Hey Contractors These Planning Systems Keep You Ahead Of The Game
n an article title How
Contractors Get Rich, I You need planning systems for:
introduced you to the six
systems that control the fate of Determining Which Markets To
your construction business. Once Pursue
again to refresh your memory,
they were: This process is known by many
names with strategic planning,
1.Marketing business planning, and strategic
2.Sales marketing being the most
3.Staffing familiar.
4.Planning
5.Tracking Regardless of what you call it,
6.Financial Control determining which market to
pursue is your second most
Today, I am going to expand on important planning process. Your
the six planning systems you need market controls your destiny.
to establish.
This topic was addressed fully in
Planning means solving problems my August 29, 2007 newsletter
before they arise. Planning means titled You’d Better Pick the
making your decisions with your Right Market For Your Business.
head (logic) instead of your Here’s the Reader’s Digest
heart (emotion). version.
Planning eliminates unpleasant Before committing your financial
surprises. Planning brings about future to a market, you must
goal achievement. Planning keeps research the following issues.
everyone on the same page and
moving in the same direction. Can you track down enough
prospects? Your annual (income) budget is
Can you market to the prospects the financial representation of
cost effectively? your business plan. Your annual
Do clients value anything beyond budget is your most important
low price? planning process. I’ve never met
Does the work require expensive a highly profitable contractor
equipment? who didn’t rely on annual budgets
Can you find enough sufficiently to guide his (or her) business.
skilled people to do the work?
Is competition weak and are This topic was addressed fully in
margins high? my February 14, 2007 newsletter
Do you have the cash reserves to titled A Guide to Eliminating
survive the market’s pay cycle? End-of-Year Surprises. Here’s a
quick summary.
The more you research market
needs, market size, and The budgeting process forces you
entrenched competition the more to think through your strategy
likely you are to pick the right and resource allocation. It
market - the one that will forces you to account for every
support the growth of your expense your company will suffer
business. during the upcoming year. It
helps you connect project gross
Once you’ve picked a market, you profits to company net income. It
need to write down your plan for gives you the ability to track
generating leads (marketing) and your progress and make necessary
handling the work. adjustments on the fly.
Creating Your Annual (Income) Creating a Cash Flow Budget.
Budget
Very few contractors prepare cash
flow budgets. That’s a tragedy.
Cash flow budgets are the BEST 3. Determine which overhead
WAY to stay on top of your expenses are monthly and which
business’ financial health. hit periodically (withholding
taxes for example). Allocate
Trust me, you have enough accordingly.
experience with your clients’
payment history and the timing of 4. Break your direct costs into
your expenses to create an payroll, material, and equipment.
amazingly accurate prediction of Payroll is paid weekly or every
the way your cash will flow other week. Material bills are
through your company this year. usually due 30 days after
delivery. Identify your equipment
Here’s a simple procedure for lease payments and loan payments.
planning your cash flow: Remember, depreciation doesn’t
use cash.
1. Grab a copy of your budget
(you made one, right?). Allocate Base the material and labor
your sales across each month in expenses on their typical
accordance with your typical weighting to your expected total
year. direct costs - which should be
reflected on your income budget.
2. Analyze the behavior of your
receivables. Determine which part Cash flow budgets give you the
of your money arrives ability to compare your checking
immediately, and which parts take account balances against your
30 days, 60 day, 90 days, and performance year-to-date. They
beyond. Spread each month’s sales are an amazingly helpful tool.
out accordingly to your
collection history. Increasing Your Bonding Capacity.
in your business.
