If you have never developed a business plan then consider this winter season to do so. If you have a business plan, consider revising it, updating it, strengthening it to be more realistic and more useful for this next business season.
I’ll review some very good principles of developing an effective business plan, a process that I’ve shared with hundreds of contractors over the years. So...let’s get started!
I’ve said it before and I’ll say it again, growing your business to greater heights of success without a business plan is sort of like taking your family on a vacation to “No Where, USA” 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.
Perhaps the first place to start when creating a business plan is to ask yourself a few of the following questions.
- Where are we going?
- What markets do we want to move into?
- How big do we want to become?
Where is your business going?
Business planning looks at the future through more quantifiable lenses. It incorporates a strategic focus, i.e. “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 so they can direct their 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.
Such objectives might include the volume of production they want to contract for during the upcoming year such as total yards of concrete poured or finished, square feet of formwork, or perhaps how many brick pavers will be installed 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. 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’s look at a flatwork concrete contractor who is adding concrete countertops to her 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 countertops
- Determine needed expertise for forming, pouring, and finishing countertops
- Determine needed tools and equipment for concrete countertops
- 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 countertops or train existing employees
- Look at marketing strategies and needed marketing budget to support new sales
- Make the monitoring of concrete countertop revenues, gross margin etc. part of the company’s overall effort to monitor business
The actionable steps outlined above are completely different from how most 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.
Monitor your business plan
A final effort needed for a good business plan is to establish a method to monitor the plan. More than reading their Profit & Loss Statements or studying their Balance Statements, successful contractors incorporate this effort to 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 whether or not 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 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 does he like us? 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; instead 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.