Reasons Why Contractors Go Out Of Business
Reason No. 1 is a familiar story. Smith Plumbing & Heating is "sick of battling with the customers, the low-ball competition, the lack of money ... I'm outta here," says Mr. Smith, who goes to work for a competitor or, nowadays, Home Depot.
Probably the real reason for the demise of his company is lack of business knowledge and failure to effectively price and market his services. Most businesses, in any industry, fail -- usually because the owner did not have the business skills necessary for success. I have been telling this story for years. However, there are other reasons that folks go out of business. Here are some of the tales I've been told, as they were told to me.
Reason No. 2, Thin Skin: "I run an honest business. I treat my employees well and am a responsible member of the business community. After many years of struggle, my salary is finally commensurate with my stature as a contracting professional.
"A lot of time and work has gone into my business. My selling prices are reasonable, based on our costs of doing business. But I tell you, it cuts me to the bone when a customer calls me a rip-off artist. Rationally, I know the comments are based on ignorance -- my customers don't know the costs involved in putting our show on the road -- but it bothers me nonetheless.
"What really amazes me is when another contractor calls me a 'gouger.' It's gotten to the point that I don't even associate with my competitors anymore. If I could lower my prices and still run a first-class operation, I would. However, I feel that what this industry needs more than anything else are guys like me to dig in their heels and insist on fair selling prices.
"If I had tougher skin, I could handle these attacks better than I do. My plan is to really 'boom' this company so that we can hire a customer service manager responsible for satisfying all customer complaints. Otherwise, I don't want to stay in this rat race."
Reason No. 3, Marital Power Struggle: "My wife and I started this company in 1969. It seemed simple -- I would do the plumbing and she would keep the books. We're still married but working together has taken a toll on our marriage.
"There is room at the top only for one person. Someone has to have the final word. My wife resents me being her boss, and I can't blame her.
"Frankly, I know I take out my frustrations with the business on her. We say mean things to each other at the office that we would never say to an employee. At this point in my life, it's time to put my family first.
"We're retiring. Our son is taking over the business. I have advised him and my daughter-in-law to maintain separate careers."
Reason No. 4, Greener Pastures: "I was in the same sinking boat as a lot of other contractors. I charged $50 an hour. I was broke and blamed the supply houses, the IRS, the customers -- everyone but myself for my sorry state of existence. It took three Frank Blau seminars for me to see the light and start learning business principles. (Frank, at the seminar in San Francisco in 1991, I was the fellow arguing with you from the back row!)
"Starting from zero, I learned all about profit and loss statements, balance sheets and the importance of the gross margin percentage. I restructured all my financial data to enable me to see what was happening all the time in my business. After many years of denial, I realized that my selling price of labor was going to have to go way up if I was going to cover overhead, pay myself and make a profit. I still remember the sick feeling in my stomach when I realized my selling price was headed way past the $100 per hour figure.
"But I stuck it out and it got easier. Then I jumped into marketing and sales training. This stuff was fun! It happened slowly, but I realized a transformation was underway. I found myself enjoying the business aspect a lot more than I ever enjoyed the plumbing itself.
"In 1994 I sold my plumbing company to my employees and embarked on a new career -- business development consultant."
Taking Stock: When the rewards are greater than the effort expended, the game is worth playing. It's like creating a financial statement for your life.
List all the things that add value to your life as a result of owning your business: money, lifestyle, challenge, control, fun -- whatever it is that makes you smile.
Then list the items that deplete your life: risk, time commitment, whatever it is that makes your brow wrinkle.
Compare the "income" to the "outgo." Make changes to increase the former, or consider that you might be better off working for someone else.