Special Report: The 10 Biggest Mistakes Contractors Make

How to Correct The 10 Biggest Mistakes Contractors MakeA Special Report That Shows Construction Contractors How to Build Highly Profitable Businesses

Complements of Ron Roberts www.FilthyRichContractor.com

Pay AttentionWhat you are about to read may be the most valuable business advice youll ever receive. You will never find better advice for free, I guarantee you that.

The Odds Are Stacked Against You.Did you know that three out of four construction companies shut down before their third anniversary? Thats right. Over 75% are gone within 36 months. You think this industry isnt set up to break companies? If an evil genius sat at his desk and tried to devise the most dangerous business environment possible, he would be hard pressed to come up with a situation more toxic than the construction industry. Owning a construction company is usually hazardous to the owners financial health. Before we explore the 10 Biggest Mistakes Contractors Make, the ones that put contractors out of business, lets take the pulse of your business.

Take this little quiz to see how your business stacks up.1. How much of your work is negotiated? a) Less than 10%. b) 20% to 50%. c) More than 50%. 2. How do you generate the bulk of your leads? a) Word of mouth. b) Yellow Pages advertising. c) Through a systematic prodding of referrals, relationship building, and targeted advertising. 3. How accurately do you predict the cost of work? a) We rarely run over budget. b) Individual job accuracy varies but on average we do pretty well. c) We almost always run late and use more hours than budgeted.

(2007) The Contractors Business Coach ~ www.FilthyRichContractor.com ~ Page 2

4. How thoroughly do you plan? a) We live day by day. b) We create an annual budget, project schedules, and two week look-aheads. c) For the most part, we create detailed marketing plans, financial plans, sales plans, and operations plans. 5. How much time do you devote to improving your companys systems and structures? a) Very little, if any. b) Only during the slow season and not more than 20% of my time even then. c) Almost all of my time. 6. How much voluntary turnover do you suffer yearly? a) Close to 100% b) 30% plus or minus c) Less than 10% 7. How well do you understand your financial statements? a) I dont. b) I understand the income statement but not the others. c) I understand them well and review them frequently to see how well the company is doing. 8. How big is your line of credit? a) I dont have one. b) Less than 5% of my annual sales. c) I dont need one because I get deposits and paid in full in less than 30 days. 9. What do you do when one of your workers fails to perform his job correctly? a) Scream at him the first time, fire him the second. b) Complain about him to my staff. c) Sit down with him, explain my expectations, listen to his excuses, and try to coach.


10. How clearly have you established your employees roles and responsibilities? a) Nothing is written. I tell them what to do when I need something done. b) We have written job descriptions but they are not very detailed and have never been updated. c) Job descriptions are current. Employee responsibilities are reviewed and discussed frequently. As you probably figured out, the scoring here isnt like high school. Cs are better than As. Now that youve had a chance to reflect on the state of your business, lets dive into the 10 Biggest Mistakes Contractors Make and learn how to correct them.

The 10 Biggest Mistakes Contractors MakeAs you hopefully noticed, the title of this report is the 10 Biggest Mistakes. Not the 10 Most Common Mistakes. Not the 10 Problems Contractors Would Most Like To Fix. No, the name of the report is the 10 Biggest Mistakes Contractors Make because that is just what they are - the 10 mistakes that cause the greatest headaches for contractors. Over the past two decades, I have worked in and around hundreds of contractors. Along my journey, I realized that the contractors who really struggled pretty much made the same set of mistakes: Mistake #1 ... Not Selling Aggressively Mistake #2 ... Working for Bad Clients Mistake #3 ... Signing Bad Contracts Mistake #4 ... Not Having a Large Credit Line Mistake #5 ... Failing to Hold Field Leaders Accountable Mistake #6 ... Not Knowing the Cost of Work Mistake #7 ... Owning the Wrong Equipment Mistake #8 ... Running the Business Without a Plan Mistake #9 ... Pricing Work Too Cheap


Mistake #10.. Ignoring the Professional Services Team By avoiding these ten mistakes, you will position your business for sustained growth and long term, recession-proof success. You will also enjoy the fruits that come with that: more free time, greater financial security, more restful nights, and the unending admiration of your friends, family, and peers.

IntroductionAllow me to introduce myself. My name is Ron Roberts. I teach contractors how to turn their businesses into finely tuned, profit machines. I created this report for the 500,000 subcontractors and specialty contractors who are caught up in a daily fight for survival. The truth is that most of these contractors: Are mentally and emotionally drained, Are physically worn out, Are financially hurting, Are needing help, and Dont know where to turn to for help.

