When the Going Gets Tough

By Sep 15, 2009
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Despite the dire predictions and handwringing surrounding you, it is possible to prosper during tough times. Be aware of the most common events that lead to contractor failures, and you can adjust your business strategy to avoid them. Watch for these warning signs:

Financial Job site conditions
Resignation of key personnel Revenues decreasing Decreased productivity
Loss of loyal customers Tight cash flow Increased waste
Increase in conflicts and disputes Reduced profit margins Poor supervision and cost control
Poor morale Suppliers demanding COD Higher accident rates
Eroding efficiency Credit limits maxed out Inability to resolve problems
Employee theft/embezzlement Reduced bonding capacity Increase in claims and litigation

Hopefully, you have avoided most of these problems. Here are some ways to ensure you continue to do so.

Maintain healthy relationships

Touch base with employees at all levels and gauge their morale. It also is important to ask for suggestions. What resources and process changes would enable them to perform more efficiently? Do your best to implement the most reasonable and cost-effective suggestions, and you will build loyalty and create employee ownership of their jobs as well as save the cost of training new people.

You also should create or update a company organization chart and determine a possible backup person for each key position. Begin a cross-training program immediately if you don’t have one in place. Also, review your plans for leadership succession and ensure future leaders are aware of your plans for their career development. You would be surprised how many company owners have a successor in mind but have never formally discussed the transition with that person.

Check in with key customers and ensure their needs are met. Reward them with discounts, incentives and superior performance. Ask for testimonials, use them to gain new customers, and offer your employees rewards for referrals.

Evaluate your work

Study types of work you are performing. If you are taking smaller jobs, be aware that the startup costs and overhead may be a greater percentage of the contract price. If you are expanding into untapped markets, factor in the productivity effects of your learning curve. If you are taking on new customers, gather information on their business practices to reduce your risk of doing business. Fear of revenue losses drives poor business decisions and adds risk factors that further erode profits.

Ultimately, the projects you choose to estimate must be a good match for your company size, financial capacity, knowledge and skills. Don’t ignore the work you do well to build expertise in a new market niche, or you will destroy the foundation of your success.

Financial controls and loss prevention

Are you satisfied with the responsiveness, level of reporting detail and user-friendliness of your estimating and accounting systems? Is job-costing data integrated in a timely way and reported promptly? This is the time to tighten up and correct any inadequacies in financial reporting, or cost overruns and collection lapses will stop your cash flow and cut off your profit.

Also, ensure that you have internal controls to prevent losses from theft and embezzlement. Unfortunately, even trusted employees and suppliers may turn to white-collar crime if their own financial issues cause them to panic, so implement procedures that minimize exposure. If the boss occasionally distributes paychecks, then “ghost payroll” problems are unlikely to exist. Some business owners redirect bank statements to their residences and review enclosed checks for proper signatures, payee information and endorsements. Never delegate tasks involving both incoming and outgoing cash (such as receivables and payables accounting) to the same person. Purchase employee theft insurance, and bond employees with financial access. Or require periodic background checks through a third-party vendor.

Recheck your insurance coverage, and look for opportunities to increase deductibles or reduce expensive coverage that doesn’t adequately reimburse losses. Meet with your bonding agent and your banker to update them on your work in progress, reductions in backlog, and changes in financial position. Hiding negative information from these professionals provokes anxiety. So present your information truthfully but confidently, and show them a defined plan for meeting contingencies until market conditions improve.

Factors beyond your control

You cannot control the economy, inflation, weather, shortages of labor, material and equipment, or changes in a customer’s financial situation. Regardless of how well you analyze, prepare and strategize, your future survival cannot be guaranteed. But the constant risk of failure keeps you alert, and maintaining your edge guarantees you will never succumb to boredom.

NORBERG-JOHNSON is a former subcontractor and past president of two national construction associations. She may be reached at [email protected].

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