Top Ten Factors in Running a Successful Construction Contractor Business

It is not easy running a construction business. There are many pitfalls and ways to lose money but if you follow some basic steps you can not only make a living but become very wealthy. Many successful construction contractors have learned there are certain things you absolutely must do right all the time and certain skills you must have or acquire in order to make it in this very competitive industry. In this article I will summarize what it takes to be a successful construction contractor in their order of importance.

Most Important Factor: Hands On Experience

Do not even think about starting a construction contractor business unless you have at least five years of broad (meaning general, not specialized) construction experience. The only exception to this is if you intend on specializing in one area and one area only. We call this a niche. Niche’s can be very profitable, but they can also go away, change or be replaced by technology, new products, changes in the industry or societal changes. The best chance for success in the general contractor business is to gain experience doing everything. This general experience has many benefits. It gives you the ability to identify and hire competent individuals, fire incompetent ones, evaluate good work product and identify poor work product. Probably the most important thing it gives you is the ability to transition from being a technician to being a manager. The best experience comes from small to mid-sized construction companies that require you to be a jack of all trades. Larger companies have a tendency to pigeonhole you into niches. That is fine if your business model is a niche, but if you start a general contractor construction business with skills in only a few niche areas, you will fail unless you hire to your weaknesses.

Second Most Important Factor: Outstanding Accounting System

If you do not have a sound accounting system your construction business will eventually fail. This CPA has witnessed this too many times than I care to recount. Sound accounting systems allow you to evaluate whether or not you make a profit on a job by job basis. Going with gut instinct is dangerous and fraught with risk. A sound accounting system helps you identify those things you do right on each job as well as the mistakes you’ve made. Numbers don’t lie. Unfortunately, my experience has shown me that most construction contractors pay little attention to their system of accounting. There is a fear that proper accounting will set the business owner up for higher taxes. Thus, cash received on a job and cash disbursed go unreported in an effort to avoid tax. What a mistake. I don’t care how great your gut feeling is on each job, if you don’t have an accounting of every penny on each job, you can rest assured you are flying blind and losing money on each job. You will go out of business and your family life will suffer. If you decide to start your own business you need to act like a professional business owner and that means creating a sound accounting system. Failed accounting systems lead to litigation, failure and bankruptcy.

Third Most Important Factor: Effective Management

When you have hands on experience in the industry, forged by many years (at least five years) of working in every facet of the construction business, you are better able to make the transition from technician to manager. Effective management requires that you have sound procedures on many aspects of your business. Well-defined work product processes, along with accompanying task-specific checklists, allows you to drill your workers on every aspect of a task within a job. You should have a work product process with accompanying checklists for just about every major task within a job. This eliminates human error and allows you to make corrections before the task is officially completed. It is a construction company owners #1 management tool. You must develop a process for each job and each task. This process must be in writing and stored in a binder for each job, along with the task checklist. The task checklist should be calendarized. Your jobs binder should include the following:

Tab #1 – A copy of the signed contract and any change orders.
Tab #2 – Budget for the job. Budget for each change order.
Tab #3 – Accounting for income and expenses. The income portion would include the contract bid price, monies received either as deposits or as the stages of the project are completed and monies received for change orders.
Tab #4 – Task List Summary.
Tab #5 – Task #1 Process Summary and Checklist.
Tab #6 – Task #2 Process Summary and Checklist.
etc.

Last Tab – Customer sign off letter on completed work along with standard testimonial letter signed by customer, listing customer’s name and contact information along with permission to use the testimonial in marketing and as a reference for prospective customers. You will transfer copies of each testimonial letter to a separate binder that you will take with you to each prospect. This testimonial binder may be the only thing separating you from your competition. It gives assurance to prospects that you take customer satisfaction very seriously and may be the difference maker. It allows prospects an opportunity to reach out to previous customers in order to obtain references. It also shows the prospect your company is very organized and well run. Lastly, have a picture of the before and after on each job in this binder.

Fourth Most Important Factor: Strong Business Partnerships

A stable of competent subcontractors who have many years of experience working together is crucial to the success of a job. Each job is a team effort and having a strong network of competent individuals/businesses available to you for each job, and who understand your businesses processes, will make each job run much more efficiently. Efficiency and competency = profit on each job.

