Avoiding Common Financial and Business-Structure Mistakes Contractors Make
Wonder, Blunder, Thunder, Plunder
All organizations go through phases and chapters of their lives. Roofing contractors are no different. For years, I’ve spoken about the four stages of business: wonder, blunder, thunder and plunder, and offer some guidelines to correct business-culture problems before it’s too late.
The Wonder Stage
Almost all roofing contractors start here but I doubt many at IRE 2018 fall into this stage. Still, many employees who went out on their own might fit this description. For many blunder contractors, their side jobs grew to the point where they decided to start their own business. Startup costs were minimal. They owned a truck that was driven back and forth to work, little marketing was needed as they stole customers from their boss and they probably had “borrowed” enough miscellaneous material and tools from their former employer to get started.
IRE Session TH10
Title: Common Financial Pitfalls and Business Structure Mistakes Contractors Make
Speakers: Monroe Porter, president of PROOF Management Consultants
Date: Thursday, Feb. 8, 9:30 a.m. - 11 a.m.
They do good work at cheap prices but soon they have more work than they can complete. If they’d stayed on their jobs working as foreman, they may have been alright. The wonder contractor really has a job, not a business. They’re a working foreman that works on multiple jobs with multiple bosses but when they put down the tools, financial problems start.
The Blunder Stage
Due to cheap prices and good work, the wonder contractor grew to the point that he or she couldn’t be on-the-job anymore. Now all the owner’s time is tied up estimating, doing administrative work, picking up material, etc. The owner is no longer on the job physically working. Now the owner enters the blunder stage where there’s a lot of volume but no money.
Before the owner was earning money physically working as a foreman. Now the owner must hire a foreman. The wages from being foreman are replaced by real foreman wages but the owner doesn’t raise prices to cover a non-working owner’s salary. Literally, there’s no money available to pay the non-working owner. To make matters worse, the owner was probably a very good foreman. Installation costs on the job will increase as this new foreman probably isn’t as good. Typically, we find installation costs go up 20 percent when the owner steps off the roof. In addition, the owner has little or no administrative help so the company does no job costing.
Traditionally, the owner was on the job and could tell how the job was going. Now there are no “paper eyes” to track things. The owner also fails to increase production rates and bids jobs as if he or she was still on the job. The owner works harder and harder with less and less reward.
Blunder contractors can go on for years. Making less than when they were foreman for someone else. They work harder and harder and their lives become more of a mess because they’re rarely home, yet have no money. As consultants, we like to find blunder contractors to fit into our networking groups as the pain is great enough to motivate them to make the required changes.
The Thunder Stage
At this point, the contractor knows their costs, has developed an organization and is making a lot of money. They’re the leaders in their local market. The business is rocking. However, this stage can be hard to maintain. A large, six-figure salary can kill the desire to be in the office at 5 a.m. Sometimes it’s harder to maintain being at the top than to get there. One morning the contractor decides to put a son or daughter in charge, run the business from his boat in Florida and spend less time at the business. Day-to-day leadership declines. To succeed at making such a transition normally takes three to five years but contractors are impatient. Often the owner’s absence happens too quickly and others haven’t been adequately mentored to replace ownership’s role. Within the organization stupid things start to happen. Congratulations, you’re now entering plunder.
The Plunder Stage
At the plunder stage, the owner is no longer as active in the business. Superintendents and project managers mature while younger managers work toward starting their own businesses. I teach business seminars at national conventions and see managers from large companies attending because they want to start their own business. Day-to-day, common sense ownership practices diminish. The organization doesn’t like to change and is soon outdated regarding recruitment, equipment, computers and other needs. Senior personnel can become sacred cows and without the owner’s day-to-day management, their performance diminishes. The business has money, but sadly many times the owner’s money is funneled back into the business to keep it alive. The organization grows tired and less efficient. Up and coming managers leave and go to the competition or start their own “wonder” businesses.
Wonder, blunder, thunder and plunder; the stages of contractor life. History tells us this process will repeat itself over and over. Stop the cycle and make sure you do what you need to do to get on top and stay on top.