Did you know that virtually no one strives to teach subcontractors how to run their businesses profitably? Over 80% of Americas subcontractors generate less than $1 million of revenue annually. Management consultants like big gigs large pay days. Few contractors afford to invest $20,000 to $30,000 on the consulting projects that consultants want to sell. The contracting market is considered unprofitable to chase. The trade magazines tend to be focused on technology, equipment, and legal subjections. I cant explain why almost all trade magazines default to those subjects, but they do and that leaves small contractors out in the cold.

You deserve access to insightful, profitable guidance and adviceYou provide good jobs for several people who might otherwise struggle to find their place. You provide a valued service to your clients for a fair price. You help keep your banker, accountant, and attorney in business. While youre out in the field working yourself to death, try to remind yourself that it can be both fun and profitable to run a businessif you know a handful of tricks and master a few basic business skills. Heres where to start.


Read this report. Sign up for and read my weekly Contractor Best Practices Newsletter (www.FilthyRichContractor.com). Follow my recommendations. Call me with questions (913-961-1790). Commit to becoming the best businessperson you can be. Now, on to fixing the most common business-killing mistakes contractors make.

Please note, they are ranked in the order of their threat to your business.The first mistake is the most deadly, and it is

Mistake #1: Not Selling AggressivelyThe biggest mistake contractors make is not selling their services AGGRESSIVELY. Let me make this very clear actively selling your services is absolutely mandatory to the survival of your business. Unfortunately, few contractors realize this and fewer still work to master the science of selling. Heres why selling is so important. When you dont sell effectively: You are forced to compete on price and therefore you struggle to make money, even when times are good. You end up working for bad clients. You struggle to keep good people. When you do sell effectively: You avoid price competition. You land highly profitable work. You can pick and choose your clients. You can eliminate turnover by paying higher wages. Allow me to make sure you understand what this mistake is all about. Selling means landing negotiated work. Not-selling means relying on bidding. When you sell, you set your price. When you dont sell, your competition sets your price. When you sell, your customer is willing to pay you more than your competition. When you dont sell, your customer has no reason to pay more for the work. So, not selling aggressively means rarely getting a chance name your price.

How to SellIn order to pack your schedule with profitable work, you need to adopt the four secrets superstar salesmen adhere to: 1. Focus on the right clients.


2. Adopt the right mindset: solve client problems. 3. Master pain identification and quantification. 4. Prospect tirelessly.

Focus on the Right ClientsIf you really want to make great money in construction, you MUST find a way to sell directly to end users. Here are a few examples for your consideration: Paving contractors should be calling on property managers and maintenance managers. Concrete contractors could be calling on home owners, maintenance managers, and parking structure developers. Excavators should be calling on residential and commercial land developers. Electrical and mechanical contractors could be calling on industrial clients, property and facility managers, and home owners.

If your service and size demands that you sell through general contractors, who obviously arent the end-user, at least sell to general contractors who are loyal to you and who consistently choose you when you are not the low bidder. GCs are a much harder sell than end users but many are very loyal to their key subs once the sub proves how much money they save the GC throughout the project and with customer satisfaction (especially during close-out).

Adopt The Right Mindset: Solve Client ProblemsWhy dont contractors sell? Because theyve become convinced that low price is all clients really care about. Because contractors are naturally operations focused. But, the real reason

contractors dont sell is because they dont like salesmen and dont want to be thought of as one.Test it for yourself. Deep down inside, do you believe salesmen are dirty, manipulative individuals who prey on customers weaknesses? News flash! Your view of selling and salesmen is handcuffing your ability to sell effectivelyand its costing you a ton of MONEY. I speak from personal experience. I held the same view until I was introduced to proper selling technique.

SELLING Means Solving Client Problems.Never try to manipulate clients into buying something they dont want.

Manipulation has no role in selling.


Go find the best salesman you know and ask him how he sells. Heres what hell tell you: I solve my clients problems. When you solve a clients problem, you create good will. You build trust. You open the door to future sales and referrals. Superstar salesmen never sell ice to an Eskimo. Neither should you. Neither should any of your salesmen. If they do, straighten them out fast or fire them. Your financial success hinges on your companys ability to maintain superior customer satisfaction. Selling customers something they dont want or need is a surefire way to destroy customer satisfaction and your firms reputation.

