By Ron Coleman
In part one of this article, we focused on the issues we must deal with because of the ongoing shortage of labour and how to manage those issues. In part two, we examine other factors we should review when looking at our business and additional methods of making more money and having a successful business.
Growing your business
Many companies do focus on growing sales, but I believe it is better to focus on growing profits by improving efficiencies and focusing on the right customers and the right work. Growing sales often means your business struggles to keep up with processes, staff, and customer needs. A recent article in The Globe and Mail said, “According to federal estimates, at least 90% of Canada’s 1.2 million small businesses are led by entrepreneurs who consider growth a secondary goal, if it’s even a goal at all… they function to support their founders’ lifestyles.”
Artificial intelligence is proving to add value to many businesses. There are three growth areas in artificial technology—building information modelling (BIM), customer relationship management (CRM), and data collection.
We need to use technology more effectively. Design, estimating, accounting, invoicing, payroll, scheduling, and materials handling are all areas where we can use technology to enhance our business model. Virtually every facet of the industry can improve productivity by using technology.
Augmented reality, while in its infancy in Canada, has potential for safety training, real-time project information, team collaboration, project planning, and modifying projects. I predict this will have a major impact on the way we run our businesses over the coming decade.
What’s the difference between a good contractor and a great contractor?
A good contractor will talk his way out of a situation that a great one would not get into in the first place.
Good is not good enough. Most of your competitors are good. With the upcoming labour shortage, you need to be great.
Good contractors make money on one job and give it back on the next. Great contractors don’t give it back.
To be a great contractor, you need to be proactive. Spending your time putting out fires and keeping the business afloat is barely a strategy for survival, and it is certainly not a strategy for success.
Real leaders are focused on the long-term future. They have a vision. Mangers are focused on the present and the short term.
Every business that aims at being successful must have proactive leadership.
In the current, very uncertain, labour market, that’s a given. Without this leadership, you will be a has-been.
The biggest threat facing most contractors in the current and future market is, as we have discussed, a shortage of qualified labour.
There is no perfect size for a contractor. The correct balance between overhead and operations should get you the maximum results.
If, for example, you could add $500,000 in annual sales without any additional overhead then that might be a good strategy. Alternatively, if you dropped some overhead how much work would you drop?
On the other hand, if you need to add an estimator or other overhead person, you would need to recover at least eight times their cost in annual sales to justify the cost and risk of investing in that overhead.
Strategies for making more money, considering the labour shortage
Do I focus on labour-intensive jobs or material intensive jobs? In a tight labour market, go with the more material intensive jobs. They are also likely to be lower risk and lower profit.
Are we better off focussing on jobs that are more high-tech or jobs that are simpler? Which suits your particular business model?
Make sure you have price escalation clauses in your contracts to cover labour and material cost increases and cosndiering 5the implications of adding and subtracting.
Adding resources is easy. Subtraction is an action. It doesn’t just happen. Do you have the leadership skills to take this action?
The best way to add profit is to subtract what hinders profit.
Chinese philosopher Lao Tzu advised, “To attain knowledge, add things every day. To attain wisdom, subtract things every day.”
More does not mean better.
Our customers push us to quote jobs for their benefit, not for ours. If we do less work, prices will increase, we will become more efficient, and make more money.
Find the sweet spots
- What size jobs are best suited to you?
- What types of work are best suited to you?
- What geographic areas are best suited to you?
- What type of customers? GCs, end users, institutions, municipal, provincial, or federal governments?
- Which GCs? Which end users?
- Which jobs require the least overhead?
- Which jobs are the least risk?
For several years, the union employees at a BC Government body lobbied to allow workers to work from home, at least on a part-time basis. The employer consistently found reasons why this could not work. Now, due to covid-19, many of the employees, now that they are working from home, say they will not have a permanent workstation and are unlikely to ever return to the office full-time. Suddenly, the employers understood the myriad benefits to both the organization and the employees. This is reactive leadership, not proactive. It is your duty as a business person to provide proactive leadership.
Don’t be a has-been
There are four key ways to grow a successful business.
1. More customers of the type you want.
2. Get them to come back more often.
3. Upsell them with additional value.
4. Be efficient.
As the lead person in your business, you should be spending your time here.
Identify what you need to add to and subtract from your business. Appoint champions to move these needs forward and mentor those the champions. This will help develop a more cohesive team within your business and allow you to spend more time in your leadership role and less time in management.
Probably the most important advice I give to service contractors is to increase their hourly rate by $10. I have never had a client tell me that it backfired on them. You would have to lose a lot of billable hours before it hurt your bottom line. The customers you are most likely to lose are the high maintenance and slow paying ones. If you had five technicians billing out 40 hours per week, you would put almost another $100,000 profit on your bottom line each year. Over ten years, that’s an extra $1 million in the bank. It’s that easy. It’s all about making money—not about who has the most sales. ■
Ron Coleman is a Vancouver-based accountant, management consultant, author, and educator specializing in the construction industry. He can be reached by email at ronald@ronaldcoleman.ca
