Ask 50 construction company owners what a perfect business would be like for them, and you’ll likely get 49 different answers. Many will say they want to make a profit. Digging deeper, profit is not what owners really want. Profit is required to create what they really want. Business owners actually want to build equity and generate wealth. Equity and wealth are the outcome of consistently making a profit, retaining it and using it to seek other business opportunities, create passive ongoing income, own investments such as real estate rental properties and grow net worth.
Are you the company CEO?
Think of CEO’s of Fortune 500 companies. Every week the newspaper business section reports on their company’s success or failure. Did they make a profit? Did they grow their revenue? Did their stock price go up or down? CEO’s of major companies focus on increasing the value of their company’s stock price. As the stock price increases, their company becomes more valuable.
When your company makes a profit, the equity created can be reinvested back into your company, used to seek new business opportunities or distributed back to the stockholders as dividends. When companies don’t make a real profit, or when all of the profits are distributed to owners, your company is not able to grow, expand or seek new business ventures.
Are you creating wealth?
Profit creates equity which allows for building wealth. To me, wealth includes investments, money, family, time, freedom, peace of mind, contentment, enjoyment, success, or owning a business that works for you. Wealth creation can be an outcome of a financially successful business that generates a positive cash-flow and increasing profits. Financial success allows you to enjoy and design your life to do and get what you want. Wealth allows you to make choices how to spend your time and money. No wealth will keep you stressed out and constantly working to make ends meet.
Wealth is created from assets that make money without you doing much hands-on work. Wealth building assets create regular positive cash-flow, go up in value over time, reduce debt and are passive instead of needing constant attention and supervision. Owning a multi-tenant apartment or industrial building and renting it is an example of a wealth building asset. The building creates a net income every month without much effort or work. Wealth building real estate assets can include joint venture projects with customers, your own building and yard, buying an old property to fix up, owning a residential duplex, or buying rental houses at great prices. Assets can also include owning stock in growing and successful public or private companies.
What business are you in?
Think about your priorities and the purpose for your business. The right purpose is to give the business owner what he or she wants. Your business purpose is not to build buildings, erect steel, lay bricks, install pipe, hang drywall, paint projects, or move dirt. You are in business to make a profit, build equity, seek wealth building opportunities and enjoy the benefits of business ownership.
After 20 years as a commercial general contractor, I finally realized why I was in business. Year after year I worked hard to scrape out a 1% to 3% pre-tax net profit. I endured lots of stress and took extreme risks building projects for customers who made millions of dollars owning and developing real estate. I started realizing that while our construction company did most of the work, our customers made most of the money. Why? Because I was in the profit business and my customers were in the wealth building business.
Get into the opportunity business
Finally I made a decision to change our business model and get into the “Opportunity Business” seeking equity and wealth building opportunities. Our construction company would continue as a general contractor AND seek real estate investment and development opportunities. We already knew how to build projects so why couldn’t we also participate in the overall development process and profits as well? In order to make this happen, we decided to work different and spend at least 25% of our time seeking wealth building opportunities.
Build a wealth building machine
Think about what you do. How can you convert your construction company from what it currently does into a wealth building machine? Continue doing what you do well AND dedicate at least 25% of your time seeking investments. My first investment was small. I put $5,000 down and bought a residential duplex in the low income part of town. I fixed it up myself and then raised the rent. This allowed me to get a higher appraised value than what I had purchased the property for. I refinanced it and got a new loan which generated extra cash. With this, I purchased another duplex and did it again. A year later I sold these two properties and bought a 16-unit apartment. Following my proven formula, I fixed it up, raised the rents and then refinanced it. This again generated cash for me to reinvest into other assets.
A small start in low cost residential real estate will allow you to build wealth and start buying, investing and developing more assets. When you have a few wealth building properties, you start looking at your business differently. You change your priorities and stop working so many hours building projects for others and start working on building for your future as well. Getting started is the key. Don’t wait until it’s too late. It’s never the perfect time. Make it your goal to seek one wealth building asset within the next three to six months.
As a professional construction BIZCOACH and popular industry speaker, George Hedley helps contractors increase profits, grow and get their companies to work! He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available at his online bookstore at www.HardhatPresentations.com. E-mail [email protected] to sign-up for his free e-newsletter, join a peer mastermind BIZGROUP, attend a BIZ-BUILDER Boot Camp, implement the BIZ-BUILDER BLUEPRINT, or get a discount for online courses at www.HardhatBizSchool.com.
