The typical contractor today started his own business. It is his skill in starting a venture and getting it going that has brought him to his success today. But, what about the future? It takes a different set of skills to keep the business going, and to develop it into an organization. Unless you build an organization, you will never be able to sell the company, or have the company survive without your everyday presence.

To build your organization, you should be spending your time:

• Planning and directing
• Monitoring people and projects
• Focusing on the few things that can be done well
• Hiring good people and helping them set goals
• Watching the details
• Communicating with & motivating employees
• Finding problems and solving them so they stay solved
• Communicating with your customers

Construction businesses are primarily service businesses. It’s not the two-by-four or the heating system itself that is so important it is how it designed and installed. And that is done by people. People are our most important asset and we need to hire right the first time and make sure we retain them. Likewise the key behind engineering and architectural services is also people, people, people. Dealing with customers, employees and sub trades requires people skills.

People have too many options; it is up to us to make their lives simple, yet challenging and not give them cause to shop around.

Putting effort and strategy into place from day one will pay dividends.
Some of the key mistakes that I see time and time again are

Profile: You can’t hire someone unless you know exactly what they will be doing and what type of person would best fit in. I know this may sound obvious but ask yourself the following questions and ensure that you have written answers to each:

1. Do we have a detailed list of the duties the person will be responsible for?
2. Have we identified the skills (both the soft and hard) required for the job?
3. Have we identified the type of person that would best suit the job?
4. Have we a list of standard questions that we will evaluate each candidate on?

Unless you have given four unqualified “yes” answers you don’t deserve to hire the best and you won’t.

A really critical part of the process is getting a realistic reference. My recommendation is to go and see the former employer (if possible) to get a really good sense of your preferred candidate. If the candidate has not been great in the past he won’t be in the future either. The final question to ask the former employer is “would you hire this candidate again?”

When you have the person on board you need to keep them on track and focused. Have key performance indicators that you are both agreed on and review and mentor this person at least on a monthly basis to ensure that they are adding value to you and that you are providing them with the opportunities that they require.

What can you do with the information that you gleam form these projections?

If you are getting too much work you need to marshal more forces or subcontract out more or better still put your prices up and secure less work at higher margins (it’s all about profit; not volume).

The real strength to this process is that you, as a manager and leader, become more proactive instead of reactive. You will be handling potential problems before they even rear their ugly heads. Your team will function with greater efficiency and you will make lots more money. Reacting to all the stressors and spending most of your time putting out fires is not productive. An effective manager diverts problems rather than solves them.

If you are constantly putting out fires then you can’t take time off. What would happen if you were to take three weeks off? Who’s going to do the job as well as you?

Sit back, have your favourite beverage and sketch out what life would be like if you were in control of your business. You have the magic touch, you tell your team what their needs are going to be in one, two, three, four, five and even six months in advance. Their confidence in your leadership will soar.
 
The amazing thing is that you can monitor these Key Performance Indicators from any beachside café with your Blackberry in just a few minutes each day. The big danger is that you might work yourself out of a job and then what would you do with all that free time?

If you had started this process six months ago you would now have that lifestyle. If you don’t start it now then in six months time you will be still micro-managing and spending your days putting out fires. This may give you a false sense of importance. The emphasis is on the word false!

“A typical project manager spends up to 70 percent of his time reacting to minor emergencies, correcting errors, tracking down answers to simple questions and explaining the obvious……. Hardly a productive, or effective, use of a professional manager’s time.” So says the Alliance Project Management Manual.

How about you? Are you spending 70% of your time on trivia? When you have read this article you might be surprised at the answer. When a client asks me what’s the best thing they can do to improve the value of their business I often shock them with my reply “don’t show up; don’t go to work; fire yourself”

You see, most of us spend huge amounts of time, probably 50% or more, doing exactly what the project manager is doing – dealing with trivia. We should have systems in place to reduce the amount of trivia and juniors for dealing with the rest of it. If you did this you could free up 20 hours a week or more. How can you do it? It takes some simple strategy and a lot of effort.

