Why contractors fail
Transcript of Why contractors fail
““Why Contractors FailWhy Contractors Fail”” – – Ten Pitfalls To AvoidTen Pitfalls To Avoid
and Ten Ways to Avoid and Ten Ways to Avoid ThemThem
1. Accounting & Financial 1. Accounting & Financial Management ProblemsManagement Problems
Inadequate cost tracking systems
Estimating or procurement problems
Underinsured
CPA does not follow guidelines contained in American Institute of CPAs Audit Guide for Construction Contractors
1. Accounting & Financial 1. Accounting & Financial Management Problems (cont.)Management Problems (cont.)
Bank lines of credit constantly borrowed to limit
All credit fully secured
Lines not being renewed
2. No Comprehensive 2. No Comprehensive Business PlanBusiness Plan
Contingency plans are not developed
No “road map”
No goals
No objectives
3. Unrealistic Growth/Over 3. Unrealistic Growth/Over ExpansionExpansion
Expansion in volume, work type, or geography faster than resources allow
Significant increases in the size of individual projects
Expands too rapidly to meet staffing and/or working capital requirements
4. Poor Project Management4. Poor Project Management
Inadequate supervision
Inability to get reasonable prices on change orders
Projects not being completed on time
5. Poor Estimating and Job 5. Poor Estimating and Job Cost ReportingCost Reporting
Revenues and margins decrease over time
Continued operating losses
Loss or reduction of bonding capacity
Bidding jobs too high or too low
6. Communication Problems6. Communication Problems
Disputes between contractor and owner
Poor communication from field to management
7. Changes in Ownership 7. Changes in Ownership and/or Personneland/or Personnel
Leadership of company changes (owner dies, retires, sells company; no continuity plan in place when key person dies or becomes disabled)
Key staff leave company (inadequate time to train new staff; need time to teach company policy & operations)
8. Changes in Scope or Line 8. Changes in Scope or Line of Businessof Business
Changes in type of work
Changes in the location of work performed
9. Factors Beyond a 9. Factors Beyond a ContractorContractor’’s Controls Control
Unexpected economic down-turn
Weather delays
Labor difficulties
Material & equipment shortages
High inflation
Owner’s inability to pay
10. Loss of Loyal Customers10. Loss of Loyal Customers
Decreasing reputation for company’s ability to perform contracts on time & within budget
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.) (cont.)
1. Develop a Business Plan, including establishing a Succession Plan
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
2. Identify and hire CPA with construction experience
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
3. Hire experienced estimator, even if only on a part-time, or “as-needed” basis
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
4. Develop relationship with surety bond producer prior to requests for bonding
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
5. Put into place an automated job costing system – e.g., Timberline, etc.
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
6. Develop banking relationship, including seeking reasonable line of credit
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
7. Establish clear job descriptions, including fair compensation structure
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
8. Incorporate supervisory and field training in operations
Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)
9. Manage expansion and growth