To quote Kermit the Frog, "It's not easy being green". That may be so, and it made for a cute song, but it's much more challenging when you are red. By that, I mean in the financial red.
If you want to grow a business for the longer term and build a life for yourself and your family, that's comfortable, but with just enough stress to make it interesting, you need to build a financially sustainable business.
You are not doing yourself, your team members, your suppliers and even your clients a favour if you cannot
make a fair, consistent profit and sustain it in the long term. By building a profitable business, you can provide better service to your customers and assure them that you will be there if they need you to fix any issues or help them with their next project.
So what's important to consider when building a financially sustainable business?
There are many aspects, and I welcome feedback from readers on what you consider essential. Please email me at andy@tradescoach.co.nz with your thoughts. Here are five suggestions I have, in no particular order:
1. Know your numbers.
Do you know the averagegross margin % you must achieve across your projects each year to hit your required dollar profit amount? What amount of gross profit will cover your overheads, pay you an owner/ manager salary, and leave a bit in the pot? This figure is vital to building a sustainable business and may require you to put a brief budget together. Contact me if you need help with this.
2. Move away from adversarial to collaborative selling.
The traditional sales model in building is for the client (and maybe the architect) to be in one corner and the builder in the other. The selling process is a game of punch and counter punch until one of the parties throws in the towel and a deal is done. Both parties probably have bloody noses and feel a little hard done by. Is this the way to start the build relationship for the long term? Is it better and more sustainable for all parties to get together and make the project's outcome the main focus? Work together to come up with the best solution for all parties.
3. Learn.
As a business owner, you need to find time to learn how to run your business better, consider new ideas and put a plan together for the next 3-5 years. I know it's tough to find the extra time and energy to do this, but the reward of more money and less stress will ultimately be worth it. Keep sharpening the (mental) saw.
Being overly aggressive in expanding the volume of work you take on is often done at the expense of profits. It can lead to quality control issues, which further impact profits.
4. Know when to hold 'em and when to fold 'em.
Be prepared to walk away from an unsustainable project from an economic standpoint. Knowing your true worth and having a clear idea of what your required gross margin on a project must be to balance the risk involved will give you the confidence to draw that line in the sand, or know exactly how much wriggle room you have in the final negotiation stage.
5. Grow at a sustainable rate.
It is relatively easy to grow a construction business, at least in terms of revenue. Being overly aggressive in expanding the volume of work you take on is often done at the expense of profits. It can lead to quality control issues, which further impact profits. It can also strain your cash position because the faster a business grows, the more cash it needs to sustain that growth. Growing steadily allows your production capacity and management systems to keep pace, thus helping to deliver steady profits and keeping your stress levels in check.