How to Open & Operate a Financially Successful Construction Company With Companion CD-ROM
()
About this ebook
Starting a construction company, even a small one, can be a very profitable venture. In good times and bad construction is an industry that will always be in demand, and construction is not an industry where technology will replace or undermine it.
This new book is a comprehensive, detailed study of the practical side of starting and operating a construction firm. It will take you step by step through every aspect and prepare you with everything you need including sample business forms, leases, contracts; worksheets and checklists for planning, starting, and running day-to-day operations. You will get dozens of other valuable, timesaving tools of the trade that every entrepreneur should have.
While providing detailed instruction and examples, the author helps you find a location and business name that will bring success, takes you through the process of drawing up a winning business plan, and teach you how to start and manage your construction company. You will find guidance on obtaining licenses and permits, drawing up contracts, hiring subcontractors, meeting governmental regulations, attracting new clients and referrals, applying for financing, tracking utilities, employing basic cost control systems, dealing with pricing issues, and staying ahead of the competition.
You will become skillful at media planning, pricing, and public relations. You will be able to manage and train employees, motivate workers, generate high profile public relations and publicity, and learn low cost marketing ideas and low cost ways to satisfy customers and build sales. You will learn how to keep bringing customers back and build referrals the secret of continued success as well as getting thousands of great tips and useful guidelines.
The manual delivers literally hundreds of innovative demonstrated ways to operate and streamline your business. Learn new ways to make your operation run smoother and increase performance, shut down waste, reduce costs, and increase profits. The secret of continued success as well as getting thousands of great tips and useful ideas.
Aside from learning the basics you will be privy to their secrets and proven successful ideas. Instruction is great, but advice from experts is even better, and the construction experts chronicled in this book are earning a great deal of money for their expertise.
Related to How to Open & Operate a Financially Successful Construction Company With Companion CD-ROM
Related ebooks
How to Be Your Own Contractor and Save Thousands on Your New House Or Renovation: While Keeping Your Day Job With Companion CD-ROM REVISED 2ND EDITION Rating: 0 out of 5 stars0 ratingsThe Complete Guide to Building Your Own Home and Saving Thousands on Your New House Rating: 5 out of 5 stars5/5The Commercial Real Estate Investor's Handbook A Step-by-Step Road Map to Financial Wealth Rating: 1 out of 5 stars1/5Building Your Own Home For Dummies Rating: 3 out of 5 stars3/5Starting Your Career as a Contractor: How to Build and Run a Construction Business Rating: 5 out of 5 stars5/5Basic Construction Management: The Superintendent's Job Rating: 4 out of 5 stars4/5The General Contractor: How To Be a Great Success or Failure Rating: 2 out of 5 stars2/5Estimating Construction Profitably: Developing a System for Residential Estimating Rating: 0 out of 5 stars0 ratingsSurvive and Thrive in Building: Fundamentals of Business Management Rating: 0 out of 5 stars0 ratingsHow to Write Construction Programmes & Schedules Rating: 4 out of 5 stars4/5Why Do Contractors Lie?: The INVESTOR’S GUIDE to Hire the Right Contractor for Success Rating: 0 out of 5 stars0 ratingsField Guide for Construction Management: Management by Walking Around Rating: 5 out of 5 stars5/5Construction Project Manager: Passbooks Study Guide Rating: 5 out of 5 stars5/5How to Win and Manage Construction Projects Rating: 5 out of 5 stars5/5How-to Start a Construction Cleanup Service Rating: 0 out of 5 stars0 ratingsThe Construction Project Manager Rating: 3 out of 5 stars3/5Customer and Contractor Project Management Book Rating: 0 out of 5 stars0 ratingsConstruction Cost Management: Cost Engineering, Cost Controls & Controlled Bidding Rating: 3 out of 5 stars3/5Estimating Building Costs for the Residential and Light Commercial Construction Professional Rating: 0 out of 5 stars0 ratingsScheduling for Home Builders with Microsoft Project Rating: 5 out of 5 stars5/5Contractors Exposed: How to Win in the Home Improvement Game Rating: 0 out of 5 stars0 ratingsResidential Construction Performance Guidelines, Contractor Reference Rating: 0 out of 5 stars0 ratingsDefensive Estimating: Protecting Your Profits Rating: 0 out of 5 stars0 ratingsManaging Construction Projects Rating: 4 out of 5 stars4/5Construction Management: Document to Reduce Risk Rating: 0 out of 5 stars0 ratingsConstruction Project Estimating 101: For Beginners & New Graduates Rating: 0 out of 5 stars0 ratingsHome Improvement Contractor: Passbooks Study Guide Rating: 0 out of 5 stars0 ratingsBuild It, The Home Renovation Survival Guide Rating: 0 out of 5 stars0 ratingsConstruction Guide For New Investors in Real Estate: With 5 Ready to Build Contractor Spec House Plans Rating: 0 out of 5 stars0 ratingsConstruction Project Manager: Problem Solving and Practical Management of Works Rating: 1 out of 5 stars1/5