Fifth Most Important Factor: Project Bidding Process

You can be the most skilled, best managed construction company, with a stable of talented subcontractors and still go out of business if you do not have a strong process in place on bidding for each job. You can lose your shirt if you underbid a job. How does this happen? The most common cause of underbidding is not doing your homework and relying on your gut or unverified estimates rather than a fail safe process of checking and double checking each cost within each task. The devil in any construction job is in the details. The bidding process is very much like your business plan for each job. It must identify every task, every cost and each cost must be checked and double checked before bidding on the job. Where many construction contractors go wrong is in estimating the cost of tasks incorrectly. These incorrect estimates are caused by flawed assumptions on the tasks and the associated costs, which is the result of not accurately verifying and then re-verifying every task and every cost. It is a painstaking process but you must get the bid right. Your assumptions on each task must be vetted not once but at least twice. You know the rule: measure twice cut once. This adage is particularly true in the bidding process.

Sixth Most Important Factor: Marketing

Everyone in the construction business understands the importance of referrals. Most of your prospective customers come by way of referral. But referrals are not enough. What should be part of your marketing tool belt?

1. You should have an active web site that includes customer testimonials front and center.
2. You should join a networking group.
3. You should join a civic organization.
4. You should provide valuable assistance to local community non-profit groups (one or two will suffice nicely).
5. You should have a regular process of bidding jobs that are not referral-based
6. You should have a process for direct mailings very week.
7. You should have business cards, stationary, job site signs.
8. You should advertise in the yellow pages or local newspapers.
9. Customer Testimonial Binder (referenced above).
10. You should have brochures.

Seventh Most Important Factor: Stay Current With Technology and Replace Old Equipment/Tools

You must upgrade your equipment and tools to stay current with technological changes. This will not only improve efficiency but also the quality of each job. You must also replace old equipment and tools in order to get each job completed efficiently and on time. You will know when it is time for new equipment and tools when the old equipment and tools begin breaking down at a rate that causes recurring delays. When equipment/tools breakdown it can cause cost overruns and result in late completions. No matter how good the quality of your work is, missing completion dates harms your reputation.

Eighth Most Important Factor: Hire To Your Weaknesses

No matter how much experience you have and how skilled you may be there are certain things each one of us does well and certain things we do badly. More often than not, the things we do well are the things we enjoy doing and the things we do badly are the things we hate doing. A skilled business owner will hire people who do have strengths in areas the business owner has weaknesses. As an example, one of my clients nearly went out of business because he did not like having to make calls to collect receivables. My advise to him? Hire someone who is expert in collections. He took me up on my advise and eventually, his collections expert, became his partner. His business is thriving now. Hire to your weakness and watch your business boom.

Ninth Most Important Factor: Document Mistakes and Failures

This should be incorporated into your Job Process/Task List Binder. You must learn from your mistakes. Mistakes should not be considered anything other than an experience learned. Document those bad experiences and incorporate them into your job process and task list binder so as to never repeat them again.

Tenth Most Important Factor: Change Orders

Most contracts include language regarding change orders. Change orders are caused by many factors, which is beyond the scope of this article, but let me be clear in saying that you must cost out every change order as if you were costing out the job. You must then process the change order (list each task and assign a date of completion for each task) and attach a task checklist for each new task resulting from the change order. Lastly, you must get the customer to understand and sign off on the change order or you will not collect your full price for the job. Many construction contractors unfortunately do a poor job in addressing change orders. They are reluctant to highlight it with the customer and gloss over it in an effort to avoid confrontation. The reason? The reality of change orders are not addressed up front when you are bidding on the job. Customers only see the price you gave them and that is in the contract. You must address the reality of a change order occurring at the outset of the bidding process and before the contract is signed. If a customer understands from the very beginning that change orders do occur often and that a change order will increase the price of the job, you will be less shy about confronting the customer when it does occur.

Business VOIP Service Can Save Large Companies Millions of Dollars

With a business VOIP phone system, you can talk to people all over the world. You will be able to communicate with people from other states and countries without paying expensive fees. You can also use your VOIP phone system when you travel.

All you need is an internet connection in order to use it. For a CEO or traveling sales representative, this feature can help keep their business going. The phone systems are perfect for people who have to travel for work and those with active lifestyles. With changes in technology, the sound quality of the phone systems is better than ever. Telephone calls rarely get dropped.

Business systems are great for any type of business. You can use it if you’re running a small business, large business, if you’re self-employed, or a work-at-home parent. Businesses and entrepreneurs can cut down on their costs by purchasing a VOIP phone system. One of the most important benefits of VOIP phone systems is their cost-efficiency. Most people save about 30% to 50% on their traditional phone bills by switching to VOIP. This may not sound very lucrative for individuals, but large companies can save millions of dollars.

