This is a guest post from the Construction legend Paul Netscher. The following text can save you $$$ if you apply the principles to your business!
What does it take to be a successful contractor?
Many good tradespeople (plumbers, electricians, carpenters, bricklayers, etc) yearn to start their own business. Many do, but unfortunately, lots fail. Regrettably, this failure comes at a cost, both monetary and emotionally. Some even leave the industry after this foray into business ownership which is unfortunate for the construction industry as we need all the good skilled people we can get.
We even frequently read about large construction companies running into financial woes, much declaring bankruptcy. Some of these companies were doing well, expanding, constructing prestigious projects, making money, then, almost suddenly things appear to fall apart.
So why do so many construction companies hit troubled waters, and is there a magical solution to success?
My book ‘Building a Successful Construction Company: The Practical Guide’ is aimed at providing some useful tips. But in this article, I want to set out a few simple steps which I consider vital if you are going to make your construction company successful – how you can be a good contractor.
Understand construction and construction processes
None of us knows everything about construction, but we know the basics of the processes and employ experts or consult people with the appropriate knowledge to cover where we don’t have expertise. If you don’t understand the basics there will be mistakes. Just because you understand one trade probably won’t make you a good contractor unless you employ a good team to fill the gaps.
Construction management is 90% communication. It may be written or verbal. From marketing your company to clients, to submitting tenders, negotiating contracts, managing your team, liaising with designers, neighbours, local authorities and the client, it’s all about communication – motivating, persuading, listening, explaining, mentoring, negotiating.
The ability to plan
When I talk about planning I’m not just talking about preparing the construction schedule or programme which is an important part of a project. It’s about deciding on construction methodologies, organising resources and materials and coordinating construction. The planning starts before the project begins, and then includes planning on a daily and weekly basis. Things will change, there will be surprises and not everything will go as expected so you will need to alter and adapt plans.
Many contractors are really bad when it comes to the financial side of their business. They don’t invoice for work completed, don’t follow up with unpaid invoices and they do work for free. If it’s extra, claim for it. If you have done the work make sure you are paid. Poor cash flow sinks more companies than any other factor. No matter how profitable your projects are, if the money coming into the company doesn’t exceed the money flowing out of the company then you will go bankrupt. Expanding too quickly is often a major cause of poor cash flow. Learn to manage your cash.
Understand your contract. If in doubt, ask an expert. Don’t only look at the contract when you are in trouble. Read the contract before you price the project. Read the contract before you start the project. Understand what your obligations are in terms of the contract and ensure you comply. Of course, make sure that your client complies with their obligations. The contract is there to protect the contractor and the client. Failure to understand and comply with the contract will cost you money.
Paperwork, paperwork and records
If it’s not in writing it doesn’t exist. If you can’t find the document it does as good as not exist. You may have a verbal agreement, you may have told a person on the phone, but believe me, we all have poor memories when we are in trouble. Follow up all verbal discussions of a contractual or monetary nature in writing. (Hint: LetsBuild automatically generates this paper trail for you)
Many small contractors are appalling at managing paper. From lost receipts, to executing work without a contract, it’s probably money falling out of your pocket. In this day and age it is a poor excuse to lose a document or not have the relevant document. Make sure you implement proper filing systems where all documents can be found.
Think of it as if you might get run over by a bus tonight and someone new has to walk in tomorrow and take over your job – will they find everything they need to, or are they going to be searching computers, files and drawers before they can even start? Of course with paperwork make sure that it agrees. So often what’s recorded in meetings is different to what is in reports and daily diaries. Get it right.
Understand and mitigate the risks
Some contractors are just bad at understanding and mitigating risks. They literally don’t see the train coming until they have been run down. Every project has risks. Will you get paid, will you finish on time, what will the weather do, will your subcontractors perform, will you get resources, etc. You can’t price all the risks, neither can you worry about the risks – but you do need to manage them where possible, be aware of them so you take early warning that one of them may eventuate and ensure if the worst case happens it doesn’t sink your company.
Project Managers have to multitask – smoothly switching from solving one problem to the next, while dealing with queries, interruptions, the everyday running of a project and planning your projects. Often major decisions have to be made in a short time. To procrastinate and not make a decision can sometimes be worse than making the wrong decision. But do consider the implications of your decisions.
Teamwork and delegation
A project isn’t built by one person, and a company doesn’t run with one person. From suppliers, subcontractors to individuals, you need to build a good team. A team you can depend on, a team where you understand individual’s strengths, so you can use them, and where you understand and support weaknesses. You need to coordinate and manage the team, delegating responsibilities. Your team needs to understand their responsibilities.
Construction is a peoples’ business. If you are a contractor you will have to interact with a wide variety of people from clients, bankers, supervisors, to labourers. They will come from all walks of life, different backgrounds with different levels of education. To be successful you will need to understand them and work with them.
Price your projects correctly
Many projects are doomed to failure before they even start. They are priced incorrectly. Too low and you lose money when you do the work. Too high and you aren’t awarded the project. To price a project correctly means you need to understand what you have to do, how you are going to do it and by when it must be done. Sounds basic yet some contractors just blunder in pricing a job, and then only realise what they have let themselves in for once they start the project.
If your company doesn’t have work it will fail. You need to be able to market your company. This marketing will depend on the type of client, the area you are working in and the size of project. You have to be able to sell your company’s expertise to the right clients. Marketing is something that should naturally happen almost on a daily basis – always be ready to tell people about your company and have business cards handy.
Construction isn’t just about having some knowledge of construction, or focussing only on building a project. You need to be like a juggler, focussing on many objects at the same time – you drop one and that can mean the end of the show. If you don’t market your company correctly, don’t price a project properly, deliver a project late, produce poor quality, don’t get paid or misunderstand your contract, it could see the end of your company. But above all you need a good team that you can rely on.
(Written by Paul Netscher the author of the acclaimed books ‘Successful Construction Project Management: The Practical Guide’ and ‘Building a Successful Construction Company: The Practical Guide’. Both books are available in paperback and e-book from Amazon and other retail outlets. This article is adapted from information included in these books. To read more visit www.pn-projectmanagement.com ) © 2015
This article is not to be reproduced for commercial purposes without written permission from the author.