How to Downsize for Profitability

Ways to make a profit without having to layoff employees.

The purpose of this article is to address honestly some of the realities of the current economic situation facing many contractors. However, the principles presented here are timeless and should be followed at any time by an owner of a construction company.

Downsizing is not new to the construction industry. Thankfully, for many contractors there has been little to no downsizing for economic reasons over the past decade or more, unless you are a seasonal contractor. But for many construction leaders the need to reduce their work forces has become all too familiar in recent months.

With the latest "correction" in the economy now in full force without any real assurance as to when it will be completed, we need to review specific efforts that any contractor can take that will position his or her company to be profitable. While the reality of laying off workers is there, we will look at other areas of "correction" that can strengthen your firm's chance to make a profit during these tough times.

1. Assess your company's financial situation.
Nothing is more critical than clearly understanding what your financial strength and position is prior to any capital, human or strategic decision. This can include recognizing your cash and cash flow position, reviewing your account receivables and making a realistic projection for collections, and rethinking future expenditures that can be delayed or reduced.

2. Think & plan "lean and mean."
Make planning a mandate, not just something to do on big jobs. If you complete multiple projects in a week's time, lay out the entire week of work and account for every man-hour that will be scheduled. Look for overtime and reduce or eliminate it completely by planning to do things right the first time.

Planning should be the cornerstone of your construction effort. You make more money when you plan ahead, yet so many contractors continue to fall short of planning efforts. Take time to review every process to deliver a completed construction project on time, at or under budget, and meeting the customer expectations. This effort should impact your marketing and sales, pre-construction and the actual construction effort, and the follow-up effort to retain customers.

3. Train & cross train.
If you think training and education are expensive, try ignorance! There is simply no substitute for people who have been educated on proper technique, process controls and proper tool or equipment handling.

Now, assuming you have some education taking place as part of your business efforts, introduce cross-training to your company. Cross-training is beneficial to all parties involved. First, you have more options to use when scheduling work and shifts; second, the employee develops a wider degree of understanding and expertise in more than one area which makes them more valuable to not only your company but to them personally.

4. Recommit to customer follow-up.
Landing new customers can be three to four times the cost of maintaining current clients. Whether you are in residential, civil or commercial work, following up with customers during and just after completed work can land you more work without having to spend the marketing dollars.

Go back and scour your customer files and begin looking for important dates to your customers' businesses and drop cards or e-mails recognizing those dates. If you do any sort of maintenance work, "pre-call" your customers two to three months ahead of when maintenance should be performed, taking away any chance of your competitors beating you to the punch.

5. Reduce or eliminate costs throughout your company.
Too many contractors will sweat over reducing their workforce numbers while not really considering many of the other money saving areas that often go untouched. Remember, if you can find hundreds of dollars spent a month on non-labor costs, you may be able to hold on to one more worker a bit longer. A few examples:
  • Reduce or eliminate publications that often cost hundreds of dollars per year.
  • Turn off the lights, literally, when your office or shop is closed.
  • Look to purchase materials and supplies in more cost effective manners through negotiating longer payment terms, bundling purchases for discounted pricing, etc.
  • Revisit all vendors and suppliers to find another 1 to 5 percent discount.
  • Spend more in-house maintenance time on tools, vehicles and power equipment.
  • Keep tools, extension cords, hoses, etc. tied down and secured to reduce accidents that lead to replacement costs.
  • Purchase personal water bottles employees can fill up rather than purchasing packaged water bottles in bulk.
  • Split this year's tickets to the professional ball team with another company.
6. Re-Budget
I use the term "re-budget" to mean you need to rework any budget you previously planned out for 2009. Budgets are not wish lists that simply satisfy what the owner wants to see, but rather a budget should reflect your best realistic projection about revenues and every cost you may incur.

Unfortunately, far too many contractors simply let their company's waistline expand when things are going well. Take the ideas presented above and look for ways you can reduce your costs this year. In the process you will be improving your profit picture for many years down the road!