Navigating a tricky environment

With new regulation, sustained labour problems and supply lines that continue to be constrained, the construction industry faces many challenges. Graeme Owen from The Successful Builder shares ways you can navigate them

Our world is changing rapidly and having an impact on the ability to transact business. The construction industry is no exception. So here are four things to keep in mind to help you navigate a rapidly changing environment.

1. Keep well informed on business numbers

I come across many builders who are incredibly capable, intelligent and resourceful tradespeople. They ooze technical know-how for every component of a build, yet when I ask them about the critical business numbers, they don’t know! 

In previous years, it may have been okay to be ignorant of commercial numbers and to run your business by the seat of your pants, leaving it to the accountant to sort out at the end of the financial year. But, when costs are changing on a daily basis, it is imperative to know the impact these changes are having to your business. 

Say, for example, you had quoted a job at 4,000 hours and you pay your team members $45 per hour. The job would cost $180,000 (4,000 x $45\per hour). Say you marked up 33% to $59.85 per hour ($45 x 1.33) and quoted at $239,400 (4000 x $59.85). Then your expected gross profit would be $59,400 ($239,400 – $180,000). Now, if overheads are $30,000 then the net profit would be $29,400 ($59,400 – $30,000). That’s a healthy 12%. 

But if halfway through the job your team resigns, and you can only sign new people at say $52 per hour, then your costs will be $194,000 ((2000 x $45) + (2000 x $52)) and your expected gross profit will have reduced to $45,400 ($239,400 – 208,000), leaving a net profit of just $15,400 ($45,400 – $30,000), a little over 6%! That’s a 50% decrease in net profit!  

So, in a rapidly changing environment, you need to know the implications of any changes that occur during the time between quoting and completing a job. It may mean re-negotiating a contract, looking for fixed-price contract labour or avoiding fixed price contracts altogether. 

You need to know your business numbers, so that you can make intelligent decisions.

2: Review schedules more frequently

Hold brief weekly team meetings with your key team members (or leaders) to review each and every build schedule. 

Have them check that the actual hours expended are in line with the hours budgeted in your quotation or build agreement. 

If the job is a fully charged up job, do not make the mistake of allowing the work to simply drag on, as this sets a dangerous precedent. Most clients believe that the finished price should be close to your initial estimate and that charge up is reserved for unforeseeable or unchangeable circumstances.

Achieving this assures you of great referrals. Endeavour to treat every job as though it is a fixed price job and aim to complete it in the time and budget estimated. Set weekly targets and help your team leaders achieve these. Of course, there will be variations and changes, so make sure you have a good system to record these in case the client asks what the additional charges are for – this is simply good business.

Review procurement lead times and subcontractor schedules. You want to be fully informed about delays or hold ups, so that you can intervene to smooth the workflow. In a rapidly changing environment, it is likely that you (or someone else in your company) will need to spend more time sourcing and confirming supplies and subbies. 

3.  Stay nimble

It’s important to plan long-term. Do it at regular intervals! 

However, in a changing environment, you should consider your long-term plan as simply ‘the plan that you had at the time you wrote it’.  

Things change and, when they do, your plan needs to change. If something needs changing, then change it! 

Your team may feel that you are being inconsistent. So what? You have the security of the company to consider and the livelihood of your team members to protect. There is nothing to be gained by sticking religiously to a plan that is out of date. Be courageous. 

As Winston Churchill is reported to have said to a woman berating him for changing his position: “When the facts change, I change my mind. What do you do, madam?” 

So plan long-term, but revise short-term. This is an important key to business survival in changing times. 

4. Remain positive

As a business owner who employs staff, you are a leader in your community. One aspect of leadership is casting vision. By reflecting on your past, you learn that current challenges do pass and that your worst fears rarely eventuate. Even if you have made mistakes, you have survived and come back stronger. Take a moment to review your mistakes. Draw courage from your successes. 

Builders are some of the most adaptable people – highly skilled at diagnosing and solving problems. You have a multitude of skills and experience. 

So, remain positive – regardless of the challenge. Adapt and cast vision. Team members rise to a challenge when inspired by a positive leader. 

And remember, change is the only constant.  

 

Graeme Owen is a builders’ business coach at thesuccessfulbuilder.com. Since 2006, he has helped builders throughout New Zealand get off the tools, make decent money, and get more time in their lives. Grab a copy of his free book: The 15 Minute Sales Call Guaranteed To Increase Your Conversion Rate or join Trademates and connect with builders who are scaling too.