Master Pain Identification and Quantification.Now that youve figured out that your selling efforts should be focused on solving client problems, the next selling secret is how to find out which problems your clients want solved and how much solving the problem is worth to them. This process involves four steps. 1. Uncover the problem they most care about. 2. Get them to assign a cost to their problem. 3. Show them that hiring you is cheaper than suffering the problem. 4. Convince them you WILL fix the problem. So, whats the best way to learn which problems your clients want solved?

ASK THEMThey have a reason and a need or you wouldnt be standing in front of them. Ask them why they called you. Ask them about their experience with previous contractors. Ask them about their biggest concerns about the work they are considering. Keep your ears open. They WILL tell you the problem they want fixed or prevented. Dont be surprised when the problem they describe has everything to do with customer service and little to do with workmanship. When you are visiting with your customer, think and speak about their pain. Problems cause pain. Solving your customers problem is really about removing their pain. Get them thinking and talking in terms of pain. People are far more likely to spend money on pain relief than they are for gain. Now for the critical sales question.


Ask your client HOW MUCH the problem is costing him, holding him back, or worth avoiding.If the problem is taking up his time, ask them what his time is worth. If it is keeping him from making more sales, ask him what those sales would be worth. If it is an aggravation, ask him what its worth to make it go away. You need to get your clients to put a financial number on their pain. Help them discover the cost of their pain. Keep inquiring until they express the cost themselves. Then you are ready to move on to the third step. Show them that the cost of hiring you to fix their problem is far less than the cost theyve assigned to the pain. You need to get your client to ADMIT if you solve this problem for me, it will save me $10,000 yet you are only charging me $5,000 dollars. Now youve turned the discussion into an investment decision. Pay you a little to save a lot. Guess Id have to be a fool to turn down that offer. Thats what you trying to get them to feel and say. The final step is to convince your prospect that you will solve their problem. Use testimonials, case histories, and references. In all cases, show them the ones that directly address their area of concern. Stay focused on their pains and problems. Dont share stories or show them testimonials that are outside of their professed problem. Always remember, clients buy things they want, not things they need. Focus your questions and conversations on their wants, not their needs. They want pain removal. Your opinion about what they need doesnt count.

Prospect Tirelessly.The fourth and final selling secret - prospect, prospect, prospect. Lets be honest here. Prospecting is hard work. Prospecting is tedious, annoying, and even demoralizing at times. You will be subjected to frequent rejection and painfully slow progress. But, ceaseless prospecting is mandatory if you are interested in building a financially secure business! Superstar salesmen never stop prospecting. They know that non-stop prospecting opens the flood-gates of great leads and a flood of great leads is what produces great sales. Prospecting cant be replaced by advertising. Prospecting requires in-the-trenches effort. If you are not wired for prospecting, hire someone who is. If you do hire someone, be patient with the initial slow progress. If the performance doesnt pick up after a


reasonable time period, hold him (or her) accountable for keeping your pipeline full of great leads. Be aware that it may take several months to completely fill the pipeline if he (or she) is starting from scratch. Plan on breaking in someone new to selling construction services. The industry is woefully short on salesmen and the good ones rarely leave their current employer. Lets review how to sell aggressively and effectively. 1. Focus on the right clients. 2. Adopt the right mindset: solve client problems. 3. Master pain identification and quantification. 4. Prospect tirelessly. The impact of the rest of the 10 Mistakes is greatly minimized with superior selling. On the other hand, fixing the other nine mistakes on this list will probably not overcome poor selling. Selling is that important to your financial security! Now, get out there and sell!

Mistake #2: Working for Bad ClientsThe second biggest mistake contractors make is working for bad clients. It only takes one bad client to put you out of business. A series of them is almost guaranteed to put you out of business. Bad clients are thieves. There really is no other way of looking at it. You have got to become skilled at sniffing them out before they steal your life savings. Bad clients come in all shapes, sizes, and backgrounds but they all have one thing in common: they want steak on a hamburger budget. They have completely unrealistic expectations. Theyll throw you under the bus to save a buck.

You must stay away from clients who: Withhold payment as long as they choose to. Nickel and dime you to death. Back-charge you for perceived quality faults. Verbally order changes, then refuse to accept a fair price for the change AFTER THE WORK IS ALREADY IN. Use design teams who produce poor quality drawings and specs. Refuse to compromise.


Bad clients know the golden rule well, He who has the gold sets the rules. Bad clients use their control of your cash to force you to do whatever they want you to do including accepting less money than your contract calls for. Why do contractors work for bad clients? Because contractors are human. Because turning down work is hard to do. Because most contractors dont sell aggressively (Mistake #1). Because they dont know how to qualify prospects.

