Business Plans Stir Up Debate!
If you are a contractor you are most likely a "doer", someone who gets things done, not now but right now! When you see anyone not swinging a hammer, drilling holes, pouring concrete, laying carpet, putting paint on the walls or a thousand other construction tasks the first thing you think is they are wasting time and money and you want no part of that nonsense!
Having worked with contractors for a very, very long time the one thing we see highly profitable contractors do that other contractors don't is they all have a documented Business Plan which they review and update during the two weeks following the end of every calendar quarter.
Business Plan Pros Vs. Cons
Prior Planning Prevents Poor Performance.
When you take a vacation you plan for it.
When you buy a truck or a tool you plan for it.
You can plan your exit strategy to retire comfortably.
Cash flow and Profit is not accident, it is a result of deliberate action.
The economy will not impact you as hard because you will see changes coming.
When you were a child you enjoyed surprises but not in your construction company.
I don't have the time to plan; I have work to get done!
It is a lot of work and I don't know if it will be worth it.
None of my contractor friends who are in debt up to their ears do it. (See Leveling)
Most contractors hate putting together a documented Business Plan until it is finished and they start seeing the power of setting financial goals come alive then they say "why didn't I do this sooner?"
As Napoleon Hill is famous for saying "Whatever the mind of man can conceive and believe, it can achieve." It is not enough to say "I want to make a lot of money!" because the Universe is always in balance and responds to specific requests.
I can respect that having been where you are now. Let me share a story my Stepfather shared regarding "Tactics Vs. Strategy".
Story Of The Two Woodsmen
There were two lumberjacks, John and Frank who went into the woods every morning at sunrise and worked hard all day until sunset with a chainsaw to cut trees into firewood which they sold in town to earn a living.
John went to the North side of the woods and Frank went to the South side of the woods and everyday John would produce ten cord of wood and Frank would only produce one cord of wood.
After two weeks Frank was growing angry and insisted they change places because John must have found wood that was somehow easier to cut and John agreed to the switch. During the next two weeks nothing changed, John still produced ten cord of wood to Frank's one cord.
The following morning Frank asked John if he could watch what he does to try to find out why there was such a big difference in production.
When they men arrived at the place where John had left off the day before John started up his chainsaw and immediately Frank yelled at the top of his lungs:
Hey! What's That Noise?
I doubt that really happened, yet is does illustrate the difference between "Tactics and Strategy". All contractors use tactics to get work done; yet highly profitable contractors use strategy first to find the most effective and efficient way to get work done and then use tactics to do it.
A lot of positive changes are coming in the next five years which is reason enough for proactive contractors to have their Business Plan in place as soon as possible because it can act as a guide to help you chart a course to optimize your construction company's cash flow and profits.
Your Business Plan Is One Of Your Competitive Advantages - For construction firms the impact is even greater because very few contractors have one and many of the ones that do rarely look at it. This is because it was something they needed to produce to get a loan, investment capital or some other external force was applied. Once the crisis or need passed they simply let it rest-in-peace on the shelf.
Business Plans For Construction Follow This General Format
#1 Executive Summary - Reputation
In construction reputation is key because construction is a perishable commodity that does not age well and delays cost a lot of money. So construction firms establish and protect their reputations very carefully based in part on having the resources and expertise to complete the work on time and on budget.
#2 Mission Statement - What Type Of Construction Are You Good At?
What type of construction are you focusing on? New, remodel, service and repair?
#3 Competitive Analyses - What You Do Better Than Any Contractor Within Twenty Five Miles?
Every contractor has a different mix of resources and expertise which means there are some aspects of construction that are fast and easy for them and that is their Unique Selling Proposition (USP) where they should concentrate all their energies.
#4 Marketing Strategy - Who Are Your Most Profitable Clients Using The 80/20 Rule?
20% of your customers normally generate 80% of your net profit.
20% of the goods or services you sell contribute 80% of your revenue
20% or 2 out of 10 of your staff create 80% of the value for your customers.
The frightening consequence of the 80/20 rule is that 8 out of 10 hours we spend at work drive almost no value to the bottom line and the biggest drain is trying to save money doing our own contractor bookkeeping instead of reviewing the Key Performance Indicator (KPI) Reports. Through our contractors bookkeeping services system you can access them 24/7 without opening QuickBooks for Contractors.
Good contractor bookkeeping services can help you understand where your 20% is hidden.
By generating daily reports that uncover the best customers, jobs, services, or products, you will soon see how you can refocus your internal efforts on doing more good work.
This is the great contribution a company receives from good QuickBooks financial reports from using QuickBooks the ‘right-way’.
Every construction company knows who their best customers are and who the worst ones are. The key is to make a list to identify each group
#5 Executive And Field Staff Qualifications - Journeymen vs. Cheap Labor
The journeyman costs more per hour but produces more and better results at a lower costs over the long haul than a group of cheap laborers. This is easily documented in a well setup QuickBooks file
#6 Financial Information - Profit & Loss and Balance Sheet
Contractors typically run their business with a daily print out from the online account at their bank. Some use software and most that we come in contact with use QuickBooks.
For construction companies with 1-10 employees, including the owner, and annual sales of $0-$5 Million, QuickBooks Premier Contractor Edition is in my opinion the only choice. It can produce all of the financial statements most construction companies need and much more. The most important reports for a contractor to see are the Five Key Performance Indicators (KPI).
Success is a few simple disciplines practiced everyday
Failure is a few errors in judgment repeated everyday
Here Is What We Recommend You Do Next:
#1 Purchase Business Planning Software from Palo Alto Software. They offer two versions and we recommend the "Premier Version" since for the additional few dollars you get so many more reports and options. We can assist you with setup and maintenance of your Business Plan.
#2 Let Us Setup QuickBooks for you or Clean Up QuickBooks as needed and help you write and document your Construction Company Business Plan.
Need Help Now?
Call Sharie 206-361-3950
QuickBooks Expert Specializing In Construction Bookkeeping Services
About The Author:
Randal DeHart, PMP, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. He is the leading expert in outsourced construction bookkeeping and accounting services for small construction companies across the USA. He is experienced as a Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor and QuickBooks For Contractors Expert. This combination of experience and skill sets provides a unique perspective which allows him to see the world through the eyes of a contractor, Project Manager, Accountant and construction accountant. This quadruple understanding is what sets him apart from other Intuit ProAdvisors and accountants to the benefit of all of the construction contractors he serves across the USA. Visit http://www.fasteasyaccounting.com/randal-dehart/ to learn more.