Guest Blog: 10 Reasons Why Contractors Fail!

Written By: Gary S Goldman
Business & Management Consultants to the Construction Trades

We spend a lot of time maintaining the trucks, loaders, mowers, trimmers, and blowers that we purchase. However, many contractors do not see the need to perform “preventive maintenance” on their business operations. In these times of uncertainty, I am seeing more and business, struggling to keep their “bottom line” in the black. In most situations it has nothing to do with quality of the product or service that the company offers to its clients. Most contractors that I work with are excellent craftsman.

The problems that many business owners are faced with are not derived from the lack work and backlog. The majority of the contractors that I work with have more work than they can handle.

Watching a business die is never easy, if for no other reason that it can happen in so many different ways. And, no matter what the cause, it’s never funny. Here, in the hope that a bit of foreknowledge may make a dent in the death rate, are 10 of the most popular reasons contracting businesses fail:

1. UNDERCAPITALIZATION. Money’s not only the root of all evil; it may well be the leading cause of business failures among contractors. Far to many contractors underestimate how much money they are going to need, not merely to get the business up and running, but also to sustain it as it struggles to gain a commercial foothold. Once you start out undercapitalized, that can start a downward spiral from which you can never catch up. 
2. BAD CASH FLOW. This is the macabre cousin to inadequate capital. Even businesses that move past the embryonic stage often collapse when incoming cash doesn’t at least offset expenses and other costs. Watch your cash “burn rate” by not falling into the trap of confusing cash receipts, or a positive cash flow, with excess cash. Once you spend it you cannot get it back. Understand the importance of monthly budgets and cash flow projections. They are great tools that will help you manage your business. When it comes down to it, cash is what really counts. 
3. INADEQUATE PLANNING. Not surprisingly, this is the reason problems like capitalization and bad cash flow happen in the first place. It’s critical that you map out as comprehensive a business plan as possible, covering financial issues, marketing, operations, growth and an array of other elements. Granted, it can be time consuming, as a well-prepared plan can take weeks or months to complete. That’s the time to find out an idea may not work. If you don’t plan and still go ahead, you may end up with heartache and thousands of dollars down the drain. 
4. A COMPETITIVE EDGE. Genuinely unique ideas are as rare as honest CEOs these days, but it’s still critical that your business gain a toehold in some sort of singular niche that you can exploit. Be it a slightly different service or customer support that goes beyond your competitors; earmark that one element that sets your business apart. Too many contractors are simply “me too” operations. Make sure something is unique or different.
5. MUSHY MARKETING. Your mother knows your special, but what about your prospective and current customers? It essential to develop a marketing strategy not merely to identify who might buy from you, but why. Make certain your marketing strategy sets you apart so a customer can clearly see why they would rather work with your company than a competitor.
6. INADEQUATE FLEXIBILITY. From stacks of cash to battalions of seasoned employees, every small-business owner knows the advantages a larger competitor brings to the game. Well, one thing they can’t necessarily do is turn on a dime, something smaller companies can exploit. Never forget to remain flexible. If a service isn’t quite right or a marketing campaign isn’t really flying, don’t be afraid to tinker. Making those sort of in-course adjustments is much more unwieldy for the big guys.
7. IGNORING THE NEXT STEP. Make sure you and your people emphasize complete customer support, from doing things you don’t have to offering thoughtful, useful advice that goes beyond the ordinary. Make sure that all members of your staff focus on quality, service, responsiveness, and value. All members of your staff need to be focused on operating in a proactive manner. This mindset often gets lost in the hustle and bustle of your day-to-day activities. However, it is essential for the growth and continued success of your business.
8. FORGETTING THERE”S NO “S” ON YOUR CHEST. Entrepreneurs are a smart, resourceful bunch, but running a small business carries its share of hidden kryptonite. Don’t try to be all things to your business. If you cringe at the thought of maintaining complete books, don’t hesitate to hook up with a good bookkeeper. When a legal issue crops up, don’t rely on your home-baked juris doctorate to evaluate the legal ramifications. Establish a long-term relationship with an attorney; preferably one with small-business acumen.
9. GREAT BOSS, MEDIOCRE STAFF. Inexperienced and unmotivated employees can often bring down a solid business with a knowledgeable, enthusiastic owner. Make certain your employees are well trained, fairly compensated, and somehow share in the fire that burns in your belly. 
10. UNCONTROLLED GROWTH. Ironic as it seems, but a small business that simply succeeds to quickly often pushes itself into an early grave. If your production fails to keep pace with demand or necessary expansion coincides with insufficient cash, the growth you dream about as an entrepreneur can actually threaten your business’ very existence. Again, cover foreseeable growth in your original plan and track it adequately to make certain that it never gets dangerously out of hand. 