Heres a common situation experienced by thousands of contractors who come out of the winter short of work and cash. They price aggressively in the Spring to fill up their work schedules. They disregard the quality of their prospect when offering to work for them. As a result, these unfortunate contractors get tied down with bad clients and unprofitable work.

Qualify Your Clients Fire the Bad Ones!Much rarer is the contractor who picks and chooses his clients carefully. Who allows sales to run a touch slow until the good clients and good opportunities start popping up. Inevitably, when the flood of high quality leads arrives later in the year, the patient contractor often finds himself without competition for work. The competition is still tied up trying to escape from their bad clients and bad projects. To avoid bad clients: Learn how to recognize the signs of a bad client. Refuse to work for them.

Heres how to qualify a prospective client. a) Check their construction history. b) Check their credit-rating. c) Ask them about their bottom-line focus. d) Look at their contracts. e) Get a team read.

Check their construction history If your prospect has built before, ask him whathe liked most and least about his previous contractor(s).


This question tells you who to visit with (the previous contractor) about your prospects value system. Most contractors are happy, even eager, to share their client horror stories. If your prospect is especially difficult, your peer will probably warn you about him.

Check their credit rating A credit report will quickly tell you whether theprospect has a history of slow pay. Also check for past liens. If you find a history of liens, discuss them with your prospect. If they have a sour credit report, move on to another prospect.

Ask them about their priorities Prospects who are purely bottom-line focusedare usually very up front, almost proud of it. When asked directly, they will tell you that low price is their one and only criteria for selecting their contractor. Prospects who have unrealistic expectations are more difficult to sniff out. If you ask enough questions about their expectations and their budget, sooner or later their unrealistic expectations will become apparent. Try to bring their expectations into line with their budget. Make sure you document the quality they are buying before signing the contract. Any prospect who boils his decision down to money is a client to be avoided. Any prospect who holds onto unrealistic expectations is a client to be avoided.

Look at their contracts Bad clients are devious beyond belief. They will try todisarm you in many ways, not the least of which is to use very loose and vague contract language. Pay close attention to the wording of their scope of work, payment terms, prompt pay requirements (or lack thereof), terms for liquidated damages, and terms for change order re-imbursement. The hazier the contract language, the more dangerous your prospect is.

Trust your instincts - Experience is your friend. If you and your team have been inthe business for any length of time, youve run into bad clients. Your team probably has developed a sixth sense about bad clients. Trust that intuition. Yes, it takes guts to turn down work, but stay the course: you are far less financially threatened by slow work than you are by bad clients. You just cant escape bad clients. Dont let bad clients put you out of business.

Mistake #3: Signing Bad ContractsThe third biggest mistake contractors make is signing bad contracts. The laws governing the construction industry are well laid out. Here is what they boil down to: You will be held accountable to any terms and conditions you sign for. Ignorance of legal terminology contained within the contracts you sign is not a suitable defense.


Most contractors sign a bad contract now and then. When you do, you open a Pandoras Box of backbreaking problems such as: Agreeing to a scope-of-work that you didnt account for in your price. Throwing away your ability to force prompt payment. Throwing away your right to sue. Giving your client the ability to avoid paying for change orders.

Here are three actions that will keep you out of hot water: 1. Learn to read contract language or put your lawyer on retainer. 2. Create a set of standard contracts and proposals that your client signs. 3. Read every contract closely before signing or pay your lawyer to. Contracts are a necessary part of our industry. Ignore the contract language and you may end up paying the ultimate price your business.

Mistake #4: Not Having a Large Credit LineThe fourth biggest mistake contractors make is not arranging for a large credit line to take the pressure off during cash crunches. The construction industry is notorious for its slow pay. 60 days out is not the least bit uncommon. Slow pay wreaks havoc with your ability to pay your bills on time, some of which cant be delayed. For instance, payroll must be paid on time. While working for a General Contractor, it never ceased to amaze me how few of our subcontractors had credit lines. Probably less than one out of ten did. That is no way to run a construction company. Here is the source of the industrys cash flow problem: The natural billing cycle for work contracted through a general contractor leads to a minimum 45 day delay in payment. Typically, jobs are billed once a month. The client has around 15 days to approve and pay the invoice. The general will take seven to 10 days to pay the subcontractors. That puts the delay between the expense (mid-month) and payment at 45 days. All per standard contract terms and assuming the payment doesnt get held up somewhere, which it will. You need to solve your cash flow problems before they arise. The solution is quite simple: arrange for a line of credit with your bank. Your line should equal 10% of

