Better Roads Digital Magazine
Issue link: https://read.dmtmag.com/i/134675
industry, high competition, high uncertainty, high risk and fluctuations in construction volume. Although failures can rarely be attributed to a single factor, budgetary issues almost always come into play. Insufficient profits and capital, heavy debt, high operating expenses and industry weakness are all hallmarks of businesses on the brink of failure. However, when you recognize these issues are plaguing your company, it's most likely too late for a successful turnaround. What should you look for before your business reaches this point? Canary in the coal mine There are eight early warning signs of financial trouble, says author and consultant Michael Stone of markupandprofit.com, who teaches business management, sales and estimating to contractors. In order of severity: 8. You or your family members physically working on jobs without getting paid 7. Not taking a regular salary from the business 6. Cutting the sales price to get a job 5. Inability to pay off all credit card debt each month 4. Partial or no payments on bills due 3. Paying old bills with money from new jobs 2. Employees not being paid on time 1. Bouncing checks If these are all too familiar to you, take action immediately, Stone says. "Get outside help from a business coach, preferably one who understands the construction industry," he says. "You want someone who understands construction because it's not like other businesses. We don't sell a product the client can pick up and carry out the door. We don't offer the same service to any two clients. Every job is different; every client is different; construction has its own set of problems." Stone says an updated business plan is a must, and recommends annual planning. "Set aside time to review what went right and wrong the previous year, and establish goals for the coming year," he says. The warning signs are created by not making enough profitable sales, Stone says. Although it may seem to be a no-brainer, serious attention should be paid to ensuring a high enough price is charged to cover not only the job costs, but also enough to pay overhead – which includes the owner's salary – with a reasonable profit built in. If you're going to own a business, you need to invest in yourself and learn how to run it profitably, says Stone, who has coached more than 26,000 contractors. "It doesn't require a lot of money or sitting in a classroom to invest in yourself or your business, just a willingness to spend a little time on a regular basis," he adds. Is there a crystal ball? One of the biggest problems in averting failure is often that those at the top fail to notice key indicators, paying attention only in the event of a financial crisis. Then it's too late, says Dr. David Arditi, director, Construction Engineering and Management Program, Illinois Institute of Technology. Arditi's research group has worked on the subject of contractor failures for 15 years and studied the topic exhaustively. "The overall outcome of these studies is that whenever an executive observes financial symptoms that the company is not doing well, it is already too late to turn the company around," he says. Noting there was little research on the subject, Arditi and his group developed a prediction model that uses non-financial data to determine whether the company is in a state of "no decline," or doing fine; a state of "early decline," which indicates there is a good chance to turn the 26 June 2013 Better Roads ConstructionU_BR0613.indd 26 5/31/13 12:42 PM