For most contractors the past few years have seen some of the most trying times in the history of both our industry and country. It has been just incredible for me to work with contractors who have abandoned their business plans (if they had one), leading them to wonder today, “Do I even need a business plan with all the changes that we’ve been through and what changes we’re yet to deal with?” In a word … Yes!
It is exactly because of our economic times that you need to go back to your roots, think through what you are really about as a company, and put together the plan that you feel is the best course of action for your company to take and follow. Consider the following suggestions for your approach to creating a new business plan.
Define your direction
First, there is the direction that the company sets out to follow. The direction embraces the vision the contractor has for his or her business. These questions should be honestly discussed and answered:
- Where are we going?
- What markets do we want to move into?
- Do we have the needed resources and capital?
- How big do we want to become?
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 their company. They set financial objectives, specify the markets they want to dominate and set targets of accomplishments that objectively state where they are going to be at specific points in the future.
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.
Once the direction is developed it is then critical to create action steps to bring the plans to life. Most contractors have little problem creating action steps as this is the tactical effort that most contractors are more comfortable executing. 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 executing.
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 an example of a flatwork concrete contractor who is adding power washing to his field of services. The action steps might include the following list of items.
- Identify best market for power washing opportunities.
- Review current clients with potential for power washing opportunities.
- Determine needed expertise for power washing.
- Determine needed tools and equipment for power washing.
- Set realistic goals for power washing revenue. (Determine optimum profit potential.)
- Purchase needed equipment and tools.
- 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.
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 equipment that is rarely used in the future.
Monitor your success
Reading the financials on your business has become a growing need for successful contractors. More than reading your Profit & Loss Statement or studying your Balance Statement, your third component must be to create a monitoring process that measures the success of your 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 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 takes focused attention by owners and 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 and methodically while also allowing enough wiggle room for adjustments and changes throughout the journey.