Over my career I have had the privilege of getting insight from many trade contractors. The range of profitability from one contractor to another is extensive. I recently completed my 21st annual benchmark program for Heating, Refrigeration and Air Conditioning Institute of Canada (HRAI).
The results continue to astound me.
The top contractor made over $1 million profit on $5 million in sales while the bottom 20% of participants lost money. The top 25% made 10% or more in pre-tax profits.
Why do some trade contractors do so well, others okay, and some barely survive or fail?
The ones who are consistently at the low end of the totem pole are those who have bought themselves a job. They stay small, make wages, and get some nice tax write-offs. They are not serious about being in business, although many of them would not admit that, even to themselves.
Growing from a two-person operation to a four-person business is like growing 100% and that is not simple. Many companies do grow but many others do not.
The threshold I use for being in business, rather than “buying yourself a job,” is annual sales of $1 million or more. This figure is not etched in stone but most companies under that level can’t support the overhead they need to run their business. For one million dollars in service and retrofit sales, a company will need three to four full-time technicians.
There are several factors that influence successful owners, managers, and leaders.
Motivation is often cited as a primary success factor, but I find motivation wanes. We get tired, we get depressed, and we find it very difficult to get back on top—we get to the stage where we say, “never do today what we can put off until tomorrow”. That can’t be a recipe for success.
A second factor often cited is passion. Well, as all of us know, our passions ebb, except maybe for golf. It is very difficult to rekindle passion once it starts to fade. There are two factors I see in the owners of successful companies. The first is that they are focused on the few things they can do to make the business successful, and the second is the level of discipline (doggedness?) they display.
The concept of measure, monitor, and manage is very high in their daily routines. A successful company has a sales strategy based on value, not price. An ability to complete work on time, on budget, to the standard specified, and to retain the client’s trust are the key elements.
The successful contractor picks the key areas and either monitors them all himself or monitors several of them while ensuring the others are being monitored.
Two extremely successful contractors I know would go through every work order, every day. They would discover where items were not being invoiced, thus increasing profits significantly and ensuring the jobs came in at or under budget. Every day, without fail, that was the routine. Every single year while they were in business this is what they did. Both of them are multi-millionaires. It wasn’t exciting work; it was mundane and it took incredible discipline to stay the course. They knew this was where their pot of gold was and how to extract the gold from the pot. These were fairly big contractors—in the $6-8 million-dollar range of sales. These two owners did keep their fingers on the overall pulse of their companies, but monitoring the success of work orders was their primary focus and it was their first task every single work day.
Smaller contractors I have reviewed tended to focus on pricing work for profits and making sure the work was done efficiently. If your annual sales are under $2 million you should be able to stay in control of this process. Once you get beyond the $2 million range you start to lose control because you need to delegate some of the 3 Ms, either in sales or in operations, and sometimes don’t delegate effectively.
It is also essential that you have a good backroom operation handling all the paperwork. Don’t skimp on investing in your office administration. You will not be successful with mediocre systems or mediocre people.
Here’s an exercise I would like you to do to make money in your business.
1. Describe your situation now. Your business structure, what works, and what doesn’t. Paint the picture as it is.
2. Identify the challenges you are facing and the frustrations you are having.
3. Determine a course of action that would get your where you want your business to be. The actions you have to take will, very likely, prove to be tough, particularly if you have to replace people within your organization.
4. Use discipline and focus to get the results you want. Get a coach or mentor to force you to stay on track.
5. The impact of this is that you will start to make money and have a better lifestyle. You will become rich and find life a lot more peaceful.
That’s how you can make money in this industry and delegate more responsibility.
So…
› Do you want to become more successful?
› Are you willing to focus on the few areas where you can add value in your business?
› Do you have the discipline to make it happen?
Answer these questions honestly (don’t fool yourself).
Don’t start this journey unless you are focused and disciplined enough to complete it.
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Ron Coleman helps make the ownership transition of trade and specialty contracting companies more successful. He ensures that businesses are attractive to buyers so that both seller and buyer enjoy a win-win situation.
His book Becoming Contractor of the Year will show you techniques you can use to make more money, have more fun, and make your business more saleable.
His book Building Your Legacy has more than 40 great ideas for helping you work smarter, not harder, and create a legacy of which you can be very proud.
Ron is a professional accountant, a certified management consultant, and a professional member of the Canadian Association of Professional Speakers.
Need a speaker for your next conference? Give Ron a call. Visit Ron at www.ronaldcoleman.ca and review his other publications and resource materials for contractors.
