Too many construction businesses fall over because the owner has not established efficient business systems. This typically happens because the construction company owner is so caught up in the day-to-day operations that the fundamentals of proper business management get forgotten. Often too, it must be said that the owner doesn't like bookkeeping or other administrative tasks, so these get put on the back burner.
The symptoms are familiar, and their results disastrous:
- Poor or non-existent record-keeping.
- Tax obligations are not met.
- Invoices go out late, and debts remain uncollected.
- There is one cashflow crisis after another.
- Goods and services are incorrectly costed and priced.
Any of these factors can lead the business down the slippery path to failure, but all are avoidable. The whole point about putting in sound systems is that they free you to spend more time working ON your business, not in it.
To be in business and to remain in business, become a business person! To run a business, you must be business-like. It's not sufficient to be very good at what you do. Lots of people who are 'very good at what they do' have failed. The familiar cry: "I'm far too busy for that" is also no excuse. Are you 'too busy' to be a competent businessperson? If so, your business won't last long. You must continue to develop your business skills.
To be a businessperson, you have to make an effort to become something of an 'all-rounder', not just a specialist player. You can offer outstanding services, but if you don't develop superb business systems, then you are not a fully rounded businessperson, and your business will be in danger of failing.
Remember that other stakeholders in your business, such as the building material suppliers who give you credit and the bankers who extend loans and financing terms, are always assessing your business skills. If you consistently pay people late or can't meet the terms of your debt agreements, they will draw the obvious conclusions about your business skills.
How Good Business Systems Will Help You
An exceptional business system will make your construction company stronger, more efficient, and easier to run. It will also make your business far more attractive to future buyers because if you have developed clear operating and procedure manuals, the company will be seen as an independently viable unit and less dependent on you.
Think, for instance, of what makes franchises so successful: it's because they are designed so that people can buy a proven system and operate it after minimal training. They can do this because the business procedures are captured in simple, clear operating manuals.
Here are some ways to implement excellent business housekeeping:
1. Good record-keeping and bookkeeping - will help you keep on-side with the Internal Revenue Service department. If you're able to meet your tax obligations through sensible planning, you'll sleep better at night. You won't fear a tax audit, and you'll know how your business is doing. A 'sudden tax demand won't catch you out of the blue' because no such thing exists for a well-run construction business. You should always know which taxes are due and when. You'll suffer less stress.
2. Proper business planning - will help you set goals for your business, with specific steps on how to achieve these goals. Without goals, where do you think you're going? Running a business without goals is like turning up at an airport and saying, "I'd like to go somewhere." The person at the ticket desk would think you're clueless!
3. Positive cash flow forecasting - will enable you to anticipate a possible cashflow problem (something all growing businesses experience from time to time) and take steps before the problem becomes a crisis. Banks will respect you if you anticipate issues and make plans in advance. Banks will not respect you—and will indeed categorize you as incompetent—if you tell them you've been 'caught out' by a crisis. Banks don't like messes. They want you to go to them well in advance of any possible crisis with a plan in hand. This shows them you're in charge of your business.
4. Great creditor and debtor control - will improve your cash flow. Invoicing promptly and collecting debts on time gives you the cash to pay suppliers on time and get more favorable credit terms from them. It is a virtuous circle. Sloppiness in this department is one of the most common (and unnecessary) causes of business owners experiencing stress and anxiety. So pay your creditors on time, and don't let your debtors use you as a free banking service.
5. Realistic pricing and costing - will ensure that you run your construction business in a competitive but profitable way. Poor skills in this regard could mean that you're operating at unrealistic levels—even at a loss. For example, if you let costs get out of hand (such as overhead costs), your profits will erode. There is no point in increasing sales if you're not increasing your profits.
In business, you don't have to be an expert at everything. For example, you might hate bookkeeping. Fine—but do get someone else to do it for you, don't rely on a shoebox for your accounts! And you should at least understand the processes and the overall accounting picture even if you don't want to do the 'drudge work' yourself.
The Importance Of Documenting Processes
Many construction company owners operate with their business processes and systems in their heads. They know what they need to do each day and the way they want to get things done.
Unfortunately, when a construction business grows, and staff needs to be hired – or the owner needs to take time away from the company – it's a real liability not having processes and systems documented in one place.
Here are five reasons to record your construction company processes and systems, so your business can run more efficiently and effectively, even when you're not there:
When you sit down to record your processes and systems, you may discover gaps where improvements could be made. You might find better ways to perform routine tasks, reducing bottlenecks, and eliminating extra steps. You may decide that some tasks are too time-consuming, and you'd save time and money switching to an automated solution. Reviewing how you do things as you record systems can help create better systems, improving productivity.
Support Your Staff Training
When it's time to hire new talent, a systems manual can dramatically reduce the time you spend training. Documenting your processes can also ensure that jobs are consistently performed to a high standard. Sharing your procedure guidelines can help new employees, and casual staff quickly get up to speed on expectations and give them a reference to check before asking questions.
Sell Your Systems
Develop a unique turnkey system that other construction businesses can implement to save time and cut costs, and you can increase profits by selling your operating manual. Those documented processes are part of your company's intellectual property and can be licensed, just like your brand name. Randal DeHart implemented systems using templates for QuickBooks and has tremendously helped hundreds of construction business owners like you. David Hawke and Randall Soules recently had a podcast interview with Randal and introduced their Scientific Remodeling System to the trade industry.
One of the perks of running your own business is setting your schedule. But without systems in place, it can be challenging to get away for a vacation, let alone retire. To build a business that can run without you, you need to be able to delegate the tasks and processes to someone else, with the confidence they'll be performed correctly and consistently. Another excellent reason to make sure your systems are recorded and your manual are updated regularly.
Sell Your Business
When it comes the time to sell your business, you'll get top dollar if you can provide a buyer with an operating manual. A potential buyer wants to know the company will continue to run smoothly without you throughout the transition period, and that institutional memory will be retained when there's staff turnover. The greater ease with which someone can step in and operate the business, the greater the value and the higher your compensation when you're ready to sell.
As we've identified, there are several excellent reasons to review your systems and record them, even if you're just starting out. You might plan to update it yearly, just like your business plan, to discover best practices and ensure it maintains its usefulness to you and your staff.
Having weak systems is the road to stress and burnout. On the other hand, sound business systems will enable you to work smarter, not harder. They free you to work on your construction business rather than in it. That way, you're more likely to avoid burnout, and you'll be able to take time off work because you can train others to follow your documented systems and procedures. Systems and processes are the way to build a better business and liberate yourself from it.
About The Author:
Sharie DeHart, QPAis the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or email@example.com
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