Ignorance of Basic Business Principles

There is a common misconception that if you have money in the bank to pay your bills and your crews, you’re running a successful business. That belief is essentially a house of cards, and it doesn’t take into account downturns in the economy or slow seasons. Sometimes, all it takes to make your business a statistic is one bad patch.

A sound understanding of how businesses work and how to use business best practices can help you not just survive, but thrive.

Get Out of the Business and Work on the Business

No one can be in two places at the same time. It’s easy for you to prioritize field work over working on your business. After all, you know how important quality is to your reputation. But there’s a time when you have to step back and look at the big picture, trusting your crew to continue performing to your standards.

Getting into the business inevitably calls for some education. At a minimum, you should familiarize yourself with:

  • Profit and Loss (P&L) tools or spreadsheets
  • Budgeting
  • A reasonably priced Customer Relationship Management (CRM) solution
  • A lean business plan (even if you’ve been in business for awhile)

 


“If we want to expand and grow by 10-12% let's put it on paper. Let’s see if we can do it on paper before we dive into it without looking.” Tony Thornton

 

Budgeting

Surprisingly, many contractors don’t operate off a formal budget. This can, and often does, lead to messy surprises that can seriously affect your bottom line. The P&L statements, if done consistently, help you to ensure that your team is always ready and has the equipment and inventory necessary to make the magic happen.

What are the components of a sound budget for a  contractor?

  • Use that P&L data to review your revenue and expenses.
  • Deduct fixed costs like debt repayments or payroll.
  • Understand what expenses are variable (your salary, replacing equipment, and so on).
  • Invest overages into a contingency fund for unexpected expenses.

Nobody loves budgeting, but it’s an essential part of owning your own business and being successful with a growth mindset.

The business side of running your own company can seem daunting at first, but with a little practice and a consistent investment of your time you’ll see results that matter.

Business-Ending Blunders

You may have heard stories about contracting companies folding after lawsuits over injuries or involuntary termination. Unfortunately, those stories are very real. Without the right processes in place, it can be easy to fall into a legal and regulatory trap. 

Without diving too deeply into the horror stories, expert David Gatto gives the following advice: find a mentor. Seems simple, doesn’t it? But having a mentor and business coach who has learned the hard way what to do and what to avoid will save you trouble.

“When you look for a mentor, make sure that they’ve run successful businesses, and that they mirror the work/life balance or other professional values that are important to you.” – David Gatto

P&L Statements

At its simplest, a P&L statement lists your business’s income and expenses during a defined time period. You can do them monthly or once per quarter, but the more up-to-date you keep your P&L the better.

A P&L statement is not a budget, but a P&L can help you build a budget by showing you what your fixed expenses are (debt payments, payroll, overhead), and what expenses fluctuate (inventory in the yard). It also lets you know at a glance whether your fencing business is turning a profit in the short term. Six months of updating P&L statements will give you valuable insight into the long-term health of the business.

To get you started, Microsoft has some easy-to-use templates available to download for Office 365. If you don’t have Office 365, you can download a template from the link and upload it into Google Sheets.

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CRM Solution

What is a CRM solution? Fundamentally, it is a software tool that tracks your customers and prospects throughout their journey with your company. At a glance, you can look at a contact and see how they found you,, if you’ve connected with them, if they made it to the proposal stage, and if they are due for repairs or an upgrade. It’s a single tool for managing everyone you do business with.

Additionally, a CRM system will show you any service calls, complaints that you’ve resolved, or upsell opportunities. It can take some time to set up a CRM (although most allow you to import your contacts from a spreadsheet), but the business implications are enormous.

Many CRM systems are huge and expensive, but there’s also a range of solutions that are free or reasonably priced for small contracting businesses. Forbes Advisor has a list of free solutions that may be a good place to start your search.


Lean Business Plan

You might think of a business plan as a tool for contractors just getting started. The Small Business Administration (SBA) begs to differ. At the SBA website, you’ll find a template for a “lean” business plan. Since you’re running an established business, a lean plan will suffice for your needs - a traditional plan is often used to get investors or credit from a bank for seed money.

A business plan can help you by clarifying what you want out of your business and for your business. Maybe you’ve been in business for five years, or ten, and maybe you’ve been so caught up in the details that you’re feeling overwhelmed. Taking a couple of hours to do a lean business plan can help you view the big picture.