Business can be stimulating and somewhat addictive. There’s a thin line between addiction and passion. Addictive behavior is a behavior that is so controlling, stimulating and rewarding that it leads to lack of control and harm to those around us. Passion is a strong, barely controllable emotion that drives success and often leads to excellence. The National Institute of Health estimates that one in 10 Americans have some type of addictive behavior.
Addiction also contains a strong element of denial. This is where the problem magnifies itself as people practice the same behaviors repetitively and expect different results. What’s inspiring this article is the transition of one of my networking customers. Fifteen years ago, he was several hundred thousand dollars in debt and made no money. He was addicted to buying the latest equipment, trying the latest business idea and the philosophy that selling would take care of everything. And boy, can this guy sell. But the problem was he would sell himself on his own flawed thinking, the same way he would sell his customers. Last year, his salary and income amounted to $441,725. He also took four vacations and the business and his personal finances are rock solid.
First, understand that enjoying working is not a bad thing. Think of the millions of people who go to work every day and hate their job. I enjoy working and it has provided me with a nice livelihood. However, working hard in an unprofitable business and being in denial of that fact can ultimately lead to an unhappy life. Killing denial and building a profitable business will at least give you the option of improving your life. An owner with an unprofitable business is like a gerbil going around in a wheel in the pet store window.
So how did he do it and what should you do?
Growth is not necessarily your friend and sales growth can be addictive. For most unprofitable businesses, the solution is to increase prices and shrink the business. A five percent price increase can have little impact on sales and a tremendous impact on profits. One exception to this price-raising strategy can be a business that operates in the new construction arena where everything tends to be price driven. You may have to find new markets, which can take time. If you’re in a new construction price-driven market, look at your costs carefully. Much of this work is bid per square foot or some type of unit pricing. Determine which jobs you make money on and which you don’t. Stay away from the losers and take a more disciplined approach.
Another exception to the price increase strategy is someone that has built a big shop and expanded their market but still is not profitable. Addictive decisions can include large shops and overhead. This situation can take time to get out of but the same advice applies — know where you make and lose money and be more strategic. Don’t see volume as a catch-all solution.
I cannot over emphasize the importance of job costing and eliminating unprofitable jobs. Some contractors are good at certain types of work and others aren’t. Don’t worry about complicated material costing. Simply track labor costs and see if the job required more labor than you thought. If necessary, do it by hand each week when you do payroll. As consultants, we find that the typical contractor loses money on 30 percent of their work and does it over and over. It takes just as much, if not more effort to produce losing jobs than those that make you money.
Hire a strong financial person or office manager and have monthly finance meetings. At those meetings, review an accrual balance sheet, profit and loss, accounts receivable and all jobs completed that month. Force this discipline. Much like a breathalyzer on a car, it can save you. Yes, you may be losing money but you’ll only become more anxious and afraid by living in the dark.
If you’re unorganized, hire someone to help get you organized. Don’t try to do it alone, but if you have the kind of staff that requires frequent direction, they won’t have the discipline to hold you accountable. Also, family members may not be the best fit as the family dynamic often enters into the equation.
Track how you spend your time and put a value on it. Focus on things that bring value to the business. If you spend most of your time in sales, find ways to do your estimates faster and more efficiently.
Learn to delegate. Take your best foreman and give them clear instructions on jobs and turn them loose. Teach the foreman how to plan the job, set milestones and make the schedule. Give your crews the knowledge they need to succeed and track their progress.
Create new work habits. Stop pretending you’re getting work done late at night. Get up early and go to work an hour earlier. Try to get thinking work done in the morning while you are still fresh. Leave on time and have dinner with family or friends. Be disciplined for a month or two and these will become your new life habits. Don’t expect to do the same thing over and over and succeed.
Change is never easy. For most individuals, motivation tends to wear off before the change actually occurs. This is why triggers such as monthly financial meetings are so important. Use numbers, facts and a few simple disciplines to create a new you.
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