Business VOIP plans come with a variety of useful features including unlimited local and long distance, call waiting, call transfer, 3-way calling, call block, repeat dialing, faxing, toll-free numbers, voicemail, conference calling, call recording, call forwarding, caller ID, and unlimited customer service support. Thanks to modern technology, VOIP phone systems can take telephone calls for you when you’re not even there. The auto attendant features acts like a secretary for you. Find a VOIP company that offers the features that you need for your business.

The service offers many benefits for individuals, business owners, and independent contractors. It’s cheaper than traditional phone service. Making PC to PC telephone calls is easy and free for any place in the world. Making telephone calls with a phone is easy. Since VOIP phones are portable, people can take them with them everywhere they go.

In addition, the service comes with many wonderful features and they are usually free. Traditional telephone service companies charge big bucks for these types of features. These features also make it easy for working professionals to communicate with their clients. With all the benefits that it offers, it’s no surprise that most businesses are turning to this service. Of course, many different providers are offering this service. For this reason, you should do research and take your time before you make a purchase.

Accountants For Contractors: The Masters of The Numbers

All the life on the planet is connected to each other in one way or another. If we take up humanity as a group, then they are connected to each other in many different ways. Business is one of the links that ties all the people into an intricate system that are governed by the laws of taxes. All the governments of the world work on the money they collect from the taxes that is owed by the businesses and salaried people that are connected to their system. Calculating the taxes that is owed to the government has to be done perfectly to avoid any penalties that any business or an individual can face.

It is best to reach out to Accountants for contractors who are ready to give out their services for a fixed fee. They are freelancers who prefer to work on contractual bases, and they can be hired to perform specific tasks. They are the kind of people who have moved away from a day job because they prefer to have their own creative freedom, rather than tied to a desk. They prefer a lifestyle where they don’t have to face office politics, and work in their own personal space. Many such people are able to increase their potential, efficiency, and the ability to finish tasks with greater speed while working as freelancers. They do not have the perks that come along with a day job, but they are able to make more money by finishing more number of contracts.

Accountants for contractors have been the choice for many companies that have been struggling to keep themselves afloat in an economy where the margins are thin. When the economy takes a nose dive, many companies are forced to take drastic measures like cutting down their costs to survive in the market. The pinch is felt when they loose people that are needed to perform tasks that are essential for their business system. This is the core reason freelancing has become a successful mode for both businesses, and professionals where they can meet to fulfill each other’s needs. The game of numbers has to be given to professional hands, which can be sought on job sites that hook them up with professionals with right caliber. This option not only saves them the agony to search for such professionals, but also saves them from losing their precious time and money.

Business Fundamentals – Work Your Plan

Business Runs on Schedules

Nothing happens until it is scheduled. Public transportation, sporting events, TV shows, the movies, deliveries, business meetings, paydays, bill payments, and college classes all work on a schedule. Schedules are carried out.

Successful home business owners plan their work and work their plan. Does your business have a plan? Does your business have a successful blueprint for you to follow? If you have a business system are you following it?

I find it amazing how people show up to work everyday, punch that time clock, wait for their breaks, lunches, and then punch out to go home. They work their employer’s plan and when it is time to work their plan they fail. They are too tired, it’s too hard, the business doesn’t work for them. These people should just quit their business and stop wasting time.

I see frustrated new agents in my office who don’t have a plan. They can’t make sales or get leads. They fail to follow a proven method that is provided by the brokerage.

Truth and Clarity

Having a plan brings clarity. You beat frustration, procrastination, doubt, and fear when you work your plan. Realize that building your home business takes work. If you have a job you will have to sacrifice your time and energy. There are no magic pills or buttons to make you successful. No business fairies that will come around and bless you with sales. It takes work and a persistent effort.

Understand that the grind, learning curves, loss of money, and failed marketing are on the road to success. You can’t sidestep these obstacles. They will arrive and if you work your plan you will get past them.

Here are 5.5 ways to Work Your Plan

1. Your Business Outcome – What are your home business goals? How much money do you want to make per month? Why are you in business? How long do you plan on being in this business? Get you clear on your outcome. Don’t start the journey until you know your destination.

2. Follow a Successful Plan – There are success systems for you to follow. Real estate agents, insurance agents, and other independent contractors should have a franchise plan to follow. Here is a clue… work their plan. Make their plan your plan. If you are a newbie or don’t have any experience, their plan is your best shot at success.

