Tips for Improving Your Business
Question: I use the cash accounting method. As business has grown, it has been harder and harder to get an accurate understanding of where we are financially. Do other contractors use a cash system?
Answer: I am not a tax accountant, but I do have some customers who in the past have had IRS issues because they took a cash approach. You should ask your accountant about the IRS and the position they might take regarding the tax status of your business as a cash company.
With this said and done, I would like to emphasize that you cannot really tell where you are financially by only looking at cash. Deposits, seasonal start-ups and wind-downs, receivables and payables all contribute to the big picture. If you only look at cash, all those bills you owe have a way of hiding, particularly for business owners who are in denial of their true losses. We have encountered numerous optimistic contractors and when we dig into their operation, their accrual loss position is much greater than they realized. It is so easy to go into denial when bills start to add up. You really need to track financial information on an accrual basis and live in the real time world with up-to-date costs.
Question: In my state, we do not have a license law for contractors and I have been pushing hard for it. I wish the legislature would help the legitimate guys out by banning the station wagon warriors. I also get upset when manufacturers sell to everyone. They need to only sell through licensed applicators. What are your thoughts in this regard?
Answer: Regulations can be a great idea and I applaud you for being active politically. Good for you! Apathy is a big issue in today's society. While it is fun to bitch, you also have to put regulations into perspective and understand what is realistic. Regulations are a political issue. You join an association to protect you nationally and locally, but you must realize that consumers have a lot more votes than a few contractors. Unless you can position yourself so that you are protecting the consumer, your success is limited.
Licensing is a great idea but will rarely protect you as a contractor. The cost of entry into your business is too easy. I have worked with the contracting industry for 25 years and while some areas have license requirements, this appears to have had little impact on competition. Why? Because all you need is a ladder, truck and hammer and you are a contractor. There is always going to be someone unprofessional and cheaper than you. Accept it. Focus on the people who are willing to pay you. If you try to compete with the people who cheat wage and hour, avoid workers comp, take cash, and sell the absolute lowest price, the problem is the market you are targeting. Focus on customers who want the problems to go away and are willing to pay for it.
Question: I have been thinking about going to the local community college and starting a residential roofing apprenticeship program. All the roofers will then have a pool of qualified people to hire from. What do you think?
Answer: It’s a great idea to have a four-year apprenticeship but in most cases it is not going to happen. There are some great training programs available, union and non-union, but the bulk of the contractors needs roofers now. In a perfect world, it would be the way to go, but for most of the contractors I encounter, finding and teaching people English is a major issue. Getting folks to commit and attend a four-year apprenticeship is just not going to happen. You may have some success with commercial apprenticeship training but residential is tough.
The best way to train people is to adapt the guild system to your daily workplace. Lead foremen training those around them are the ideal approach. Coaching and mentoring is the way to go. Again, I have trouble getting contractors to write job descriptions so I have my doubts about a full-blown training program. Where the systems do exist, it is hard to get people to attend. Taking industry training and adapting it in your own workplace is more realistic.
The most practical training starting point is to take a piece of paper and write down your employees and where they are skill-wise. Next, track what you would like them to know in 90 days, six months, two years etc. Develop a system that focuses specifically on getting them to the next level of training. It is not as easy as it might sound. One of my first supervisory classes 20 years ago was for a landscape contractor that had a lot of tree losses. I figured that would be easy to fix. We would write a procedure for planting a tree. Wrong. Two hours and a fist fight later, they still could not agree.
Working set crews really helps the training process. You may also want to review the foremen with the trainer and reward the foremen when training is completed. Training is a little like going to church, no one wants to talk bad about it, but do you go? And when you go do you put money in the plate?
Question: You have been a contractor a long time, what one thing do you think a contractor should do to be successful?
Answer: I do not believe that there is just one thing but rather numerous areas. There is no magic bullet. However, successful contractors, focus on these issues:
- Look at past work, divide the jobs by the man-days it takes and try to figure out where you are making or losing money. Don't let your ego and emotions drive decisions, use the facts. Keep time cards and track your job costs.
- Make a budget and work from it. If you want to make $50,000 in income, add it into your prices. How much per hour or square do you have to pay to make this goal? Add up all your truck insurance and other expenses and work from it: Divide by a daily, hourly or some other type of cost. Don’t use arbitrary prices; work from a budget. Most contractors are scared to death to do this and the denial is unbelievable. Sit down and take a pencil and paper and figure out what you did, how many hours you worked and how much more you need to charge to make more money.
- Realize that if you have a small business and do the work yourself, you can make a good living, have some freedom on the off days, etc. But most one-man band contractors fail as they grow because they do not have the systems or charge high enough prices for them not to work on the job. Track what you did last year and run some numbers. Build a budget.
- I speak to all kinds of contractors but we have active networking groups for HVAC, painting, roofers and landscapers. The painters are the most successful for a couple of reasons, one of which is that we have been working with them longer. But there is another issue: Painters know that people who are not in a high-income bracket will paint his or her own house or hire a buddy. High-income people want to have someone do it and have it be a no-hassle process. Roofing and HVAC contractors keep trying to market to everyone because few people will do their own roof or heating system. The fallacy in this is that you are not targeting a market that can afford you. Focus on high-income neighborhoods, and give great service. If you are not making the kind of money you want, charge more. Quit bitching about cheap competition, industry, etc and rise above them.
- Crew leadership is another piece of the puzzle. If you want to get off the job, get someone who thinks like you and is responsible to be the job leader and take your place. Growing without a plan for crew leaders and a system to track their performance is a disaster.
- Learn to sell off-season work. Toy stores do well in December but you have to live all year long. Marketing to find more customers and getting bigger may just build a bigger organization that must be fed and kept busy all winter. Marketing is not just to find more customers but also to meet the objectives of your organization. Snow removal, gutter cleaning and roof repair can all help. Marketing can be invaluable in filling gaps and voids in your schedule.