Time flies when you’re having fun. And this year, I expect many of you are thankful for the work and, in a lot of cases, the backlogs that will take you into 2018.
From what I’ve been hearing from people within the construction industry, significant portions of the U.S. are shaping up to have had a good year in terms of projects, even with a lack of labor talent. Assuming 2017 was good to you, as you contemplate the hurricane disasters and wildfires in California, I suspect trying to figure out 2018 in terms of talent, materials and supplies will generate a lot of sleepless nights.
Although the title of this month’s column suggests tax planning and ways to make the year-end process easier, I’m not really going to focus on those topics. Sure, you should be aware of your tax position and have some idea what the year-end financials will look like. But there are more important things to consider if you plan to increase both volume and profits — although the two don’t always guarantee parallel results.
Identify What Worked and What Didn’t
As the year-end approaches, I always like to take some time to think back to what I expected from it and then try to figure out where my plans didn’t quite pan out. Did I get the increase in business I anticipated? Are my financial metrics in sync with industry standards? How is my cash balance based on the level of business I conducted? Why were my actual costs higher than my estimates? How did my staff and employees function compared to what I expected?
Next, it’s time to sit down with the management team to figure out what positive and negative variances occurred, with a goal to reverse the negatives and increase the positives. In terms of the negatives, for many contractors, the list might look something like this:
- The bidding process is not up to par.
- The competition continues to outbid us.
- We have a lack of talent in our work crews.
- Our system does not provide adequate or timely information.
- Our billing process is not efficient.
- Our equipment fleet is inefficient compared to newer models.
- Management is not on top of the situation.
If this is the kind of list you have to deal with, I would suggest it’s more important than your tax position — because if you don’t deal with these problems first, you won’t have to worry about a tax position!
There’s little doubt it’s tough out there due to the lack of qualified help, a backlog in terms of getting new equipment, higher prices on used equipment and cost increases for materials and supplies resulting from the recent weather events. But tough or not, management has to step up their game if they plan to compete in the marketplace, because technology and equipment improvements are making the competition more efficient and thus more competitive in the bidding process.
Find the “Chinks” to Improve Results
When you stop to think about it, most contractors could become more efficient and profitable if they:
- adopted technology,
- rented equipment required for special needs,
- compared operating results against industry standards
- and compared notes with other profitable contractors (from other territories) to find out how they are doing and what changes they are planning to make next year and beyond.
Let me give you an example. Part of my work within the construction industry is to monitor industry groups made up of 10 to 15 members who are in the same line of work but are not competitors. As part of this group, the members share detailed financial information and discuss the variances noted for members that are way out of sync from the norm. Members are provided with a business model for their particular operation, and all data is compared to other group members with the variances calculated against the model.
What is great about these groups is that the CEOs are the ones attending the meetings. They find the chinks in the company’s armor, which they can then take back to their management team to find out why they have a problem and what to do to fix it. Not only does the “boss” learn how to interpret the company’s financials, he or she also learns how the business works and how to generate additional cash flow. I can tell you from experience that within 18 months, there are positive trends reflected in the financial data.
The other great takeaway is that you can no longer “BS” the boss — because when a team member tells the boss that their department “can’t hit those numbers in our market,” the boss knows when this isn’t true. You can’t imagine the stories I hear from the attendees about how their management teams fight the findings of the group.
Put Plans in Place
Part of changing the way you do business involves training people in how to do their job differently and more efficiently. And if you can find a system that can help you do that, it really makes your life less stressful.
Take the system I came across in the article “The Next Billion-Dollar Startups” (http://bit.ly/2yAduuY) in the latest issue of Forbes. As I was reading the stories about the various companies, I noticed one called ServiceTitan, which seems to be a sales force-type program for contractors conducting in-home service work. After reviewing the website, I can definitely see how an investment in this and other types of software could help deal with many of the items on your “list.”
So here is your plan for the rest of the year:
- Study your results for 2017.
- Figure out what you don’t like.
- Ask management for solutions to solve the problem.
- Investigate technology opportunities to see how they can increase the positives.
- Check your results against industry standards.
Start working on your plan for 2018, including a base plan; a base plan that falls 20% short; and a base plan that goes 20% over budget. Thus, you will have a plan in place no matter what happens.
Now you can start worrying about taxes...
