Contractors Blueprint For Success
An accountant and business advisor gives advice to the construction industry on how to sustain profitability in an increasingly competitive environment.

By Richard E. Gavin

As those in the construction industry know, there are many reasons why companies find themselves in unprofitable positions. Some are unforeseeable, but others are evident. As accountants and business advisors to hundreds of companies over the past 22 years, the business characteristics and management styles that result in sustained profitability and financial stability have become evident. The following is an overview of a "blueprint for a construction company's success."

Vision & Planning. Successful owners have a formal, well-defined business plan and have implemented measurement systems that monitor the plan's progress. They use their business plan as a "roadmap" because it contains detailed goals, responsibilities, and pre-defined end results. They periodically refine the plan to reflect changes related to the economy or new opportunities. More importantly, everyone in the organization understands both his or her individual goals and the goals of the group. This common vision allows everyone to work together towards a common objective. Owners have a defined philosophy or mission statement that acts as a foundation upon which the company is operated.

Owners/Corporate Culture. One of the most profound characteristics of successful owners is a consistent focus on their company. When owners focus on too many other business interests, personal interests, and/or extra-curricular activities, the results show in the profits. Successful owners focus on profits rather than volume. It isn't only about how big you are. Successful companies have a culture based upon hard work, dedication, loyalty and a commitment to quality and safety. They're dedicated to completing all projects on time, on target, and on budget.

Employees. Hiring and retaining quality staff is of major importance to a profitable company. Key positions in administration, project management, estimating, and labor maintain low staff turnover rates. Successful companies have staff development plans that outline ways to develop employees into positions of increasing responsibility. They should also mandate that under performing staff be replaced with better-qualified individuals. When dealing with new hires, there is an established performance expectation that is communicated and reviewed after three months. Employees of successful companies have their responsibilities clearly defined and communicated, and they understand the expectations related to their performance.

Systems & Procedures. Management understands the benefits related to systems and procedures because they understand how systems provide the necessary information to make sound business decisions. Successful companies have a formal approach to planning, execution, and accountability. Technology is embraced; employees have the necessary tools and are properly trained in the use of programs that increase efficiency, productivity, and manage overhead. Successful companies also have procedures that dictate, "how we do things here." The most profitable companies have well-established internal controls that protect assets and protect the accuracy of financial reporting.

Training & Incentives. Employees must be well trained and understand what is expected of them. Companies should have incentives to promote consistent, high quality performance. In successful companies, training takes place on internal systems and procedures, company philosophies, individual job requirements, new technologies, and new job responsibilities that may develop. Successful companies recognize and reward performance through formal incentive compensation programs. These programs provide the framework necessary to identify and reward those who exceed performance guidelines.

Financial. Having the proper financial tools allows leaders to establish fiscal responsibility. Cash flow management is a critical area of focus for profitable contractors. Contractors who understand this maintain timely billing, have established collection procedures, and possess a line of credit for use as a back up. Successful companies are able to generate meaningful financial information internally. These interim internal results should closely compare with the annual audited financial statements. Successful business owners rely on productivity analyses, budgets and projections to help them make sound business decisions. They use their budget as a financial blueprint for the next year. They use income and expense budgets to establish expectations and set guidelines to measure actual results during the year. In addition, job budgets that contain indirect costs and burden rates, are heavily relied upon.

Business Practices. Profitable contractors focus on quality - not just in the construction work, but in every aspect of business. Profitable contractors understand the process of continual improvement and surround themselves with people who embrace the same concept. They always look to become a little better, a little more efficient and a little more client-focused. Successful companies have a clear understanding of where they are in the food chain. They stay active in industry trade groups to maintain a connection with current events and to establish themselves as a major force within the industry. Successful companies understand the power of marketing and branding their organization. Lastly, successful contractors are open to learning. Successful contractors maintain close relationships with business advisors in legal, accounting, insurance/bonding, technology, and banking. This way, they can concentrate on one thing - directing the future of their business.

Richard E. Gavin is a CPA with Grassi & Co., CPAs, P.C. in Lake Success, N.Y.