You Need A Business Plan!

Taking your business to greater achievements without a business plan is akin to taking your family on a vacation to nowhere 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 — but you are directly raising the likelihood of such a catastrophe if you do not have a business plan for your company.

I have been working with contractors for more than 20 years now 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."

Business planning looks at the future through quantifiable lenses. It incorporates a strategic focus ("Where are we going?") and puts 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.

1. 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.

The direction set out by the business plan should clearly include what markets will be attacked, what resources will be needed to meet the market objectives (including type of workers and equipment), and what the financial requirements will be. The financial requirements will require the creation of a budget, something that many contractors wait way too long to create.

2. Once the direction is developed it is then critical to create action steps to bring the plans to life. This step is easy for most contractors as 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 by the experience, type of resources, and method for deployment that the leaders understand and are committed to.

Consider a pavement maintenance contractor who is adding power washing to her services. The action steps might include the following:

  • Identify best market for power washing opportunities.
  • Review current clients with potential for power washing work.
  • Determine needed expertise for power washing.
  • Determine needed tools and equipment for power washing.
  • Set realistic goals for power wash revenue. (Determine optimum profit potential.)
  • Purchase tools and equipment.
  • Hire needed workers for power washing or train existing employees.
  • Incorporate power washing into proposals that warrant its presence.
  • Monitor power washing revenue, gross margin, and percentage contribution to overall projects.

Far too many contractors make the decision on the fly, almost as a knee-jerk response to one customer with a need. While there are spontaneous decisions to add a service that work out, such decisions more often leave a contractor having purchased equipment that is rarely used in the future.

3. Create a monitoring process that measures your success. Use practical measurements that can be easily tracked, such as:

  • Gross profit for each job.
  • Material use and hours worked vs. estimate.
  • Bids won vs. bids created.
  • Bids won vs. goal per market type.
  • Overtime worked vs. budgeted.
  • Call-backs vs. call-back target.

Each target above should be calculated. For many of the 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 constant attention by owners and senior leaders. It is more than simply putting some goals out there and then making a mad scramble to reach them. Business planning forces leaders to think more logically and methodically, while also allowing enough wiggle room for adjustments and changes throughout the journey.

Brad Humphrey is president of Pinnacle Development Group, a consulting firm that specializes in the construction industry. A regular contributor to this magazine for more than 10 years, Brad will be presenting The Right Business Plan for the Right Time at this year's NPE West conference, Nov. 17-19 in Las Vegas. For more information on business planning, contact Brad at Humphrey.brad@gmail.com.

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