Continuous Improvement Required

Each day you can pick up a newspaper or magazine or, more likely, read an e-mail that discusses how every type of business on the planet is taking steps to improve its operations, reduce costs, get more efficient, increase sales, reduce inventories, outsource manufacturing, close locations, etc. The speed at which business is changing is almost insane, and impossible to comprehend.

As contractors, you have to decide whether your company is playing in the improvement "sandbox", or has no idea where the sandbox is. Construction firms caught up in the stream of things:

  • are holding weekly management meetings;
  • are training their people;
  • participate in seminars and conventions to gain knowledge about current events;
  • know what metrics they need to hit to make money;
  • have a strategic plan in place that gets updated annually;
  • are not overpaying taxes;
  • are not paying more than market interest rates;
  • are in the upper echelon on the pre-tax profit scale.

In short, they are in great shape; they understand where they are at and where they plan to be. You know these firms. Hopefully, yours is one of them.

The remaining contractors just don't seem to get it. They may get together with their managers once a month or quarterly. Their accounting department is always three months behind and they can't figure out why. They don't know what they are spending on IT, or what they are missing by not having the latest system upgrade. They are short of cash because the receivables are not billed in a timely manner. Their internal financial information is lacking and they don't know if they are making money or not. I'm sure you also recognize these types of players. Hopefully, your company isn't one of them.

Guess what? It's time to take off your shoes, turn them over and see if you have any sand in them. If not, you better start looking for the sandbox, because all of the guys already there are soon going to kick your butt in the market. Believe it.

A starting point
Don't kid yourself - every process in your market is getting updated daily. People are finding new equipment to use and additional ways to use it; new products to make them more efficient; new means to finance the business; new methods to get more done during a typical workday; and new ways to find and keep good help.

The question is: what are you doing to improve your situation?

Every contractor needs to keep improving, even though you're in somewhat of a "commodity" business. Even commodity businesses can do a lot of things better if they put their minds to it.

For many business owners, the problem is where to start. If you looked in the mirror and decided you're not a player and want to be, what do you need to do? You need to start with small steps, then move forward, one step at a time, until you get caught up.

First off, you should get an industry performance analysis report to help you see where you are and what needs fixing. This type of report is one of the best indicators you can have. It allows you to compile your financial data, then perform an "apples to apples" comparison of your balance sheet and income statement. It will also point out the most critical areas needing your attention.

You don't have to wait for the 2006 report. You can compare your data to last year's report to get started. It will cost you a few bucks, but will be well worth it. Having your accounting department say they don't have time to do this is 100% unacceptable. What could be more important if you think you are behind the power curve?

After you get your copy of the report, visit with someone already "in the sandbox" - someone in the same business who is willing to talk to you - and see where you are going wrong and what you could do about it.

Focus on payback
With this information in hand, hit the biggest payback items first, which may be balance sheet oriented.

  1. Get the billing out every day. If you can't, find out why. Tweak the system and procedures until you can.
  2. Track your payroll and other major costs every day. Inquire about unusual items.
  3. Check all the procedures for job management. Don't allow excess hours without approval.
  4. Check your outstanding receivables list. If you are out of sync with the industry curve for "days outstanding", take immediate steps to collect. Hire a part-timer, if needed, to help with the process.
  5. Is the accounting department getting it done? If not, upgrade the staff or get some experienced part-time help. Have your senior accounting staff do the accounting, not paper pushing or bookkeeping. There aren't many good CFO types available these days. If you have a good one, keep him or her around and get them what they need to get the books closed on the 15th day of the month every month

Above all, decide on what priorities you have to address to be able to move your business into the sandbox. Then do what it takes to get there.???

Garry Bartecki is director of dealer/distributor services at BDO Seidman, LLP of Chicago, as well as a consultant to the AED. He has also worked as an independent CPA and consultant to equipment dealers. He can be reached at (312) 616-4677 or gbartecki@bdo.com.

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