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Columns

Measuring Up: Adapting to the Market

By Monroe Porter
November 6, 2009
Even without a recession, running a business can be an endless battle and constant firefight. I wish I had a crystal ball and could tell you everything is going to be OK. Unfortunately, no one can predict the future. I do know that groaning and moaning about the economy is not going to help you.

Monroe Porter


Even without a recession, running a business can be an endless battle and constant firefight. I wish I had a crystal ball and could tell you everything is going to be OK. Unfortunately, no one can predict the future. I do know that groaning and moaning about the economy is not going to help you. Solutions and leadership must come from within your own company and abilities. Now, more than ever, prioritizing is the key to your success. You cannot fix everything at once. Trying to do so will only result in more hopelessness and frustration.

Change does not come easy. Most of us have more than we can do each day and it really is tough to find the time to do something different. As I sit in intense, 10-hour-a-day intense meetings with PROSULT™ networking groups, I begin to get a feel for each and every person. I see both young and old contractors for whom change is hard. As hard as change is, today’s economy makes it a must. Without change, you and your business may be in for real trouble. Watching folks who have the wrong business plan is like watching the crippled antelope on the Discovery Channel. You so much don’t want the lion to get the stray ones but there is nothing you can do to help. For me, it can be a very painful process. I have learned the hard way that I cannot make contractors change; I can only offer advice and choices. You are the owner and leader of your business. You don’t work for a corporation where at 50 years of age you will be laid off and canned. You can control your destiny. You are the boss. You own the joint and change begins with you.

Start by understanding what activities drive your financial success. In good times, you may have been able to avoid maximum efficiency. Now efficiency is a necessity. Make a new budget and, if necessary, make those tough cuts to minimize losses. If sales are off, do what you must to bring the company back to profitability. Carefully look at what type of jobs are returning the highest gross profit and represent your core business.

Look at your cash flow. If the business is short of cash and undercapitalized, avoid government and new construction contracts that tie up your money for long periods of time. Instead, focus on residential and other types of work that have a faster pay cycle.

Be wary of managing cash emotionally. If sales are dropping, you may temporarily have more cash in the bank. As the business grew so did accounts receivable but now as sales shrink, so do the accounts receivable. If your business is losing money from a decline in sales, cash may actually be better short term. For example, many contractors have more cash in the fall as they wind down from the summer season. Sales drop but so do expenses, and as expenses decline, collections from the busier summer put more money in your bank account even if November and December were losing months.

Get the money right. If not, you will keep trying to fix production or attempt to use sales volume to save you. Use the numbers to decide which hills you need to die on and then fight that battle. The good news is that financial battles are won and lost quicker than you might image. Developing systems and people takes time but if you are willing to make the tough decisions, you can limit your financial expense.

Letting people go is never easy, particularly when you let good people go. Think of your business as a rowboat that will only hold a certain amount of people. Letting someone drown may seem heartless, but it is better than letting everyone drown. Everyone loses if the company goes out of business. Think outside the box. Bid jobs tighter and make sure they come in that way. If you have to take jobs for less, you have to put them in for less. Meet with your employees, have an honest discussion about the situation. Your people are concerned. They are looking for reassurance and to know that you have a plan. Now is the time to stay on top of production. Don’t let employees worry about where the next job is coming from and the jobs out for bid. Try and work together as a team to install jobs in for less.

Focus on the facts. Frequently, I talk to contractors who complain about low-priced competitors killing their business. In reality, their closing percentages are similar to past years; they just have fewer leads. Another contractor I recently spoke with also blamed the economy. After reviewing his pricing and estimating procedures, the problem was poor pricing and estimating. Much of his work was referred, and he was awarded over 50 percent of the jobs he quoted.

Don’t create a mathematical scenario that is impossible to reach. Past volume forced many contractors to run around and around like a hamster on an exercise wheel. Now is the time to get off of that treadmill and right-size your business. Nothing can cause you to feel more like the hamster in the wheel more than not knowing your numbers and not getting the financial side of the business right. Stop and rework the numbers. Make the math work. Turn a slowing economy into an opportunity to get the numbers right and build a smaller, leaner company.

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Monroeporter
Monroe Porter is the president of PROOF Management Consultants. He can be reached at 804-267-1688.

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