If your fiscal year is January through December, you are about half-way through the year. Even if your fiscal has different starting and ending points the year is technically just about half over.
So my questions to you are:
- Are things for your company better or worse than what you expected?
- What changes have you made to adapt to your markets?
- What changes do you still need to consider and execute in order to survive these times?
It wasn't long ago that the U.S. economy was humming along and came to what appeared to be a fairly sudden halt. Some of you have gone through dramatic changes in just a matter of months. The one thing we always knew to be true is now a reality. It is far easier to run a business during good times than bad.
Over the last six months or so we have been trying to help guide you through these difficult times with advice and suggestions. This article is going to recap some of the things we have covered and add a few new helpful tidbits.
One of the things we have noticed in our consulting practice over the last several months is there is more bid activity than normal. If a typical project had 3 - 4 bidders, that number now may be doubled. Consequently, if we examine the odds strictly a statistical level, your chances to win may have gone from 25% down to 10 - 12%. If you are not typically a low cost producer your success rate will plummet even further. If this is the case, you have a few choices.
Gain efficiencies to be more competitive and/or spend more time going after negotiated work. Granted the selling cycle for negotiated work may be longer, however, it is usually more fruitful over the long haul. Believe it or not, there are still plenty of companies that require a high level of service and demand quality. This type of client is not typically served well by low cost producers. If you fit in this group, prepare to enhance your customer service and attention to detail to meet client expectations.
If you fall into the price competitive category, honing your true costs is now more important than ever. We see more bid tabulations where contractors are one percent or less apart. Even if you are winning these projects, your margins are getting squeezed. Again tweaking the amount of time, material, and equipment resources correctly is paramount to making profit on each project. Speaking of profit, it is important to know your overhead multiplier and make sure you are minimally making your contribution to overhead. Adding your direct costs to your overhead burden will determine your break even.
Most companies have already gone through at least one phase of cost cutting. Figuring out where to cut expenses and how they impact your company can be a challenge. One client recently eliminated the cell portion of several phones where only the Nextel push-to-talk feature was needed. This related to a savings of approximately $750.00 per month.
Obviously for our U.S. readers, market trends are specific to different trades and geographic areas. On average most companies are 10 - 30% below last year's sales numbers. Margins overall are also down. For most, this is tolerable with proper planning.
Realistically, companies that budget are taking this into consideration. The goal is to make enough profit in the peak times to absorb the expenses during slower business cycles. It is important to create a cushion or reserve if you are going to have the staying power that is needed to survive some extended slow periods.
We advised those that are burdened with high equipment debt to avoid additional purchases and consider renting until your debt to equity ratio improves. For the few who are cash rich we have seen incredible buys on used equipment. Some slightly used pieces less than four years old going for 25 -35% of their original list price. Even at bargain basement prices we still advise only purchase what you really need.
Surviving and succeeding is just as much psychological as it is being smart. Keeping your company motivated through budget cuts, layoffs, and reduced overtime is a huge challenge.
Constant communication usually works best. Employees, vendors, and customers not only prefer but insist on honesty. It is better to bear bad news sooner than drag it on and try and cover it up. Employees are especially perceptive. They may overhear part of a conversation that is one-sided and come away with the wrong perception. Spend more time communicating why certain decisions that may seem contrary to what was typically done in the past have changed.
It is sometimes necessary to trim personnel. It is critical to prune the people who make the least contributions or are adversarial. Do not make your decision strictly on dollars and cents. Performance, loyalty, and especially flexibility are key traits. Team members who are willing to take on extra work load without complaint or perform tasks that are not typical of their training or job description are immensely valuable.
Very few contracting companies are great marketers and/or stellar sales performers. Let's face it... The industry has predominately been an estimating focused arena. Marketing can get you great opportunities if you are marketing to the right market segments. As I teach in my "Revving Up Your Sales Engine" seminars two of the most important parts of the sales process are qualifying prospects and following up on quotes. Think about your time. If you spend too much time chasing the wrong prospects that are not in a position to buy you are wasting precious time. Additionally, if you invest several hours in a quote it is worth a few five minute phone calls to follow-up with that prospect and close the deal.
There is no such thing as a FREE ESTIMATE. You may not charge for them but they do have a cost. You are not in the business to give free estimates...but you are in the business to sell jobs.
If you don't have a strategy, I would suggest reading our recent article on strategy. This is a time of change and we are change agents. We embrace improvements and many of you will be leaner and stronger on the other side of the tunnel. It is not too late to make changes so stay positive and go for it.
Ron Roberts teams with Guy Gruenberg as The Contractor's Business Coach. They show contractors how to grow their businesses profitably. To sign up for their FREE Newsletter or join their Private Club, visit www.FilthyRichContractor.com.
Additional resources that build on the topics from this article
Adapt to your markets
Enhance your customer service
Meet client expectations
Keeping your company motivated