Week one: (Do this each day)

List what you are doing at every quarter hour for the week. For example
8:00 AM – drinking coffee
8:15 AM – talking to receptionist
8:30 AM – responding to phone query about project #123
8:45 AM – talking to project manager about project #123

Week two:

Identify what is trivia and get rid of it to a junior
Identify what is a recurring item and put a system in place to make it routine
Identify where you are interfering (Why didn’t the project manager take that phone call instead of you?) and stop interfering. Give people authority as well as responsibility.

Week three:

Develop a discipline of only doing activities that are critical to the company. Get out of the day to day operations, that’s no place for the owner manager to be spending his or her time.

As well as having a TO DO list you should also develop a I WILL NOT DO list. Put on that the trivial items that take you away from being successful.

If you didn’t go to work someone else would have to do those chores. So make a plan that will allow you to stop going to go to work in two months time and spend the interim developing systems and people to handle all those menial chores that you are wasting your time on. Once you have set your deadline you will be amazed at how focused you become. Reward yourself with a trip away in month two.

So, now you have gotten rid of the trivia and you are an effective owner/manager, right? Wrong! You see, you are probably only spending 10% of your time in your true role – your leadership role.

You can never retire or sell the business for what it should be worth if you continue to fill the role of owner/manager. There are thousands of competent managers out there who could manage the company as well as you, if only you could get to the next level. This is the secret to it all. The next level is leadership and that’s where we should be spending most if not all of our time. That’s where the money is going to be made and that’s what will give you an exciting future. No more than 5% of people become leaders, they are too busy managing the activities or doing the activities.

If you don’t have a vision for your company who will? Who’s thinking about what the company will look like in five years time? Who is implementing that tactics it takes to ensure that the company will look like that vision? Having that vision and turning it into reality is not only rewarding personally but also financially. 

One of my clients, a heating contractor was doing $2 million in annual sales and making 5% ($100,000) pretax profit after taking a salary of $75,000. At a valuation of four times annual earnings this put his company at a value of $400,000. He was part of the HRAC benchmark program that I do annually and he asked me why he was only in the middle of the pack? Why wasn’t he making 10% or better like the top 25% of the companies in the program?

We developed a vision of his company doing $3,000,000 in sales at a 10% pre tax profit. If this became a reality his company would be worth $1,200,000 (four times $300,000). It took four years to get there. Once he focused on that vision he wouldn’t let go. Every day he asked himself the question “what did I do today to make my vision a reality?” When he wasn’t satisfied with the answer he determined to be more disciplined the next day. He said it was tougher to stay the course than any diet he ever went on,  particularly in the early stages, but it was the most exciting and rewarding  time of his business career. So, not only is the company worth an extra $800,000 but now he makes $300,000 annually instead of $100,000. Over the next 6 years the combined result will give him additional wealth of $2,000,000. I know he will lose some of that to income tax but he will compensate for that by investing the additional earnings outside the company.  Can you envision that for your business?

While a number of evaluations can tell you what callbacks cost, the first step is to track them.

Some companies set up a job account and code all callback expenses to it so as to determine what they spend in this area. Others just charge the callback to the original job code while still others—who use flat-rate pricing for their technicians—incur no dollar cost because they force technicians to fix problems at their own expense.

I recommend building in a percentage for callbacks on each service call—say two per cent of the direct cost of the job—and mark it up for overhead and profit. Include it as you would any other cost.

Upon job completion, record a debit to the job cost with the two per cent and credit your balance sheet’s Callback Provision Account. (The balance on this account will be added to taxable income at year-end. Your accountant can explain this in greater detail). Every time you get a callback, debit the Callback Provision Account with the cost.