your annual sales.Be prepared to have many, if not all, of your professional and personal assets tied up as collateral. Assuming you have sufficient professional and personal assets to back a credit line, let me show you how to get that line going. (2007) The Contractors Business Coach ~ www.FilthyRichContractor.com ~ Page 13

a) Copy your reviewed financial statements from the last two years. b) Have your CPA prepare your financial statement year-to-date for the current year. c) Have your CPA prepare a balance sheet for your personal assets and liabilities. d) Create a 12 month cash flow budget that shows projected sales, job expenses, overhead expenses, inbound cash, monthly cash deficit or supply, and year-to-date accumulated cash flow. e) Sit down with your current banker, go over the cash budget, and ask him what you need to do to be awarded the line of credit you need. f) If your banker is unwilling to provide the line you need, explain to him that you need the line and will be visiting other banks to find it. g) Call your CPA, insurance agent, and bond agent and ask for banking references. h) Schedule meetings based on their recommendations. i) Keep meeting bankers until you find one that will provide your company with the support you need. When it comes to banks, timing is everything: always arrange for, or increase, your credit line WHEN YOU DONT NEED IT! Waiting until you need credit is the surest guarantee your bank will not grant it. Always deal with a bank from a position of strength, if you can. Of course, once youve been awarded your credit line your work still isnt done. As your business grows, your line needs to grow. To keep your banker happy and to get him to raise your line, you must keep doing a few things successfully:

1. Run a profitable business.2. Keep your balance sheet strong by leaving money in your business. 3. Pay off your line as soon as your cash comes in. 4. Keep your debt to equity reasonable. 5. Keep you banker up to speed on your business progress and future plans. You are probably thinking Is a credit line really worth the hassle? Yes, it is. Most contractors when faced with a cash crunch resort to the industrys tried-andtrue solution: withholding payment to their suppliers and subcontractors. It appears to be an easy out but its a costly solution. Most suppliers charge 18% annual interest on bills over 30 days out. No contractors profit margins can handle that type of interest expense.


Consistently failing to pay bills on time will lower your credit rating and increase your borrowing costs. Poor credit ratings also increase the cost of insurance and bonds, not to mention interest rates on equipment loans and leases. Consistently failing to pay your subcontractors on time will hurt your ability to hire good subs. The best and most reliable subs can choose who to work for and they are going to work for the people who pay on time. Your payment history certainly plays into who the subcontractor will rush out and work for when everyone is calling for their crews. The financial impact of late payment is both obvious and not so obvious. Proper cash management can save you a ton of money. Work with your banker. Grow your line-of-credit.

Mistake #5: Failing to Hold Field Leaders AccountableThe fifth biggest mistake contractors make is not holding their field leaders accountable for poor performance. Who do you pay to: Ensure your crews work safely? Ensure your crews perform quality work? Ensure your crews hit their production targets?

Your crew leaders, your foremen, and /or your superintendents. Thats who. What happens when your field leaders fail to perform their jobs correctly? They endanger employees, customer satisfaction, budgets, and schedules. Thats a hefty price to pay for the poor performance of just a few of your employees. Lets be honest here, field leaders have a tough job. So hard in fact, they rarely do their jobs right. But at what cost when they dont? Possibly, your business. Go find four or five older field workers, guys who have been around for years. Ask them whether they know of any foreman who has left a series of bankruptcies in his wake. Theyll know one or two who have. Contractors tend to be excessively tolerant of inadequate field leader performance. Most are so worried about losing the leaders they have that they are hesitant to hold them accountable for poor performance. That is a painful and costly mistake to make. You need to hold your field leaders accountable for poor performance which includes replacing them if necessary. Most contractors do not know how to manage the performance of their employees. Heres how to manage the performance of your field leader: 1. Create a job description that documents his tasks and your performance expectations. (2007) The Contractors Business Coach ~ www.FilthyRichContractor.com ~ Page 15

2. Go over the detailed job description with the field leader. 3. Implement the tracking systems needed to monitor his performance. 4. Review his performance monthly. 5. If performance continues to lag, move him back to the crew, reduce his pay, and promote/hire a new field leader. Now once you find a good to great field leader, dont risk losing him: Pay him a little more than the competition. Set up a bonus program. Make sure he has the tools and information he needs to succeed. Remind him how much you appreciate his efforts and commitment.

