When we reach this time of the year, some business owners feel overwhelmed – either by the thought of all of the planning, evaluating, and strategizing they need to do, or by the pressure of not meeting their goals as the year comes to a close. Or both!
It’s so easy to get caught in the trap of working really hard, without knowing what to focus on in order to achieve what we want. There’s so much to do, and we end up muddling through all of it. I’ve been there as a business owner myself.
What I’ve found is that if I shift my focus from assuming everything is important to instead thinking, “How long will this be important?” It’s much easier to see the 2 or 3 big things that really matter over the long haul.
By narrowing it down, I’m much more likely to succeed at those 2 or 3 major goals.
Our goals often revolve around those areas of our business where profits are bleeding out. In this weeks video I help you identify your top 3 most important places you may want to focus by going through the 8 areas of your business where profits are made and lost.
When we focus on what’s most important, then we can achieve what we want. By keeping it simple and choosing your top 3 initiatives, your much more likely to succeed.
So what should you choose to prioritize?
To help you determine your priorities, we’ll look at the 8 areas where profits can “bleed” out of your business. They are also 8 opportunities to earn more profit. Within each one, we’ll talk about 2 or 3 key things you can do starting today that will give you more control over profitability.
We’re going to start off by looking at the Profit Cycle, which is where profits are made and lost in your business. You can download my Business Health Assessment tool and follow along as you listen.
Here are the 8 key area where profits are made and lost in your contracting business, and what you can do to stop the profit bleed in each of these areas. As you consider each one, maybe think about what 3 areas, if you spent time working on them, would increase your company’s profitability.
The challenge in marketing for many people is doing it consistently. Not marketing consistently creates a “roller coaster” in your sales, and therefore, makes your profits much less predictable. Here are some ideas:
- Look at the marketing you’re doing now and see what’s working, then do more of that!
- Reach out to past clients consistently – send post cards once a quarter with ideas, tips, offers, etc.
- Always ask for referrals when finishing a project.
- Estimating and Proposals
Here are the key places where profits bleed out in estimating. Have you updated your bidding template to accommodate for these things?
- The average cost of labor has gone up 20% in the past 2 years, as have many benefits and taxes.
- The price of materials has gone up. Tariffs in the trade war with China increased materials costs by 25% in the construction industry this year.
- Contractors live and die by gross profit margin. The amount you mark up costs needs to cover overhead AND profits. Have a gross profit margin goal and check bids against that goals before they go outy.
Estimates and sales are often thought of as the same thing. I look at it differently. The sales process begins the moment the phone rings and lasts until the contract is signed. When you have a good “sales process” you have more control over the outcome. Here are some elements to consider:
- Have an intake form that screens prospects for right fit. This will save you wasted time visiting job sites that are not a right fit.
- Have a checklist to save time when doing the walkthrough.
- Leave a marketing packet when doing a site visit that highlights testimonials, insurance, company values, your process, what they can expect, etc. This builds “know like and trust” by showing them you are legitimate and have credibility.
- Present proposals in person or at least with a Zoom. A personal engagement for presenting bids is rare these days. If you want to close more jobs, present “live.”
- Follow up at an agreed upon date and time.
If you do these two things in production, your you’ll make a more consistent profit, save time, and help your team produce a more consistent result.
- Have a hand-off process that clearly outlines what is and is not included in scope, AND tells the foreman how many hours they have to do the project.
- Do 2 week “look aheads” that plan for needed labor, materials, and help the field plan in advance and not be “in the moment.” This will let them be more effective and save you a lot of time.
Business owners think of accounting as an expense and not something that contributes to the profitability. But nothing could be further from the truth. Having an accounting department with a regular schedule to plan around is a huge asset when you do these things consistently:
- Create an accounting calendar to plan for payroll, accounts payable, billing, etc. so that are done on a regular schedule so you can get project feedback quickly and regularly.
- Ensure there are not duplicate payments, misappropriation in spending, and looking for ways to reduce expenses.
- Provide production with weekly hours burned against budget reports and alert PM to potential overages
Looking at information and feedback on a regular basis is critical to making a consistent profit. When you can see it, you can do something about it. I recommend monthly check-ins on:
- Weekly review of actual hours burned vs. the budget
- Review company P&L compared to and operating budget that you established at the beginning of the year. The best way to make a consistent profit is to plan for it with an operating budget and then evaluate results against your plan monthly.
- Cash Flow projections that show where you headed with cash before you get there so you don’t have unpleasant surprises.
- Project Management
Since project management is all about on time, on budget as promised, then managing key results against each of those is your key to making a consistent profits. Here are a few suggestions:
- Updating project schedules every two weeks (or more often). Managing to a schedule is a key way to see if you’re headed in the right direction.
- Using that information, with historical cost data and committed cost information, do cost-to-complete projections once a month.
- Stay in front of the client relationship and expectations by having consistent client meetings on a regularly scheduled basis.
Finally, look at your company overall at least once a year and answer these questions so you can know if the projects your doing and the way your performing is allowing you to maximize your profits:
- Identify which projects are most profitable for your company so you can target doing more of them.
- Look at who your ideal clients is and make sure your marketing and screening process focuses there.
- Evaluate what types of projects play to your strengths and allow you to do your best work.
- Look at each area of your business and identify if there are profits bleeding out.
Now that you we’ve identified the various ways to improve the profitability of your business, did any one or two jump out at you?
I’ve developed this easy to use FREE Business Health Assessment (and Scorecard) tool that can help you. It allows you to rate how you’re doing on each of the areas I outlined above. Filling this in (it only takes a few minutes) will help you decide what the 3 most important area for you to focus on in this next year.
One last note about this topic… In my book, The Profit Bleed, I share a lot of tools and resources that you can help you make improvements in each of these areas. You can get it for FREE too! Just pay shipping and handling of $7.95. Make sure to take a look at the bundle of pre-packaged resources when you check out that will let you have access to all the tools to get you started right now.
May this next year be your best one yet!
PPS. Get my book, The Profit Bleed – full of amazing tools and resources you can use right now to help you implement the changes you want to make in your company this year.
Vicki Suiter helps people see their businesses differently, then gives them the tools to do things differently. Since beginning her business in 1990, Vicki has helped hundreds of contractors achieve the kind of success they never dreamed possible. Today, in addition to consulting, Vicki is an in-demand speaker at industry conferences nationally and internationally. Vicki’s articles and opinions have been widely shared in print and across the web. She is also the author of the book “The Profit Bleed” How managing margin can save your contracting business.