construction business owners don’t make enough money to support their families.   In fact for a good number of them, because their wives have jobs and therefore provide the family’s health insurance, they are able to keep their business doors open and pretend everything is just fine. 
  4. Only about 20% of construction business owners know the true cost of being in business.   Of the other 80% a majority may be able to estimate project costs accurately, counting very stick and brick, but then they are guessing on the real break even burdened cost of estimated labor hours and also use the wild ass guess method (WAG) when it comes to the markup they use to cover overhead and profit to price their jobs.
  5. In addition to using the WAG to price jobs, most contractors have no idea how overhead and profit works.   As Melanie Hodgdon points out in her Remodeling magazine article titled “Four Ways Hopeful Thinking Can Ruin You”, many contractors say “Yeah, that job was a mess, but at least I didn’t lose money on it."   The sad reality in this assumption is that the job didn’t cost more than they sold it for, but they didn’t earn any money to cover their overhead and or any profit.  So in reality they did lose money and there will be no profit on that job to save for retirement.
  6. retirement options for contractorsMost construction business owners I speak with haven’t done any retirement planning.  In fact 56% of American workers haven’t bothered to figure how much they’ll need to retire comfortably either. (Source: Employee Benefit Research Institute) How then could these contractors even know how much money they will need to retire and when they can actually retire?   For these contractors I am pretty confident they won’t have what they need.
  7. The last and my final reason (although there are plenty more) most contractors will never be able to retire is because they see themselves as contractors instead of business owners.   It’s a simple fact to recognize that when a business sells at the right price it earns a profit.  But when the business owner straps on his tool belt he is only earning a wage. 

 

So, what should contractors in this position do?

Here is a short list:

  • Retirement planning for contractorsIf earning a wage isn’t earning you enough to retire on, you might want to learn how to become a real business owner.
  • If you are using the WAG method to price jobs you might want to advance your math skills and or find someone who will do the math for you.
  • If you have been selling on price to get work you might want to invest in some professional marketing and sales skills.
  • If you won’t do anything about these challenges you might want to look into how to apply for government assistance now so you’re ready to do so when your body eventually gives out.

 

 

Topics: Financial Related Topics, Earning More Money, Business Planning, Sage Advice, Shawn's Predictions

10 Causes of Construction Business Owner Financial Anxiety

Posted by Shawn McCadden on Mon, Jul 07,2014 @ 06:00 AM

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

Causes of Financial Anxiety for contractors

 

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. Contractor anxietyNot 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

Contractor Financial System

 

 

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!

Financial System for contractors

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.

Let me know if you want my help.

 

 

 

Topics: Margin and Markup, Success Strategies, Business Growth, Financial Related Topics, Sage Advice