Not everyone is wired to lead. Demote the incompetent. Your good crews and your good field leaders will thank you for taking action and weeding out the weak leaders.

Mistake #6: Not Knowing the Cost of WorkThe sixth biggest mistake contractors make is not knowing their cost of work. It never ceases to amaze me how few contractors really know their cost of work. The problem usually shows up the first time they bid on an out-of-the-ordinary scope of work. As they get deep into the job, they suddenly realize they are woefully short of man-hours despite putting their best crew on the job. Has this happened to your company? A highly successful excavator/land developer once told me you dont know what you dont know. This man was virtually obsessed with tracking job costs and labor productivities and that obsession helped him generate well over a 10% net income on $20 million of sales. He knew how much work each of his 10 crews could and should get done each day. The crews rarely finished late and virtually never ran over budget. He was constantly striving for better ways to track and assign costs. He was a rarity in the industry. Lets face facts. A contractor must be able to predict the time his crews will take to complete their work. Otherwise, his projects will consistently run over budget and his year end results will be less than expected and desired. Its pretty simple: if you cant predict costs, you cant make good money.


Your crews need to track their labor time and equipment time by major cost code. Most other costs can be calculated adequately from the office but the office cannot overcome a crews failure to record their labor and equipment time accurately. Here are a few suggestions to save you a lot of headache with your job costing. 1. You can mess up your tracking by being too general, assigning all hours to the job without further breakdown, or too detailed, assigning every hour to the cost codes used by your estimator. Find the middle ground. 2. Have your crews assign their labor and equipment time to the four to six tasks that account for 80% of the work. Have them throw the rest into an other category. 3. Do not lump equipment costs into overhead and spread them across all jobs based on job price. That approach typically leads to horrible job selection decisions. Know the average hourly cost of owning and operating each piece of equipment and charge it to the job based on hours used.

Getting Buy-in Will Be ToughFew people in your company will happily embrace the data collection process. Data collection annoys field crews. It annoys field leaders. It annoys support staff. Every one of them will complain about the time wasted on data collection. Stay committed to the data collection process. Some of your employees will never stop complaining about the job costing process. At some point in time, just tell them to stop complaining because the process isnt going away. Proper cost tracking is a non-negotiable part of their job.

Storing & Analyzing Your DataAs if the data collection process wasnt enough of a headache, youve also got a data storage headache. Did you know that financial accounting systems are the second biggest barrier to knowing your cost of work and tracking crew productivity? Financial accounting and tax accounting procedures are in direct conflict with proper job costing techniques. Unless you are running one of the high-end accounting packages (Timberline, for example), you may need to run two separate accounting systems: one for financial accounting and one for job costing. For contractors generating less than $5 million in sales, the easiest solution is to use spreadsheets for tracking and analyzing job costs. Unless your CPA has built his or her practice around construction accounting, it is unlikely your CPA can guide you through the set-up of a usable job costing system. Ive met only a handful of CPAs who truly understood construction cost accounting.


Give yours a try but realize you may need to find an outside expert to get your job costing system in place and working properly. Remember, not knowing how long it takes to put in work will lead to massive financial losses. Make sure your job costing system is working properly.

Mistake #7: Owning The Wrong EquipmentThe seventh biggest mistake contractors make is owning the wrong equipment. The first time I walk into a contractors headquarters, the owner is always eager to show me his equipment fleet. Why is that? Well, Ive come to the conclusion contractors LOVE equipment. Most view a large fleet of equipment as THE ULTIMATE sign of success. How misguided they are. A large fleet of equipment is often a sign of poor financial management. Contractors often purchase equipment for the wrong reasons. To start with, virtually everyone a contractor meets encourages him to buy more equipment. Crews want newer, bigger, better equipment to run. CPAs see equipment purchases as a great to strategy for reducing income taxes. Equipment suppliers offer incredibly attractive financing deals.

Dont give in to temptation. Buy new equipment if you need to: a) Enter into new markets or niches, b) Improve field productivity, c) Reduce your current equipment costs, and / or, d) Equip more field crews due to sales growth. To make your investment in a piece of equipment pay off, you must be able to put it to work productively on profitable jobs. Look at your business opportunities and your niches. Now, look at your fleet. Do you own every piece of equipment you need to be competitive in those niches? Do you own any equipment that isnt needed to serve those niches? Sell the equipment you dont need and buy the equipment you do. Dont view your equipment fleet as your retirement plan. Its value drops significantly over time. There are far better ways to invest your money. Dont view your equipment as a great tax write-off. You only get part of your money back. Buy equipment for strategic business reasons; not for tax reasons, retirement reasons, or any other reason.


