Tips for Improving Your Business
Question: I have been thinking about selling my business. It seems like I am stressed out and tired from all the hours I put in. I have been doing this for 20 years and it is harder and harder to make the appropriate income.
Answer: So your business is not as profitable as you would like and you plan to sell it to someone else? This does not sound like a good deal to me. Who wants to buy a business that is not particularly profitable and have to work long hours?
Businesses that are not profitable are not worth a great deal. This can be a really tough pill to swallow if you have been working for years to build up a business. Goodwill in a contracting business is worth almost nothing and assets can be limited: a few beat-up trucks, some equipment and a customer list. Not a lot to cherish for 20 years of hard work.
At times, many of us think we want to sell our business. Shaky, inconsistent businesses are no fun. I think the real issue to address is why your business is not profitable. I recently was at a meeting where a contractor wanted to sell his business and get out of it. He wanted to develop a five-year departure plan.
After further analysis, the real issue was more consistent profits and income. His father had run a business where profits were up and down for 30 years. Working and being stressed out had become a way of life. He took over the business and continued the same pattern of making $100,000 one year and $25,000 the next. Ironically, other investments such as real estate and stock seemed to provide more consistent income. The business had served as a great stepping-stone to build profits but had failed to maintain a viable, stable business structure.
Business can have inconsistent profits for numerous reasons but lets take a few moments to discuss some of the common miscues that contribute to inconsistency:
1. An unfocused owner can be the greatest single cause of profit swings. Contracting companies tend to be started by people with strong personalities who sometimes easily become bored or distracted. Taking your eye off the ball can really cause profits to swing up and own. Anyone can luck out on a few jobs but building a stable business takes focus and consistency.
2. Poor administration and office help can also contribute. Today’s contractor needs to have good numbers and costing. He needs a strong office system to handle details, set appointments and keep the ball rolling. Too many contractors settle on a family member, a $10 an hour clerk or a person to just answer the phone. Your office administrator needs to be a pit bull with a strong computer background. Depending on where you live, a good office person might cost $30,000 to $45,000 a year. If you cannot afford a good full-time person, you may want to consider a part time person. Good part-time jobs can be hard to find and sometimes you can find a great person for 20 to 30 hours a week.
3. Poor pricing can also contribute to inconsistency. Contractors who price work on some type of unit price that is outdated or arbitrary can make the same mistakes year after year. It is not uncommon to find contractors who are constantly sold out and yet are unprofitable. Upon further analysis you find they make money on some jobs, lose money on others. You must make a budget, determine your prices according to time, and factor unit pricing accordingly.
4. Structure is also an issue. What are your sales per admin person? A good admin person with a sales-oriented owner might easily do $1 million a year in sales for a certain type of work. Yet another contractor doing the same type of work might have an owner, sales person, and two office people, or even a superintendent added into the mix for good measure. I honestly believe that many contractors are stressed out and they start hiring people to help them. They erroneously think it will push their profits up and help their business. When in reality, all it does is add a body to their already incompetent system. The same fundamental problems are simply compounded by adding more people.
The list can go on and on but these are some of the more common causes of business inconsistencies. If your business makes money, the workload is reasonable and you deal with the real issues. Selling may be the last thing you want to do.
Question: I have been thinking about getting on the Internet but am concerned viruses will shut down my computer. Is it worth the risk?
Answer: Yes, it is worth the risk but you have to be careful and play by the rules. The Internet has a lot to offer your business. You can get valuable product information. You can find business information. You can use it to e-mail other professionals, friends, etc. And if you do not have a Web domain and address, you may find yourself out in the cold. More and more consumers use the Internet to find contractors and more and more businesses use it to communicate. The fact is that you have no choice but to get online. Having Web presence is like having an address for the post office to deliver mail.
Make sure you have virus software and that it is updated regularly through the Internet. Also, make sure you have the latest patches and upgrades to Windows software. Backing up your system each and every day is also a must. The best way to virus-proof your computer is to have a bright young, up-and-coming computer kid help you. Another great idea is hire your own computer “nerd” and use him as your coach. Don’t be left out in the cold by avoiding the Internet.
Question: How do you manage a salesperson? I hired a salesperson and I mistakenly thought he would perform like me. This just was not the case.
Answer: From what I can see, contractors are lousy at hiring sales people. It never ceases to amaze me that contractors will micro manage field people to death yet hire a salesperson or estimator, throw them the keys to a car and just let them drive off into the sunset. Bizarre behavior. You are not hiring you, but rather an employee. You should set production and time goals such as:
- How many calls do they make a week?
- What percentage of the calls do they close?
- What is the gross profit on the jobs they sell?
- What are your target accounts and markets?
- What will their relationship with the crews be?
- What hours should the sales person work?
You may even want to consider having salespeople personality tested so you understand their strengths and weaknesses. A good salesperson can offset some of your strengths and weaknesses, but he or she is not the owner. You should not expect a salesperson to think and act like you.
You also need to put some time into training salespeople. Do you make sales calls with them on a regular basis? If not, you are not managing them. You visit the jobs your employees work, why not visit the sales calls? Hiring a salesperson and just turning them loose is like giving a loaded gun to a trigger-happy blind person. You don’t know when they will shoot or what they will hit.