At the end of the year, you can see the account’s balance. When it is negative, your callbacks are costing you more than two per cent of the cost of sales. When the amount is positive, you know callbacks are costing you less. 
This information empowers you to make decisions, such as:

• Do you need to provide more training and/or supervision?
  
• Do you need to allow more time for jobs?
  
• Can you improve your final checklist?
  
• Is there a diagnostic problem?
  
• Should you provide incentives?
  
• Do you need to adjust the two-per cent allowance (up or down)?
  
• It is essential to track callbacks by technician, and most will involve only a few of them (the "80/20 Rule"). Make sure you focus on the activities of those technicians and avoid upsetting the ones with little or no callbacks. This way you can either help those who specifically need help or replace the ones who will not learn.

There are several elements to the cost of the callback:

• Direct cost is the easiest figure to establish; you use the same process as you would on your job costs, using the same rule to determine whether costs are ‘direct’.
  
• Impact costs is where less definitive areas suffer; it takes additional time to get up to speed on the job. Issues arise over reorientation and set up time.
  
• Overhead, including supervision, are also incurred at the normal rate on a callback.
  
• Profit. You aren’t making any because you are not charging anyone for the callback.
  
• Lost opportunity. Your productivity goes down because you are doing work you cannot invoice out. This may mean that customers have to wait longer for service. You may even have to hire another technician to cover the hours lost to callbacks.
  
• By building in a percentage for callbacks on each service call, you actually recover your overhead, profit and lost opportunity because you compensated by increasing sales in the first place. And you make even more money when you don’t spend the full two per cent. You can also cover your impact costs by increasing the percentage.

The cost that we should never forget, however, is ‘perceived indifference’. In fact, people change providers 68 per cent of the time because of it. Callbacks often make customers feel you are indifferent to their needs. So take responsibility and make sure the customer is satisfied and compensated for the inconvenience you have caused by not doing the job properly the first time.

Your action plan is as follows:

• Identify how much direct cost callbacks cost you and determine whether this is an acceptable level.
  
• Set up a system using a percentage that reflects reality for you (which may or may not be two per cent).
  
• Implement a monitoring procedure and corrective strategy program.
  
• The market is very competitive. When you’re not on top of your game, people will react accordingly. Your employees, suppliers and customers can all sense when a company is undisciplined. It is then that you lose your best team members and customers. Don’t get sloppy over callbacks.
  

How many times have you heard it? A business owner complains about the government, the weather, the this, the that, for the failure of their business. When, in fact, for most businesses, the statistics you’re about to see tell a very different story. A story that’s important to understand so that you know just how much your own actions ultimately affect the success or failure of your business.

Some statistics tell it like it really is.

Some statistical research on the reasons why small businesses fail provides interesting results. ‘Small businesses’ were defined as having fewer than 100 employees. These results apply to one-person small businesses all the way through to larger ‘small businesses.’ Let’s look at them and then analyze the ramifications.

32.1% of small businesses fail due to poor management of financial activities.

Not being properly funded or failing to keep a tight reign on receivables and payables are examples of such issues. If there’s one area that’s a ‘weak link’ for most businesses, this is it! Most business owners prefer to complete the work the business does instead of fussing over the details. As such, financial control is one of those detailed areas they often avoid.

14.6% of small businesses fail due to a lack of management competence or experience.

Business owners or managers are often very good at doing the technical work of their business. For example, you could be the world’s best drywaller, carpenter, photographer, florist, or what have you, but unfortunately, that might not mean you automatically have the skills and experience required to really make the business go.

12.4% of small businesses fail due to inflation and economic conditions.

These are conditions affected largely by internal government controls on currency and interest rates and by other worldwide financial mechanisms. These conditions can also be altered by the effects of weather or natural disasters on an area, a country, or a region of the world. Obviously, these factors are outside your control as the business owner.

12.3% of small businesses fail due to poor books and records.