Ignore your CPA, equipment salesmen, and overly eager lenders. Give your crews an ear but learn their real motives before acting on their advice. Will the new equipment they want lower your costs or not? In the end, always base your equipment fleet decisions on your business strategy.

Mistake #8: Running the Business Without a PlanThe eighth biggest mistake contractors make is running their business without a plan. As the old saying goes: When you fail to plan you plan to fail. Most contractors run their business by shooting from the hip. Just blasting away hoping everything works out for the best. In other words, taking whatever work they come across and spending whatever money their mood strikes them to spend. Then they arrive at the end of the year surprised to discover; Their year was unprofitable. Their crews stood around a lot. Their equipment was often unavailable due to breakdowns. Most of the jobs ran behind schedule significantly behind schedule.

Nothing about their business went the way they had expected it to. Does any of this sound familiar? Am I describing your business or the business of someone you know? Few contractors plan well. Its just not a natural act for them. Planning is a tedious and boring task for most people and especially to action oriented folks (like contractors). But ask yourself this, how likely am I to meet my business goals if I dont figure exactly how Im going to meet them? Not very likely. Detailed planning is essential to the long term health of your business. Two lists follow. The first list is a set of plans you must create if you want to run a consistently profitable business. The second list is a list of plans that will help you minimize the daily firefighting.

Essential Plans: Sales and marketing plans for generating leads Annual plan for income and overhead Cash management plan Weekly work plans


Master project plans Quality assurance and safety plans

Helpful Plans: Five year strategic plan Budget of monthly cash flow projections Daily and monthly work plans Equipment transportation Equipment maintenance plans Plans for equipment purchases Plans for expanding and staffing field crews Plans for growing bonding capacity

Planning is nothing more than making your decisions ahead of time. Its actually very easy to do. Think through the tasks that must be finished in order to achieve the desired result. Document those tasks and set completion dates. Theres really no trick to planning. Wait a second, I need to take that last statement back. There is one trick to planning being willing to do it. Would you try to build a building without plans? You shouldnt try to build a business without them either.

Mistake #9: Pricing Work Too CheapThe ninth biggest mistake contractors make is pricing their work too cheap.

Know What You Can Charge For Your Work and Know What You CantThe construction industry trains contractors to be price paranoid. Dont let that happen to you. Youve got to break that conditioning because the fastest way to improve your bottom line is to raise your prices. Step One: Overcome your guilt about charging excessively for your service. Repeat after me

I have earned the right to charge as much as I can!

Keep repeating it until you truly believe raising prices is your right. You live in America. Our economy is built upon the foundation of profit maximization. Dont feel guilty about maximizing your profit.


Step Two: Base your price on customer value. Do not fall into the habit of cost-based pricing. That leaves too much money (profit) on the table. Base your price on the value your customer perceives the work to be worth (the value of removing his pain). Step Three: Learn how to read your client. Have they mentioned a budget? Are they talking about schedule? Are they talking about payment terms? Have they already decided to hire you? What does their body language tell you? Are they excited? Do they appear to have money? All of these clues help you set the right price. Ask your prospects if they have set a budget. If they say no, ask them what they will say when you call back in two weeks with such and such price. If they respond Thats more than I hoped to spend respond with Then you do have a budget. What is it? Step four: Keep track of your competitors prices. Bid enough work to know what the market is charging. Heres how to establish the markets price. a) Before you agree to submit a bid, strike an agreement with your prospect that you get to see all the bids if you submit yours. Then bid high. b) If you cant strike that deal and must win bids in order to learn the prevailing market price, then by all means do so. c) If bidding to win, set your mark-ups to win one third of your bids. d) Keep track of bid results on a spreadsheet, recording your estimated costs, the mark-up used and whether you won or lost. e) Plot graphs showing the mark-up against price on your winning bids. That graph shows you the street price for bid work based on job size.

Your strategy should be to take every penny your client is willing to spend without suffering serious discomfort. If youve done a reasonably good job ofidentifying his problem, translating his problem into a pain, dollarizing the cost of his pain, and knowing what your competition is likely to charge, then choosing the right price to charge should be easy. Dont be like everyone else in your industry. Dont give your work away. When you have the opportunity, go for the throat with your pricing!


