You know the drill…you go to bed exhausted after a long day of dealing with (sometimes irate) customers, staying on top of paperwork, scheduling jobs, managing employees and generally tearing your hair out. But can you fall asleep and rest easy? If you’re like most contractors, probably not…because you’re still thinking about your business and all the little things that can go wrong.
Here are 4 questions (with solutions) you can ask yourself today that will help you sleep better tonight. Do NOT put this off, unless you like watching infomercials at 3am!
1. Are you pricing your services properly?
Unfortunately, this stems from an even larger issue: contractors don’t understand the cost of doing business. Because they don’t understand what it truly costs to run a business, contractors are notorious for doing a poor job of estimating, and employing an unsystematized way of scheduling. A common mistake made by new contractors is to simply apply the same mark up onto every project, assuming it will bring in an even level of profits. Another fallible method? Trial and error. It can work at the start — but once seasoned, successful costing requires measuring what it takes to get the job done.
No matter what, avoid the “WAG” method (that’s “wild-ass guess” method for those not familiar) and approach your pricing strategically. It could literally make or break your business. Keep track of the cost of systems, processes, overhead, and other expenses for each project and apply that knowledge to future proposals. Superior project management is imperative here — take note of average change orders, schedule disruptors, backlogs — every detail that impacts cost.
Part of proper pricing comes by eliminating what Melanie Hodgdon, co-author of A Simple Guide to Turning a Profit as a Contractor, calls “hopeful thinking.” She asserts that hopeful thinking can “ruin you” as a contractor. This hope leads to things like:
- Not understanding the true cost of labor. And therefore not turning the profit you think you are on the mark-up.
- Disregarding overhead. See above.
- Thinking you can “make it up on the next job.” Accepting change orders with no charge and thinking it’ll all be made up later.
Rather than putting pressure on future jobs, it’s wise to know your costs — including overhead — from the start, and price accordingly.
2. Do you suffer from “I-can-do-it-all” syndrome?
Contractors get into the business because they love the work, and they’re good at it. When they start their own business, they often find it tough to make the transition from contractor to business owner. Instead of working on the business, owners end up working in the business.
When business owners attempt to run a company, make sure all systems are operating smoothly, keep an eye on the future and strategize, and try to be on the front lines, doing the work? It means two things: no sleep, and a speed pass to burn-out. Consider this: Shawn McCadden of Remodel My Biz found that when business owners added up the hours worked between running the business and working in it, most “admit they earn less per hour than most of their employees. Some, even less than their carpenters.”
Simply put, contractors need to see themselves as business owners. Business owners delegate. Consider the aspects of your business you dislike or can’t devote the adequate amount of focus to, and outsource or hire for those tasks.
3. Have you spent upfront time spent building a well-structured business plan?
Following leads and jumping into business to start the revenue stream is important, but shouldn’t trump the time required to devote to building a forward-looking, well-structured business plan. Like any business, your plan should cover the following:
- Your mission: Why are you starting this business? It’s far too easy to lose sight of your mission when you’re in the thick of things.
- Your target market: Who are you looking to serve? This will help you structure your marketing and price your services.
- Finances: What are your financial goals? What metrics need to be in place to determine success?
- Marketing: How will you market and grow your business? Advertising? Affiliates? Referrals? Think big picture.
- Operations: How will legal functions take place? How will hiring and payroll run? What will enable the sales team to do their job efficiently and effectively?
- Growth: What are your goals from the start and how will all of the above help you reach them?
This is a rough start of what your business (and marketing) plan should include. Putting time into considering each of these from the start will aid your scalability down the line. Business plans should be considered working documents. Review on a set schedule and expect amendments. Business owners with no plan in place have nothing to turn to when things get off track…so in the words of Nike, ‘JUST DO IT.”
4. Are you doing the “same old things,” but expecting a different result?
You’ve seen the stats. With small- to medium-sized contractors failing at nearly 10 times the rate of larger firms, you don’t want to follow in the footsteps of those before you. It was Albert Einstein who so famously defined insanity as “doing the same thing over and over again and expecting different results.” Take the same approach — and make the same mistakes — as the builders before you, and you’re setting yourself up for failure.
Consider your competitive edge — and go after it. Keep it simple, and do it extremely well. It could be a service with a small twist; customer support far superior to your competitors; on-the-spot, professional estimates — you name it. When you’re essentially providing the same core services as your competitors, the lack of a competitive edge can easily make you invisible in the eyes of your consumers, and often leads you to compete solely on price.
Set yourself up for successful growth — and more sleep — as a small to mid-size contractor
While the odds have historically been slightly against the smaller players, there’s no reason they can’t be turned around. It starts with proactively preventing and/or resolving the issues keeping you, the business owner, up at night. Key things to remember:
- Measure the true cost of doing business, and price accordingly. No more “wild-ass guessing.” If you’ve been in business for a while, you have the data and experience to make smarter estimates and turn larger profits. Don’t forget to factor in overhead.
- Focus on being a business owner first. When doing the hands-on work is what you love, this can by far be the toughest. In some cases, contractors who start their own businesses might consider handing over the management reins to someone who does enjoy planning, strategizing, hiring, and focusing on the customer experience and overall direction of the business.
- Plan ahead. You can’t get there if you don’t know where you’re going. Map out your business plan to ensure your success.
Sleep better tonight…check out The Contractor’s Guide To Epic Failure to learn how to avoid headaches, heartburn, and having to close up shop.