It’s staggering, don’t you think, that the seemingly small task, although a detailed one at that, of keeping good books and records of sales, expenses, etc., can literally bring about the failure of a business! You see, keeping detailed financial ‘books’ or figures and records can be an issue some business owners or managers avoid. This is very dangerous, too. Do your computer backup systems really work? Test them. Some 80% of them fail.

10.7% of small businesses fail due to sales and marketing problems.

Sales and marketing are areas that many business owners or managers—unless these are their particular areas of skill—find challenging. The world of marketing is foreign to many people. All the techniques, the do’s and don’ts, the costs, the results, or lack of them, can add to this feeling. For example, many businesses throw good money after bad simply because they just don’t know whether their advertising or marketing actually works. And before they know it, they’ve literally spent thousands of dollars for little or no return.

9% of small businesses fail due to staffing problems.

When asked, ‘What are some of the positives and negatives about being in business?’ most business owners and managers unfortunately place ‘staff’ in the negative column. This is a sorry state of affairs, particularly when you consider that most people want more than a job, and most business owners want team members who will treat their work like more than a job! And despite all the best intentions and desires of both parties, often both will end up with a less-than-perfect situation.

6.2% of small businesses fail due to union problems.

As you may have seen, unions can affect businesses dramatically. In fact, union movement can affect whole industries or entire countries, depending on which union is taking action.

2.7% of small businesses fail due to failure to use external advice.

This small category represents the group of businesses that would not have failed had they sought external advice. In other words, people out there could have assisted the business. In fact, so much so that the business would not have had a difficult phase or certainly would not have failed. This external advice could have come from accountants, lawyers, business advisors, and so on.

So where does this leave you?

Well, take a look at the figures repeated for you here. As you do that, add up the percentages of reasons for small business failure that are external to the business—that is, outside the business owners’ control.

32.1% Poor management of financial activities
14.6% Lack of management competence or experience
12.4% Inflation and economic conditions
12.3% Poor books and records
10.7% Sales & marketing problems
9.0% Staffing problems
6.2% Union problems
2.7% Failure to use external advice
100.0%

It’s about 18.6%, isn’t it? Inflation and economic conditions at 12.4% and union problems at 6.2% are the only two factors outside the control of business owners or managers. So, outside influences account for only 18.6% of the reasons why small businesses fail. That is just amazing!

Only 18.6% is outside your control!

You’ll agree—every other factor is internal. Which means that you are in charge—you are in control. YOU and your team actually control whether your business survives.

You see, the statistics show that 81.4% of the small businesses surveyed failed because of issues under their control. So, 82% of the time when businesses fail, the owners really could have done something differently to stop that from happening. The problems were actually in their control. This is good news! Fundamentally, it means if you’re having problems in an area of your business, you usually CAN do something about it. With the right help and more involvement with your team, you’d normally be able to get each and every one of these factors in order.

If more business owners had better control and management of the factors that create that 81.4% of the reasons why businesses fail, chances are their businesses would be booming regardless of economic conditions! These results show that as much as government policies and economic conditions affect business, your actions and that of your team have a far greater effect on your results than absolutely anything else. As such, it’s important to look out for these ‘hot spots’ and take action to resolve any of these issues--quickly.

Your Action Plan

Take action now to resolve each and every one of these trouble areas and succeed!  Determine:

Action 
(what needs to be done)

• Review each one of the reasons for small business failure.As you do that, rate the level of success or failure in each area for your business. 
• On a scale of 1-10, with one being the worst and 10 being the best, rate your control orsuccess with that issue.That way, strategies can be created to address the biggest problem areas.  
• Now, repeat the process with your team and begin to work on strategies to address each area.  
• Talk with your advisors for any assistance in this area.

Outcome
(results to look forward to)

• To check the conditions facing your business both internally and externally.
  
• To make sure you establish controls and put strategies in place so that your business succeeds! To take the "temperature" of your business.   

Person Responsible
(make sure you involve others, delegate if possible!)

Due Date
(establish realistic deadlines)