Bigger Is Better
You own your business, and you have the right to operate as big or as small as you desire. Unlike clothing, you are not limited by your physical size; but you certainly can be limited by your management ability and practices.
As most of you know, that “great dream” of owning your own business has turned into a nightmare for thousands of hard-working entrepreneurs:
- Many were exceptionally capable craftsmen who did not understand the business world;
- Some had good business sense but did not know enough about the construction industry;
- Poor cash flow, lack of funds and financial catastrophes caused most of those failures. Unfortunately, the majority never realized the crucial importance of concentrating on the “people business;” and
- You can never discount the importance of luck. Being in the right place at the right time can make winners out of mediocre contractors. But bad luck and bad timing can easily wipe out the best.
I am sure that you would rather have your year-end volume shown in millions rather than thousands. Regardless of your size, basic Management 101 dictates three basic necessities, called a three-legged stool:
1. Sales or estimating - Your first obligation is to get a job.
2. Finance or accounting - You must pay for the job as it happens and collect for it when it is completed.
3. Production or supervision - You must furnish and install whatever you contracted to do.
Ample AdvantagesIn my opinion, there are two rewarding benefits of owning a bigger construction company that overshadow all of the rest:
1. Financial stability. A company doing a volume of work has a financial reservoir to pay its bills on time; meet emergencies; offset delinquent or nonpayments; cover litigation expenses; withstand OSHA, EEOC NLRB or other fines; and repair or replace shoddy workmanship. You can afford to hire or pay consulting fees to a CPA, an attorney, and a management consultant. You can also utilize a registered mechanical engineer to provide design-build services.
Larger volumes also provide ample cash flow for hiring and keeping capable employees; capital investment; expansion opportunities; customer entertainment; education; and business-related travel expenses.
Last but not least is the resulting bottom-line profit. In addition to the personal pride and prestige of living “high on the hog,” these profits support your pursuit of whatever your heart desires.
2. Availability of more personal time. With proper management, every detail and responsibility is effectively delegated to willing and capable employees. Your company will literally run without you! And you are paying them to do it.
The most interesting decision you may face will be how much of your spare time to devote to recreational activities, such as playing sports, attending sporting events, hunting, fishing, boating, quality time with your family, further education, or traveling.
I hope you are encouraging your management team to resolve every key business situation with practical and profit-oriented decisions. These decisions should be monitored and rewarded with promotions and salary adjustments.
As the owner of a large company, you may still have the final word on critical and long-term commitments:
- A commitment to jobsite safety, including training, drug testing, quarterly meetings and jobsite inspections.
- How much overhead and profit to add to hard bid projects.
- Financial decisions involving insurance, bonding, investments, borrowing and taxes.
- Decisions on litigation, arbitration and negotiation.
- Marketing and diversification - plumbing, HVAC, fire sprinkler, industrial, water and sewage plants, utility road and site installation, residential, service work, etc.
- Out-of-town projects - satellite divisions.
- Union or open shop - project agreements when feasible.
- Advertising, sales programs, business entertainment.
- Buy, rent or lease major tools and equipment.
- Maintain a fully stocked warehouse of parts and pieces.
- Prefab and pre-assemble facilities.
- Wages, salaries, bonuses, profit-sharing, employee use of vehicles, healthcare and benefit plans.
- Use of virtual offices (work at home) for key employees.
- Piecework options and flat rate pricing.
- Flex-time options for all employees.
Another notable advantage of large companies is the confidence and drawing power for attracting good employees. Wage earners want the job security of a solid company to assure their continuous income.
Bigger contractors also attract customers who need assurance that their projects will be completed with quality workmanship and on schedule. Large companies can shift manpower from other projects to meet critical path schedules.
Large companies can do mass purchasing with supply houses and negotiate lower prices, as well as credit terms. They also are in a favorable bargaining position for bank loans, credit terms, bonding and insurance coverage.
Next month we will look at some of the drawbacks of being a small company, and at how many of my clients have grown larger.