In times of economic uncertainty, many contractors wonder how or if they'll survive. It seems as if the solution is working harder or reducing prices, but while this will make you tired and possibly bankrupt your company, it will not build a sustainably successful business. So what's the answer?
The answer is simple - when you are clear. The basic principle’s I’ll share with you here are the ones that I've seen successful contractors employ and are proven to stack the odds in your favor of weathering any downturns in the economy. Being clear about where you are, where you are headed and how you are going to get there will make all the difference.
The following steps are ones taken by some of the most successful businesses in the world and are standard operating procedures for how they do business. By employing these practices in your business, you will build a more sustainably successful organization.
Step #1 - Have a mission that defines where you are headed
Know where you want to go with your business. A good mission should:
- Provide direction
- Promote a sense of shared purpose
- Give a clear idea of the results or outcome that is expected
Step #2 - Create a strategic plan for the year
This doesn't have to be complicated. Identify the three most important things your company should focus on in the coming year in order to accomplish the mission you set in Step #1.
- Make a list of what is working and not working currently and what needs to be different in your business to accomplish your mission
- Of the items you identified as not working or need to be different, rank them in order of most to least important
- Look at that list and determine the following:
- Which of these items, if addressed, would have the greatest impact on supporting the company in reaching its goals?
- Which of these will allow you to reach your goals most effectively and efficiently, i.e., which have the greatest impact in reducing costs, increasing revenue or getting more market share?
- Which of these is best for the company in the long-run?
- In what order should they occur?
- From this list, identify three items of key focus for the coming year. If you have a large company, this list could be more, but if it is a small to mid size company keep it to three. Your chances of getting a strategic plan accomplished are much greater if it is doable.
- For each key area of focus you identified above, determine the following:
- Person responsible
- Cost associated with execution
- Measurable results - three goals for each key area of focus
- Identify three actions for each of those goals
- Assign time frames for completion on each action (total of nine for each key area of focus)
Following these steps will allow you to break your strategic goals into bite sized pieces.
Step #3 - Have an operating budget
Successful companies do budgeting. This process allows you to identify the specific financial goals of the year. What gets planned gets done.
A good budget is in writing and includes:
- Sales goals - figure out where your sales will come from, i.e., how much product or services you will sell and when
- Gross profit margin targets - percentage of income after direct costs
- Net pre-tax profit and margin targets - what is left over after overhead / G&A and before taxes
- Planning overhead costs for growth and expansion - include costs that you identified in Step #2 that will support you in reaching your goals for the year, i.e., what investments do you need to make to the business to reach your goals
- Labor costs - for labor, calculate what the cost will be by position based on how many hours staff will work, and include all costs for that labor including taxes and insurance
- Equipment - the need for additional equipment to help generate revenue most efficiently, or capitalize on opportunities that your company should consider, such as expenditures for computers, machinery and other large equipment
- Additional costs - determine what other costs will be associated with running the day-to-day operations
- Cash flow projections for items that are not on a profit and loss statement