Mistake #10: Ignoring The Professional Services TeamThe tenth biggest mistake contractors make is not listening to their professional services teamand Im not referring to your business coach. Although I urge you to hire one! Im referring to the large professional community that is virtually dying to help you run your businesses successfully. Your growth and prosperity is in these professionals best interest. Who are these professionals? Bond agents. Insurance agents. Bankers. CPAs. Lawyers.

For some odd reason, contractors tend to be very hesitant about asking their advice. Hesitancy doesnt make sense because, for the most part, the assistance is FREE and it often keeps you out of harms way. To really avoid making a really serious business mistake, all you need to do is: 1. Recruit the right team of professionals 2. Ask for their help 3. Listen to their advice To build a great professional services team, start with your insurance and bond agent. They are always highly networked. They know everyone who is anyone in your local construction market. They will recommend CPAs, bankers, and lawyers who understand the challenges facing your company. Your next step is to fully develop your banking relationship. You need a banker who is willing to go to bat for you; a banker who understands contractors and the construction industry; and a banker who will teach you how to best work with the bank. Your insurance agent, bond agent, and banker offer FREE advice. Obviously, your accountant and your attorney(s) are hired guns. Dont be penny wise and pound foolish in your selection of them. Your accountant keeps you out of trouble with the government and in good standing with your lenders. Your lawyer keeps you alive in an industry loaded with lawsuits and bad clients. Hire accountants and lawyers who are construction industry experts. Pay for good ones, they are worth the price.


One final recommendation. Bring your professional services team together at least once a year to: Review past performance Get their read on the economy and where its headed Discuss your growth plans Tell them what you expect from them Express your appreciation for their help

Ask for four hours of their time and arrange for a quiet room, a conference table, and refreshments. They will be happy to show up and help you develop your business plan for the upcoming year (especially your lawyer who will be billing you!).

Eliminate The Big Mistakes and Your Business Should Be SafeAs you well know, the construction industry suffers huge economic swings. Recessions test your business. If youve eliminate all 10 of the mistakes, you should have built a near recession-proof business. You should be able to find good work with your well-honed sales process. You should have built a solid foundation of wealth to lean on when needed. You should have access to the cash you need to take advantage of special opportunities. You should be able to hire the best workers as you will be one of the few able to provide steady, good paying work. You should be able to buy equipment for pennies on the dollar as the weaker contractors flood the market with used equipment to cover their loans.

It is time to revisit the list of mistakes you must avoid if you are to reach your financial goals, stabilize your company, and live a less stressful life.

The 10 Biggest Mistakes Contractors MakeMistake #1: Mistake #2: Mistake #3: Mistake #4: Mistake #5: Mistake #6: Mistake #7: Not Selling Aggressively Working For Bad Clients Signing Bad Contracts Not Having a Large Credit Line Failing to Hold Field Leaders Accountable Not Knowing the Cost of Work Owning The Wrong Equipment


Mistake #8: Mistake #9: Mistake #10:

Running the Business Without a Plan Pricing Work Too Cheap Ignoring the Professional Services Team

Get Started Building Your BusinessFinal Exercise: Grab a blank piece of paper. Drawn a line down the middle of it and a line across the top. Above the left column write INSIGHTS and above the right column write ACTIONS. Now list the insights youve gained from this report. Next to each insight, write down the actions youre going to take to make that insight improve your business. Before we go, you should have one last question running through your mind, If I avoid all 10 of the mistakes, will I make a ton of money? Well, the odds are good, but you will only grow rich if you are the BEST, MOST AGGRESSIVE businessman in your market. Are you? If youre not, youd better get to work on your business.

Help is Just a Click AwayWould you like to receive more free business tips and guidance? Sign up for my Contractor Best Practices Newsletter at www.FilthyRichContactor.com. Each newsletter explains a best practice for contractors. Need personalized service? Call me (913-961-1790) or drop me an email ([email protected]) and tell me how to get a hold of you. I will be your business coach, your paid mentor, your sounding board. I will give you the expert guidance, confidence, motivation, and personal accountability you need to stabilize and grow your business.

Feedback WelcomeI would love to hear your thoughts and impressions of this report. Tell me how this report has helped you get your arms around your business. Share You Horror Stories. Share Your Success Stories. Email your feedback to me ([email protected]).


Until next time, I wish you the best-of-luck and great success.

Ron Roberts

The Contractors Business [email protected] 913-961-1790

P.S.

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Special Report: The 10 Biggest Mistakes Contractors Make

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