If you feel that your company is suffering from any of these “symptoms” do not panic. In fact, it is not uncommon for a business to have these types of problems as it progresses toward its long-term goals and objectives. What is important is the ability to have a system in place to identify the various problems and take the necessary corrective action.

I have developed a simple process that allows you to take a proactive approach to help you manage your organization. I recommend that you perform a B.E.A.R., Business Evaluation And Review, on an annual basis. Conducting a B.E.A.R. is nothing more than a “preventive maintenance program” on the operations of your business.

You will be conducting a comprehensive evaluation, review, and analysis of 6 key components of your business operations & procedures. The internal audit that you will be conducting will focus on the following:

1. Management and Administration
2. Marketing & Sales
3. Contract Administration
4. Field Production
5. Finance & Accounting

Each of the above components will be sub categorized and analyzed to determine if there are standard operating systems, procedures, and processes in place. If they exist they should be reviewed to make sure that they are meeting the needs of your organization. Where it is identified that they are lacking or non-existent, you will need to determine how they will be implemented.

The B.E.A.R should be conducted on an annual basis prior to the preparation of your annual budget and any goals that you may be setting for the upcoming year. That will give you the opportunity to take the appropriate corrective action and move forward.

The first objective of the B.E.A.R is to provide you with the information that you need to manage your business efficiently, profitably, and with confidence. Secondly, this evaluation will help create a degree of standardization within your company. Company wide standards are an integral component in maintaining quality control within your organization.

This will result in more efficiently, professionally completed jobs which directly equals greater profit not only financially for your company, but also for the client from a satisfaction standpoint. You will also benefit because employees at all levels, administrative through production, will enjoy coming to work where well defined practices, policies, and procedures clearly outline what is expected of them.

Your business needs to be monitored on a regular basis. Conducting a B.E.A.R on an annual basis is only one faucet of the monitoring process. You need to get in the habit of performing monthly operating reviews to be sure that what you projected and planned is really happening.

By grabbing control of your business and keeping it running at peak performance, you will increase your odds for long-term success and profitability. And most important, you will have a good time doing it! Remember, the “secret of getting ahead is getting started”.

Where are Consumers Spending their Money?

BBB offers a free online service, Consumer Purchase Planning Trends. This service is offered exclusively on BBB’s website and indicates current purchasing trends made by consumers for ten different industries. 

Business owners can check out the purchase planning trends from the last six to thirty-six months, which is a great indicator for future purchases. Each month the public checks out a business with BBB serving Eastern Massachusetts, Maine, Rhode Island and Vermont, over 300,000 times.

Last month, Home Remodeling, Construction & Maintenance saw a 2.01% increase in consumer purchase planning in June 2013 from May 2013, with 96,897 inquiries.

The purchase planning information will help predict where consumers are thinking of spending their money on a monthly basis.

To take advantage of this new feature or to learn more, visit bbb.org/boston/public/trends.

OSHA in the Workplace

If you operate in the construction or manufacturing industry, you’re likely familiar with the Occupational Safety & Health Administration, or OSHA. OSHA can be a scary acronym, but understanding their practices and why they’re important can alleviate some of that confusion and stress.

We've compiled some basic tips when communicating with OSHA before and during an inspection:

• OSHA exists to ensure safe working conditions, and to help you avoid citations rather than just give them.
• When an OSHA Inspector arrives at your office, factory or construction site, it’s perfectly acceptable to ask for their credentials and verify they are who they say they are. If something seems not quite right, call the OSHA regional office.
• Wait until the proper person arrives before authorizing the inspection to begin. The Inspector may have a lot of questions regarding safety and business practices, and you want to have a properly-trained employee there to answer these questions.
• Keep copies of any documentation provided to OSHA during the inspection, and try and record the things they are recording. Inspections may result in further questions and investigations, and you want to have comprehensive documents to refer to.
• If you’re issued citations you agree with, pay them! You will have a limited time frame to make payment, or penalties may be issued.
• If you’re issued any citations you don’t agree with, take the extra step to set up an informal conference. Present your side of the story, give evidence, bring records, and show good faith efforts for your corrective actions.

So what can you do to be ready?

• Train your employees! Especially the person at the front desk, or the first point of contact for your business.
• Make a checklist with a “What to Expect” list for your employees. OSHA Inspectors often arrive after unexpected accidents—you don’t want confused employees assisting an Inspector during a potentially critical time.
• Make a readily-available inspection kit. Include contact numbers (HR, store manager, etc.), camera, pencils/pens and measuring tape.
• Review your safety policy ever 7 years, and have appropriate training so employees know it’s serious and relevant.
• Post safety and labor-related posters in well-seen areas, and update them frequently.
• Contact OSHA to find out which safety standards apply to your business and implement policies specific to those standards.

It's important to keep safety a top priority. If a citation is discovered, it will be a fine. Non-payment of fines and failure to correct issues can end up being extremely costly to your business and sometimes you perso
nally.