| Tricks of the Trade™ |
First edition Thursday March 9,2000 |
Signs Your Business May Be In Danger
You may be surprised to know that within ten years 90% of all construction businesses fail. The sad thing is that many companies fail to read the signs that their company is even headed for such a problem. It’s like a guy walking around with cancer but refusing to admit it and seek a treatment. Denying the symptoms won’t make the problem go away. It will only grow and get worse if untreated. The end result if you do nothing is death. The same is true of a construction company that does not correct early symptoms that it is headed for trouble.
So, just what are the symptoms that a business may be sick? The first sign of trouble is you begin falling behind. You are waiting on new money to pay old bills. You max out credit cards and begin falling behind on payments. Most people make the mistake of blaming this problem on their crew’s lack of production. But, the real reasons for the problem can be traced to three problems in most cases. 1. Failing to understand the need for a proper markup on all jobs. (Mr. nice guy just wants to land work to keep the crews busy.) 2. Lack of a long term cash flow projection and failure to establish a reserve cash account. (This may be the nice speedboat in the front yard you use three times a year) These are things you should buy after you have about three months of estimated cost of doing business in the bank. Will talk about how to start this fund and build it up later.
3 Lack of profitable sales. “The person stupider then a person looking for the lowest bid is the contractor who will give it” Quote by Michael C Stone. Never fall into the trap of just giving bids to be competitive. Those contractors that bid this way usually end up in the 90% of those businesses that will fail. The key to survival is to know your numbers.
Now here is my tip for the day, visit: www.markupandprofit.com and order the contractors guide many of the ideas for this article have come from. This will help you identify and correct the problems that make most businesses fail. Next time we can talk about the need to network and share idea’s with other successful contractors.
Written by David S Martin
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