7 Deadly Mistakes That Will Kill Your Construction Business

As a successful contractor, consultant and teacher to the construction industry, I am constantly asked “What is the biggest problem for the owner of a construction business?” Usually, the questioner wants a simple answer such as “under-capitalization”, “competition”, “marketplace” or “hiring the wrong people”, while I, on the other hand can spend hours trying to explain the “big picture”.

The truth is, the answer lies in the owner and the decision making process they use to run the business. It’s not everything and everybody else that’s to blame (of course it makes us feel more comfortable with ourselves to blame others, doesn’t it).

The following deadly mistakes are real to each and every owner. You can only avoid them if you’re aware that they exist and that if you elect to utilize them, if you do, you’ve committed yourself and your business to a major mistake.

Remember this; past successes is not an indicator of future successes. What someone else does in his or her business, doesn’t mean that it’s going to work for you. How do you know that the other person is really being successful?

Typically, contractors assume that there is no method that can be taught. In fact, a large portion of contractors actually believes that the way they run their business is the only way! The tragedy to this industry is that this is a false assumption. There are many “styles” and each business develops its own style. But there is only one way to properly run a successful construction business.

You may like to think that your sheer guts, energy, drive; ambition and construction know-how will get you to even higher successes as a contractor. And it probably will for a while. But the time does come when all that energy, guts, drive, ambition and construction know-how will have to be organized, given direction, planned, strategize and held to objectives and goals. If you don’t have it in place now, it will be too late to do it later; you’ll be in trouble.

The Seven Killers

Not Understanding Your True Costs:

Many contractors spend so much of their time getting work, putting out fires and handling so many “little things” that they completely neglect coming to terms with their true costs. They’d rather use someone else’s numbers then take the time and figure what really works for them. Too many contractor’s admit they don’t know their costs, in fact, too many admit they don’t even know how to calculate them. Instead, they’ll use someone else’s labor rate, unit price or markup. What may or may not work for others doesn’t mean that it will work, or be right for you. Take the time and learn how to properly calculate your costs.

Not Understanding Your True Overhead Costs:

This one takes a lot of work and a lot of time. I know since I use to spend countless hours calculating and tracking overhead. If you don’t beware, it’s the silent killer. It’s the one that you become aware of when it’s too late.

Learn your overhead. Take the time to become aware of what it costs you to run your business, even if you don’t open the doors. The process of reviewing and listing out your overhead costs is a great eye opener. Every contractor that has taken the time to perform this exercise has benefited many times over. They understand and become acutely aware of every dollar and penny. Small overhead usually means a big profit.

Failure to Work for the Right Profit:

Do you know with absolute certainty if you’re profitable? Are you making or losing money? Do you wait for your accountant to tell you if you’ve had a good or bad year? May sound like silly questions, but from my experience, too many contractors haven’t got the foggiest of clues on this one.

Do you even know how much profit you should be making? I’ve come across too many contractors that work very hard all year. Countless hours of work for a measly one or two percent profit margin. And they think this is the norm.

Plan your profit margin. Look at each job before you bid it. Do you need more profit because the job entails higher risks? If so, add it into the bid. Sell value not low price. You’ll be able to provide a better product and service your customers properly if you’ve cover yourself properly. Besides, you are in business to make a profit, aren’t you?

Most contractors fight with me in the beginning when I tell them they’re not making enough profit. No it can’t be done, they yell. My competitors will take all my work, they cry. But those that do come to terms find the promise land. They’re making more money and still selling as much, if not a lot more work. Make the right profit and you can then sell value to your customers, not low price.

Failure to Structure Your Company Organization:

There is only so much of you to go around. If you feel as though your working for your business and your business isn’t working for you, you’re right!

Too many contractors just won’t learn how to delegate authority to their employees. Instead they get involved in every little day-to-day transaction. Find the right people in your company that are capable of taking on some responsibility and give them the authority to do it.

As the owner or head of your business, you should be concentrating on the ability of your business to be a viable entity in your marketplace now and in the future. That means planning, creating strategies, making sure you’ve got viable goals, making sure your organization can cope with change and growth. Learn the three levels of properly structuring a construction company. Learn how to give people responsibility, authority and how to properly hold them accountable. Learn to delegate.

Failing to Understand Your Capabilities:

We all have our limits and you and your business has its. Don’t take on more work than you can handle. Don’t get into a project that you have no knowledge or business doing. Don’t expect more from your people or financial capabilities than can be expected. Don’t take unnecessary risks. Don’t venture into areas that you don’t have knowledge or solid experience in. Don’t take on a project that’s too big for you.

The list goes on and on but I think you understand what I mean. More contractors have gone down the tubes because they failed to understand their true capabilities.

Failure to Firmly Anchor Your Business in a Niche:

The most profitable work I’ve ever done is niche work. A specific area or areas, that provided great work and great pricing. The profits were good and the entire company felt good. Everybody was happy.

You can have more than one niche. No one says you have to have just one. Find yours and maximize them. You’ll be a lot happier in the long run.

Failure to Continue Your Marketing in a Downtrend:

Sales are down! Profits are down! The economy is down! Cut marketing!!!

Give me a break. Why would you cut marketing? It doesn’t make sense. Everything you’ve ever spent or done to give your company a brand name or recognition just got flushed down the drain. You never stop marketing unless you want to be forgotten about.
You sell your new fancy car or boat, but you never stop marketing. It’s the life in your company’s blood. Find other areas you can cut, but don’t cut marketing. It is the one thing that can get you and your business through the rough times.

Getting the Big Picture

It takes more than long hours, guts, drive, energy and luck to run a successful contracting business (notice I used the word successful). It takes finely honed business skills that any contractor can learn. Business skills that are sharpen to a razor’s edge.

Take control of your business and your future. Focus on the Big Picture!

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