Health Check Up for your Construction Business

Just as you need an annual health check up, so does your business in order to head off any problems before they become serious.  Now is the time when companies need to critically analyze their operations and put together a plan to position themselves to manage risks and capitalize on future opportunities. The following performance areas will help you evaluate your company's strengths and weaknesses and the general condition of your business so you can set realistic goals for the coming year.  As you go through the four performance areas below, don't focus solely on survival or you will miss opportunities. 

1. Financial Performance - Your  history

The financial performance of your organization is available from your Income Statements (profit and loss) that show your budgeted sales and expenses for each month versus your actual performance.  You need to receive your financial statements by the 15th day of the following month to be able to quickly compare actual performance with your expectations.    The more detail you can have such as a comparison to your previous year by month and by quarter and how profitable you are by products/services and departments will help you drill down into details that will reveal the health of your business.    

The goal in reviewing your financial performance is not just to know how much money you are making but, a) what is your return on investment, b) whether you are covering inflationary changes in sales pricing, materials/purchases costs and wages and c) your annual rate of return on your personal investments in money markets, stocks, and so on. A strong balance sheet can help a company capitalize on future opportunities.

A key indicator of your financial health is the measure of your cashflow, all income before non-cash items such as depreciation.  Make sure it is safely above all your fixed monthly recurring costs.  In the short run, even employee costs are fixed costs but this must be considered a variable cost that can and should be cut if your cash flow surplus is too small.

After identifying risks, areas for improvement and possible opportunities, call a meeting with managers and key operating employees to discuss your findings.  Next, form a task force of individuals who are committed to developing and implementing a plan. This task force should include management and key operating employees as well as trusted advisers, e.g., bankers and CPAs. 

Your plan should center around cash flow. Analyze assets that can be converted to cash, such as accounts receivables, dead or slow-moving inventory, and nonproducing property and equipment. Evaluate debt and, if needed, contact key creditors to begin working out extended payment schedules and terms for current purchases. Keep your lines of credit. While this may be challenging in today's banking environment take steps to preserve your lending relationship and share this plan with your banker.

Look for other signs of trouble in your company such as: increasing and longer aging of receivables, too much inventory, dwindling credit lines, declining debt/equity ratio, decreasing profit margins, diminishing sales and missed sales forecasts, lost clients and market share, increasing overhead costs, and more short-term liabilities than liquid assets.

The key to survival in tough times is through continuous measurement of your cash flow compared to your fixed and variable costs.  The key to positioning yourself for the future is to implement a sound plan based on the results of your analysis.

2. Marketing Performance

Besides having your pulse on sales, there are many marketing issues and concerns that business owners need to be monitoring.  Marketing is not just about the ways you market your business, it requires long-term business strategies that include your product/service, pricing, supply chain issues and competitive factors  that are based on client knowledge and customer service.  In addition, your company needs to be on top of why clients leave you, buy less or buy more and any other factors from your clients that are impacting your business.