Whether the economy slows down or improves for the construction industry, the choice is yours for how to move into the next several years. The natural easy choice is to continue doing business the same way you’ve always done it. Or you can make a choice to improve and seek new and better ways to win higher margin work or become more efficient. By changing, refocusing, and improving, you should be able to make more money with the same amount of work. Review this list of typical construction company challenges, problems, and situations that will continue to reduce your chances of making more money.
- Bidding low-margin work against too many competitors
- Allowing crews not to meet their production budgets
- Continuing to have call-backs and warranty work
- Allowing too much field overtime work to happen
- Working for bad customers who cut bids, pay slowly, and aren’t fair
- Having to micro-manage unaccountable employees
- Not having enough trained foremen or crews
- Not having a handle on your numbers or finances
- Inaccurate estimates and bids with missed items
- Continual profit margin fades
- Not enough time to get everything done
- Having to make too many decisions for your people
- Not having the latest systems or technology
- Not organized or in control
- Not making enough money for your hard work and effort
Jake is the owner of JS Contracting. He asked me for help as his business coach to decide where his focus should be to improve his company's bottom-line. He explained they were bidding on lots of work but only winning about ten percent of the bids submitted. Most of his bid opportunities came through the local builder’s exchange or from past customers who emailed him requests to bid. He didn’t have a system to determine the best jobs to bid on as they decided based on their estimated time available and workload. I asked if he had any customers who required special qualifications, technical expertise, or had selective short bid lists, and he said ‘no.’ The last time he had taken a customer to lunch or a ball game was never! The jobs they did win typically were bid tight and hitting their estimated profit goal was difficult and rare. In fact, almost every job came in over budget with labor overruns, unpaid change orders, too many call-backs, and additional move-ins. He also had trouble finding enough trained crew foremen and workers to get all the work done which caused a lot of overtime which wasn’t allowed for in their estimates. As he was short-handed, he had to do lots of project management, scheduling, and crew monitoring himself, which consumed most of his day. And to make things worse, his bookkeeper really didn’t know construction accounting which made managing his job costs, profits, and finances difficult at best.
Making More Money is a Choice
As his mentor, what would you tell Jake to work on first? He had grown beyond his capacity to manage his company without systems, structure, accountable people, and good financial reports. Without investing in building a better company, Jake was enduring lots of stress without adequate profit margins. By doing too much himself, not having clear written systems, tolerating poor performers, not holding people accountable, making most of the daily decisions, and working in the business, he was reacting versus being proactive in improving profits, production, people, processes, strategies, and high margin sales.
By investing some time in improving your business versus spending all your time doing the work, you can make more money. But it takes a disciplined focus and a new role to lead, manage, and improve your company to achieve higher margins. So, moving forward where and what will be your focus to make more money?
Construction business owners who make the highest margins are focused on:
- Profits: Improving monitoring, protecting, and producing results.
- People: Recruiting, coaching, and mentoring key leaders and managers.
- Systems: Developing, improving, and enforcing.
- Sales: Procuring high-margin customers and projects.
You’re already doing business with your current systems, structure, people, job types, and customers. If you want to improve and make more money, keep doing what you do well PLUS decide to improve 25% of what and how you do business starting today. Maybe your new focus can be new customers and project types which will deliver higher margins. Or perhaps you need to shore up your field operations and production first. Or consider starting with improving finances, job cost tracking, or calculating accurate, complete detailed estimates. Or commit to hiring an experienced project manager, field supervisor, or competent project administrator to help you build an organized company that will allow you to focus on finding better customers and developing systems. The hardest part of this process is deciding where to start and then delegating some of your day-to-day tasks, decisions, and responsibilities to others.
Make More Money Improvement List
Select a few of these pro-active ideas to start improving your company and make more money:
- Improve Profits
- Upgrade accounting software
- Know and track numbers with monthly financial and job cost reviews
- Job cost field production tracking scorecards weekly
- Accurate estimates with no missed items
- Hold pre-job meetings to set goals and budgets
- Hold completed job cost meetings to improve estimating
2. Improve People
- Implement an effective recruiting and hiring program
- Draft clear written position descriptions
- Hold people accountable and responsible for achieving results
- Implement an ongoing training program
- Hold regular field production meetings
- Mentor, coach, and develop key leaders
3. Improve Systems
- Develop, train, and enforce written operational systems
- Implement the latest project management software
- Implement processes to eliminate punch-list and call-backs
4. Improve Sales
- Seek higher margin work with great customers
o Get out of the low-bid volume business
o Track and improve your bid-hit-win ratio
o Standardize your "Bid No Bid” decision process
o Seek highly difficult jobs to build including:
♦ Night & weekend work
♦ Technical expertise or super clean and detailed work
♦ Impeccable safety standards and certifications
- Seek customers with a high barrier to entry and less competition
o Focus on niche and high expertise standards
o Selective demanding customers requiring high qualifications, strong financials, and trained crews
- Spend time developing loyal versus low-bid repeat customers
o Develop, track, and attack priority customer target list
o Spend time with targeted customers regularly
The Decision to Make More Money is Yours
Jake of JS Contracting looked at his list of improvement ideas and decided to make some major changes to how he operated and managed his company. He determined he needed to focus his time on implementing systems, attracting better customers, and getting a sound handle on the numbers. Therefore, he hired an experienced project manager and a full-charge construction bookkeeper. Both new positions cost him more than he wanted, but the trade-offs were well worth it in the long run. This allowed him to delegate his project management work and develop profitable initiatives like field systems, project procedures, job descriptions, and weekly field production meetings with his superintendents and foremen to track hourly job results versus the budget. Working with his new bookkeeper, they developed a sales, overhead, and profit mark-up plan to achieve their financial goals. These changes allowed Jake time to spend one or two days a week developing relationships with his best customers and seeking new high-margin potential customers on his target list. The overall results of these initiatives allowed his company to grow and double its net profit margin within a year.
What will you do to make more money? Working hard without achieving the maximum results is not pleasurable or rewarding. You know what you need to do, so decide to do it.
