John is a typical contractor. He's up and out early in the morning and in late at night. While his wife keeps the books for the construction business she has a little business on the side, a health club for women. Together they have raised two boys; one is in the construction company while the other is in college with no plans to enter the profession of his father.
What makes John typical is that he is hardworking, liked by most of his workers and customers, stays busy most of the year, and seems to always be looking to expand his company but just hasn't found the right time or needed amount of resources. When John asked me to help him grow his business the first question I asked was, "Do you have a business plan?" John's answer was consistent with most contractors, "I've never had the time to develop one." Typical!
Taking your business to greater achievements without a business plan is akin to taking your family on a vacation to no where in particular and not realizing when you have arrived at your destination. OK, OK, maybe that is a bit dramatic. The only saving grace about the failed vacation trip is that you probably didn't flirt with financial disaster. Conversely, you are clearly raising the likelihood of such a financial catastrophe if you do not have a business plan for your company.
I have been working with contractors (like the fictitious John addressed above) for more than twenty years and it continues to amaze me how many contractors are working, some very successfully, on borrowed time. This statement should not intimidate you as much as it should motivate you to pull a plan together for your business that provides direction, believable action steps, and measurements to assist in the "map reading."
While there can be much to include in building a business plan, let me share with you the three primary sections. First, there is the direction that the company sets out to follow. The direction certainly embraces the vision of the contractor for his or her business. Questions such as, "Where are we going? What markets do we want to move into? and, How big do we want to become?" are all questions that should be honestly discussed and answered within this first section.
Business planning looks at the future through more quantifiable lenses. It incorporates a strategic focus, i.e. "Where are we going?", and puts more tangible steps in place. Most of the better contractors I work with have a burning desire to quantify where they are going to direct the company. They set financial objectives, they specify the markets they want to dominate, and they set targets of accomplishments that objectively state where they are going to be at specific points in the future. This might also include how much volume of production they want to contract for during the year such as total yards of concrete poured or finished or square feet of formwork or perhaps how many pavers to install on a weekly or monthly basis.
The direction set out by the business plan should clearly state what markets will be entered or maintained, what resources will be needed to meet the market objectives including the type of workers and equipment, and what the financial requirements to secure such resources will be. The financial requirements will require the creation of a budget, something that many contractors wait way too long to create.
Once the direction is developed it is then critical to create action steps to bring the plans to life. Thus a second section of the business plan is the section that most contractors have little problem creating. This is the tactical effort that most contractors are more comfortable committing to. The key here is to create action steps that are believable. Believable does not suggest that the steps should be easy, but rather, that the steps are justified due to the amount of experience, type of resources, and a method for deployment that the leaders all understand and are committed to.
One brief example of action steps in place might be the decision to add another service to your business. For instance, let us look at a flatwork concrete contractor who is adding concrete counter tops to their field of services. The action steps might include the following list of items.
- Identify best market for concrete counter top opportunities.
- Review current clients with potential for concrete counter tops.
- Determine needed expertise for forming, pouring, and finishing counter tops.
- Determine needed tools and equipment for concrete counter tops.
- Set realistic goals for concrete counter top revenue for first three years. (Determine optimum profit potential.)
- Purchase needed equipment and tools.
- Hire needed workers for selling and producing concrete counter tops or train existing employees to do.
- Look at marketing strategies and needed marketing budget to support new sales.
- Make the monitoring of concrete counter top revenues, gross margin, etc. part of the company's overall effort to monitor business.
The actionable steps outlined above are completely different than how many contractors make the decision to add a service. Far too many contractors make the decision on the fly, almost as a knee jerk response to one customer that has a need. While there are spontaneous decisions to add a service that work out, such decisions more often leave a contractor having purchased tools and equipment that are rarely used in the future.
The third section of a business plan requires more consistency on the part of the contractor. Reading the financials for a business has become a recognized need for successful contractors. More than reading their Profit & Loss Statements or studying their Balance Statements, successful contractors incorporate this third business plan component to create monitoring processes that measure the success of their business objectives. Once again it will take some very practical measurements that can be easily tracked.
While you can measure just about anything you want, consider the following targets that might signal if your business planning efforts are taking the company in the right direction.
- Gross Profit for each job completed.
- Percentage material use against estimate.
- Percentage hours worked against estimate.
- Percentage bids won against bids created.
- Percentage bids won against goal per market type.
- Overtime hours worked versus overtime hours budgeted.
- Customer call-backs versus customer call-back target.
Each target above should be quantified if possible. Certainly the items addressed above can be. However, there may be other signs of a growing business that can be difficult to measure. For instance: Does the customer like our company? If so, how much? How will our construction success positively impact our future growth? How can we determine if our customers would purchase more services from our company?
The questions just shared are important to address but admittedly difficult to measure. However, the successful contractor seems to find the method to determine what those answers are and then determine a way to incorporate such feedback into their future plans for success.
For many measurable items, there should be targets created on a weekly, monthly, quarterly, and annual basis. Targets need to be clearly and regularly communicated to the workers who most impact the results. Remember, what is not regularly discussed is quickly forgotten.
Effective business planning requires focused attention by owners and their senior leaders. It is more than simply putting some goals out there and then making a mad scramble to reach the goals. Business planning forces leaders to think more logically, methodically, while also allowing enough wiggle room for adjustments and changes throughout the journey.
If you have never developed a business plan start working on developing yours as soon as possible. There really is not a bad time to create your business plan. You will find however that reviewing and updating your business plans in the future should be done in preparation for each new business year.
If you are a business plan user already don't be limited by what you've already done but rather look to expand the impact that your business plan can have on your business. The more you understand your business the more effective you will be at making better decisions and preparing your business to be led, even transitioned to future leaders and owners.
For more information about business planning contact Brad Humphrey at firstname.lastname@example.org. Brad is President of Pinnacle Development Group, a consulting firm that specializes in the construction industry. Brad is also Co-founder of www.GangBoxInc.com , an educational "tool box" for contractors with CDs, DVDs, and books on leadership, strategic planning, business planning, supervisory skills, teambuilding, job site planning, and many other topics.