Wednesday, December 31, 2014

How to Make 2015 Your Best Business Year Ever!

Are you constantly struggling with financial headaches in your construction business?

Unfortunately, most contractors are because they do not understand their business metrics.

One of the first things I'll do with a new client who wants their business to be a better success, and after I've helped them sort out their financials, is to do a budget.

It is amazing how they change their results simply by learning a new mindset. It isn't easy, it does take time, but the results are worth it.

Let me simplify it for you.

Think of your business as a bucket. At the bottom of the bucket is a hole. We'll call that hole spending. How big it is, or how small, depends on your spending.

Think of the amount of water you pour into the bucket as sales. Sales depend on how much water you can collect and carry. As you pour your water into the bucket, some of it, maybe all of it, runs out of the bottom. Which means, you need to collect more water (sales).

So, the more water you can keep in the bucket from running out, the more money you'll have in your account. The idea is to maintain the correct level of water in the bucket at all times. It is all about control.

Budgeting is one of the tools you use to control the size of the hole. The smaller you can make spending, the longer it will take for the water to run out.

I like to have my clients develop a strategic business plan. Then, we turn that plan into a budget. Think of your strategic business plan as your map of where you want to go, and your budget as your GPS. When you add monthly reports on your progress, you now know your variances and what you need to do to keep on your course.

I realize it is over-simplified, but I hope you've got a better idea of its importance.

No matter how busy you are, try to find some time over the next two weeks to reflect, think, give and plan.

Meanwhile …

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And remember, do not neglect to commit to set this business planning time aside, or you will find that the business of life can and will get in the way.

Monday, December 8, 2014

Are You Chasing Deals?


I have to be honest. I'm seeing a lot of contractors chasing deals. These deals are promises of work if they can beat the price. To me, that is a losing proposition.

In my 40 odd years of being a contractor, I too in my early years, fell into the trap of chasing the deal. I learnt quickly, deal chasing is a losing proposition. You see, only the owner wins the deal.

Let me ask you a question.

Have you ever, agreed to beat the price to get the job, lose money, and years later when the owner sells the project for a profit, have him call you up and tell you he has a check for your share of the profit he made off of you doing the work for nothing?

I doubt it.

The truth is, they put the profit in their pocket and move onto greener pastures.

So, why does this happen?

In some cases, it is desperation. Needing a job to produce cash with hopes it will buy you time or profit. That is not the way to run your business. That is an act of desperation.

In other cases, it is ignorance. Ignorance of knowing what the meaning of the value of what you are selling, or the value in money to your business.

I was had a very smart surety agent tell me that "All the work in world for nothing still adds up to nothing. Volume doesn't make up the difference!'

Here is what I know.

I get to work with hundreds, if not thousands of contractors over the last 20 years or so. I've seen countless financial reports and performance reports for these contractors. I can say without a question, the majority do not know their financials, how to use them or how to correct them. And almost all, told me that they did know them. That is the common underlying factor. You see, they thought they did.

The other flip side of the coin is, those that did not allow their ego to get in their way, were willing to do the work, and made massive improvements and profits just with a great working knowledge of their financials. They completely turned their business and lives around for the better.
However, let’s return to the why does this happen.

I said earlier that it either was chasing a deal for desperation, or ignorance of not knowing the value.
They are both correct, because one leads to another. 

Let me explain.

If you do not sell the value of your services for the right amount of money, manage that money correctly, you are forced into desperation. You can't even be desperate unless you don't have the money, correct?

Therefore, you must understand the value of money and its worth to you and your business first.
And that, brings us to a basic and common problem. Most contractors are using either a bogus or wrong markup. In other words, what they sell the job for isn't enough to cover their costs and make them money to begin with.

This leads me back to something I've learned from working with so many. If you do not have a working knowledge of your numbers, you have no way near a working markup rate.


To correct this, you need to grasp a better understanding of your numbers and your markup rate.