You can come up with your own plan but learn from trial and error. We don’t suffer from lack of information. You can find successful systems that provide the training, marketing, and sales you need.

3. Make a Schedule – You have the plan… now make a schedule. For my team I tell them to schedule three hours per day. Create content for 1 hour, market for 1 hour, and educate yourself for 1 hour. If you have more time adjust accordingly. These are income producing activities.

4. Use the Pomodoro Technique – Being effective with your time is better than being efficient. This technique is simple. You work for 25 minutes then take a 5 minute break. Work for another 25 minutes and take a 5 minute break. After 2 hours take a 30 minute break. I prefer to work for 50 minutes and take a 10 minute break. This will help you break your workflow and reenergize you every time you come back.

5. Leverage Your Time – As your business grows you will have the funds to outsource those mundane jobs you hate to do. You can use people and systems to help your business grow without anymore extra effort from you. You can outsource to people who can do it better than you and you make the profits!

There are successful business models that have these leverage systems in place. Make sure the company has a track record for success.

5.5 Treat Yourself – When you work your plan be sure to schedule some family fun time, and vacations. All work and no play makes you a bore. Put these activities in your plan. Happiness is a present thing and you should enjoy the fruits of your labor. Treat yourself my friend.

Successful people run successful home businesses because they plan their work and work their plan. There are successful systems out their for you to use. They still require an effort and will help you get to your goals faster. Or create your own system but be sure to learn from trial and error. Work your plan and be a success.

Win Cost Plus Awards With the Right Cost Accounting System

Winning cost plus awards can be a time to celebrate… or to groan. With the right cost accounting system and appropriate processes in place it is a time to revel in your new-found business growth. It is important to have the right system in place, but also what it takes to make it through the audit and sail through your future bids and ongoing revenue stream.

The right cost accounting system is a necessity when you are going after cost plus contracts. That is, if you expect to win them and get revenue from them. When you have the right system along with the attendant accounting policies and practices, you have a path to more cost plus awards. While the right cost accounting system does not guarantee you awards, it paves the way to making those awards easier to obtain… and keep. Let’s explore three components of what is involved.

1. Consistency
All Government contractors, whether or not they are subject to Cost Accounting Standards (CAS), must be compliant with CAS 401 and 402. This issue is typically lost on most small contractors. Most believe that because they are not subject to CAS they do not have to comply with CAS 401 and 402. Both standards require contractors to be consistent in estimating, accumulating and reporting costs as well as in allocating costs incurred for the same purpose. What is important here is that your estimating system, including practices, be disciplined by your consistently-applied cost accounting methods. What you do in practice to adhere to your cost accounting system methods will apply to what you do in estimating your new projects. This solid practice will decrease your chances for defective pricing. Be consistent in your pricing and cost accumulation methods.

2. Credibility
To be a credible Government contractor, you not only need the right accounting system but the “other” parts that make you a complete package, have an acceptable compliant system, and allow you to move more freely in the cost plus environment. Most contractors think it is just about the system itself. The system is not complete without adequate accounting policies, procedures/practices and people – an employee benefits manual will not do. Real credible contractors have written accounting policies and procedures. Your best pricing estimates should be supported by data from your managed cost accounting database. When you support your estimates with real live historical data, you are credible. You must include profitable bid considerations in designing your bid rates – otherwise why stay in business. DCAA emphasizes solid business systems which are supportable by good historical data and estimating that uses that data. You must have reliable source integrity to support the credibility of your estimates.

3. Conflict
When you have the right accounting system, along with appropriate accounting policies, procedures/practices and people, you greatly improve your chances for your outside auditor (be it DCAA or otherwise) to agree with almost all, if not all, of what you are doing. Once the auditor buys in to your adequate system, your audits will proceed much more smoothly and effortlessly. Your system will produce the results they are looking for and they already know that your policies and practices are up to par. This means that the amount of time the auditor spends with you is greatly reduced. That spells more productive time for you and your staff – not answering questions that are easily solved. Your staff’s interaction time with auditors to comply with their requests is tremendously diminished. Your accepted policies and practices already lay out the road map that shows your consistency.

These three elements are only the beginning of making it possible to win cost plus awards with the right accounting system. While there are several other factors, these three comprise a solid backbone of practices you will call on to support your bids. When you combine these factors with a well-designed accounting system, you are on the road to being able to win more awards.