Five Common Contractor Mistakes and How to Avoid Them
July 25, 2011
Restoration businesses come in all shapes and sizes. Market, specialization, competition; there are many variables that play into the overall business structure. It’s all the more interesting, then, that even as different as one company is from another, a huge majority end up suffering from the same mistakes.
1. Not Setting Up SystemsA lot of companies have no systems; they send their estimators out to a site, and run their jobs based on the estimator’s thoughts and beliefs. If an estimate is not executed the way it was estimated, the job will not come in on time or on budget. A lot of times an estimator will start a job without a completed estimate, hoping that the adjuster will agree to their prices after the job is done.
What begins to happen in a lot of companies is that the way a job is handled is determined by the people who handle the jobs, not by a process; that is, jobs are executed differently based on the estimator who set it up. The “system” of the job is kept in the mind of the estimator, and is subject to changes at his or her whim.
Consider acquiring software that will assist you in setting up and maintaining your company systems. I would suggest you and your people start by incorporating software programs that can do three things; a contact relationship management software that keeps track of all of your leads, an estimating software that keeps track of all of your bids and an accounting software that does all of your purchase orders, job costing, payroll, income statement and balance sheet.
Once you have selected the software’s that you want to use, embed your existing system into the software’s that you have selected.
2. Not Selecting, Training and Leading Your TeamMost key people in your company are ones that have been with you the longest. It is usually assumed that because of their longevity with the company, that they are the best people to run the company. It is also assumed that they are capable of doing the job that the company needs done.
As a result of this type of company habits, the company has to reinvent themselves as the company grows. Not to mention that owners hate change and generally operate with what they already have, they do not want to take a chance on a future unknown person for the current known person. The straight forward solution is to determine what the current and future company needs are and hire to the need. This usually requires the owner looking into the mirror and having a frank discussion as to what is working and what is not working.
Most owners do not like rocking the boat when times are better than usual. It’s only when times get bad, will they begin to think about making changes. The other issue is that a lot of owners are not willing to hire to their weakness. The best thing a strong leader can do is to realize their shortcomings and hire individuals that can make the company better than it already is.
The final issue for an owner to consider is the idea, that even thought they are the owner, they may not be the best person to lead the company.
3. Not Working Together on the Company Operations BudgetI’ve found that there are four divisions within a company; a) Sales, b) Owner, c) Administration and d) Production. The head of each of these divisions are the leaders of the company that can form your Team that can, should and will operate the company efficiently, effectively and profitable.
Each of these leaders should prepare a budget that their division leaders agree with and have committed to making work. The four leaders then meet and put together the company budget that the company will operate on. This is the budget for the year, but it has to be reviewed each month by this team and adjusted for the economically reality of the business environment. The company will then operate on the new adjusted monthly budget.
The results of this monthly meeting will then be communicated back to the four divisions, so that they know and understand the adjusted direction of the company. This process is repeated each month, so the company is being “driven by a team” that is responding in a timely manner to the economic realities of their business environment.
4. Not Reviewing Weekly Leads, Bids and SalesThe lifeblood of any business is to bring in new and on-going business. The relationship of Leads to Bids and Leads to Sales are very important ratio’s and need to be reviewed, analyzed and acted on by the appropriately responsible personnel.
For instance, the bulk of Leads are generated by the company’s Business Development personnel. It takes a certain amount of leads to be generated at your current average job price. The amount of Leads needed can be broken down to any requirement that you want and need. The key is that it’s a very straight forward process. Most sales people want to compare their Leads to their Bids Ratio and I don’t have a problem with that. I believe that Leads to Bids comparison is only the first part of the equation.
The second and I believe more important is the equation of Leads to Sales comparison. When you compare your current data to your past data, you can see that there are definite relationships when you compare current to your past. As a result, you can know if you are on budget and you can then project your future business or lack there of.
If I had to choose between getting my monthly accounting information and my monthly business development information, I would choose to get my business development information. This data is critical to your business and can only be properly analyzed by software. There are some very good software’s that can do the reports that you need to analyze and direct your company with.
However none of them can do you any good, if the data is not correctly entered into the software as it is being received into your company.
5. Not Reviewing Weekly Job CostingThis is a very important process that is critical to the economic survival of the company. In a nutshell, the Estimator who prepared the estimate and the Production Person who will complete the job MUST agree on what the job budget will be. Once they agree, then the Estimator can go and estimate more work and the Production Person will be responsible for bring the job in on time and on budget, or less.
There is no “typical company” as to whether or not the Estimator and the Production Person are the same person or two different persons’. How you handle the process is certainly up to your company. There are two important parts, the first being that the Estimator is held accountable for the estimate that they have prepared and then used to get the job as a result of the estimate.
The second part is that once the Production Person has agreed to what they will produce the job at, prior to the start of the job, or below the agreed upon scope and price. By doing this on every job every week, you have the pulse of how each job is doing regarding profitability or the lack of the agreed upon profitability.