Whether you need a plan for
building your bonding capacity If you don’t run a profitable
depends greatly on the type of business, your balance sheet is
work you perform. If you are a going to grow ill quickly. Profit
general contractor, site is the foundation upon which
utilities contractor, or paving bonding capacity grows.
contractor bonding is a critical
piece of your business puzzle. If Many contractors like to pull
you happen to be a painter, their money out of their business
service contractor, or to make it less accessible to
residential contractor, bonding vultures (litigation prone
isn’t all that important. clients and employees). Pulling
your money weakens your business,
Bonding capacity is tied directly your balance sheet, and it limits
to the strength of your balance your bonding capacity.
sheet. How liquid is your
business? How much wealth has Make sure your door of
been left in your business? How opportunity remains open. Create
much debt do you owe? These are a multi-year bonding plan.
the main three things that drive
your bonding capacity. Planning Project Completion
If bonding is important to your To contractors who work on long
business, you need to create a or complex projects, the benefit
multi-year plan for growing it. of project plans should be
The first step is to run a obvious.
profitable business. Seriously,
don’t overlook that requirement. It’s virtually impossible for
The second step is to leave money crews to be efficient without
one. It’s virtually impossible to consider breaking your project
staff the job successfully schedule into days, half days, or
without one. It’s virtually hours.
impossible to finish a job on
time without one. It’s difficult Scheduling Your Work Crews.
to back up delay claims without
one. Obviously, you need to keep your
crews busy and efficient. The
Here’s a couple of best way to do that is to
characteristics that your project eliminate downtime.
plans should have:
Eliminate time lost waiting on
1. Realistic durations based on material. Eliminate waiting on
past performance. equipment to show up. Eliminate
the general mulling around
2. Man-hour loaded tasks so that associated with crews who are not
you can adjust staffing as sure what they are supposed to be
needed. doing.
3. Allowance for pre-construction Look Ahead schedules are your
activities (submittal, equipment tool for keeping your crews
lead times, etc.) moving and productive.
4. Separate paths for items that Look Ahead schedules are nothing
are not bound by sequence. more than a list that explains
where the crew is supposed to be,
If you have a project whose what it is supposed to get done,
on-time completion is extremely the materials it will need, and
important and whose schedule is the equipment it is to use.
short and aggressive,you should
Who, what, when, and where are your business strategy annually.
the items to cover. Those items
should be written down for each The real reason you need a plan
day and cover two weeks. for your equipment is that owning
the wrong equipment is a costly
Typically, a superintendent or mistake to make.
foreman updates the Look Ahead.
He then shares the plan with the You need to keep a close eye on
crew to keep it tuned in to its your current equipment operating
upcoming work. costs. Sometimes, it is cheaper
to replace your equipment than it
Determining When to Buy Equipment is to continue repairing it.
Other times, you should rent
You need a fleet management plan. equipment as you need it. At
You need to decide when you are times, it may make sense to rent
going to rent, buy, and sell your equipment out to other
specific equipment. You need to contractors.
build this plan into your annual
budget. Buy new equipment if you need to:
Enter into new markets or niches,
Do you own every piece of Improve field productivity,
equipment you need to be Reduce your current equipment
competitive in your chosen costs, and / or,
markets? Do you own any equipment Equip more field crews due to
that isn’t needed to serve those sales growth.
markets?
To make your investment in a
Sell the equipment you don’t need piece of equipment pay off, you
and buy the equipment you do. must be able to put it to work
Evaluate the fit of your fleet to productively on profitable jobs.
Look at your business
opportunities and your niches. Depending on the type of plan you
Then, look at your fleet. Take are creating, two more
action. characteristics should be
present:
A Final Word On Planning
4. Identification of the
All plans should have three person(s) responsible for
characteristics: performing the action.
5. Resources needed to perform
1. Specific steps or actions. the action.
2. Specific goals or outcomes
resulting from the steps or Surely, you’ve heard the tired
actions. old saying "When you fail to
3. Deadlines for the steps or plan, you plan to fail."
actions. Unfortunately, it’s true.
About the Author:
Ron Roberts, The Contractor's Business Coach, teaches contractors how to turn their businesses into money making machines. To receive Ron's FREE Contractor Best Practices Newsletter visit http://www.FilthyRichContractor.com.
Published At: www.Isnare.com
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