Construction For You
Plumbing ABC's Rating: 5 out of 5 stars5/5Audel Guide to the 2005 National Electrical Code Rating: 4 out of 5 stars4/5The Homeowner's DIY Guide to Electrical Wiring Rating: 5 out of 5 stars5/5The E-Myth Contractor: Why Most Contractors' Businesses Don't Work and What to Do About It Rating: 4 out of 5 stars4/5Audel Electrician's Pocket Manual Rating: 5 out of 5 stars5/5The Everything Woodworking Book: A Beginner's Guide To Creating Great Projects From Start To Finish Rating: 4 out of 5 stars4/5The Book of Basic Machines: The U.S. Navy Training Manual Rating: 4 out of 5 stars4/5HVAC Principles And Systems Rating: 5 out of 5 stars5/5Welding for Beginners in Fabrication Rating: 4 out of 5 stars4/5Audel HVAC Fundamentals, Volume 3: Air Conditioning, Heat Pumps and Distribution Systems Rating: 5 out of 5 stars5/5Complete Book of Framing: An Illustrated Guide for Residential Construction Rating: 4 out of 5 stars4/5Audel Electrical Trades Pocket Manual Rating: 0 out of 5 stars0 ratingsManaging Construction Projects Rating: 4 out of 5 stars4/5The Art of Welding: Practical Information and Useful Exercises for Oxyacetylene and Electric Arc Welding Rating: 0 out of 5 stars0 ratings1,001 Questions & Answers for the CWI Exam: Welding Metallurgy and Visual Inspection Study Guide Rating: 4 out of 5 stars4/5Audel Carpenter's and Builder's Layout, Foundation, and Framing Rating: 3 out of 5 stars3/5The Art of Welding: Featuring Ryan Friedlinghaus of West Coast Customs Rating: 0 out of 5 stars0 ratingsEstimating Construction Profitably: Developing a System for Residential Estimating Rating: 0 out of 5 stars0 ratingsWelding Tips & Tricks Rating: 0 out of 5 stars0 ratingsTiny House Builder: How to Build a Simple Wooden House - Step By Step Guide With Over 100 Pictures and Plans Rating: 4 out of 5 stars4/5Residential Construction Performance Guidelines, Contractor Reference Rating: 0 out of 5 stars0 ratingsDefensive Estimating: Protecting Your Profits Rating: 0 out of 5 stars0 ratingsFarm and Workshop Welding, Third Revised Edition: Everything You Need to Know to Weld, Cut, and Shape Metal Rating: 0 out of 5 stars0 ratingsThe Off Grid Solar Power Bible For Beginners Rating: 0 out of 5 stars0 ratingsBasic Construction Management: The Superintendent's Job Rating: 4 out of 5 stars4/5Simplified Floor Tile Installation Rating: 4 out of 5 stars4/5Construction Management: Document to Reduce Risk Rating: 0 out of 5 stars0 ratingsTiny House: Beginner's Guide to Minimalist Living: Building Your Small Home Guide: Homesteading Freedom Rating: 0 out of 5 stars0 ratings
Reviews for How to Open & Operate a Financially Successful Construction Company With Companion CD-ROM
0 ratings0 reviews
Book preview
How to Open & Operate a Financially Successful Construction Company With Companion CD-ROM - Tanya R. Davis
By Tanya R. Davis
How to Open & Operate a
Financially
Successful
Construction
Company
By Tanya R. Davis
How to open & operate a FinanCially SuCCeSSFul
ConStruCtion Company — witH Companion CD-rom
Copyright © 2007 by Atlantic Publishing Group, Inc.
1405 SW 6th Ave. • Ocala, Florida 34471 • 800-814-1132 • 352-622-1875–Fax Web site: www.atlantic-pub.com • E-mail: sales@atlantic-pub.com SAN Number: 268-1250
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the Publisher. Requests to the Publisher for permission should be sent to Atlantic Publishing Group, Inc., 1405 SW 6th Ave., Ocala, Florida 34471.
ISBN-13: 978-1-60138-017-3
ISBN-10: 1-60138-017-8
Library of Congress Cataloging-in-Publication Data Davis, Tanya R., 1962-How to open & operate a financially successful construction company : with companion CD-ROM / by Tanya R. Davis.
p. cm.
ISBN-13: 978-1-60138-017-3 (alk. paper)
ISBN-10: 1-60138-017-8 (alk. paper)
1. Construction industry--Management. I. Title. II. Title: How to open and operate a financially successful construction company.
HD9715.A2D33 2008
624.068’1--dc22
2007052812
LIMIT OF LIABILITY/DISCLAIMER OF WARRANTY: The publisher and the author make no representations or warranties with respect to the accuracy or completeness of the contents of this work and specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose. No warranty may be created or extended by sales or promotional materials. The advice and strategies contained herein may not be suitable for every situation. This work is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If professional assistance is required, the services of a competent professional should be sought. Neither the publisher nor the author shall be liable for damages arising herefrom. The fact that an organization or Web site is referred to in this work as a citation and/or a potential source of further information does not mean that the author or the publisher endorses the information the organization or Web site may provide or recommendations it may make. Further, readers should be aware that Internet Web sites listed in this work may have changed or disappeared between when this work was written and when it is read.
COVER & INTERIOR LAYOUT DESIGN: Vickie Taylor • vtaylor@atlantic-pub.com Printed in the United States
Printed on Recycled Paper
We recently lost our beloved pet Bear,
who was not only our best and dearest friend but also the Vice President of Sunshine
here at Atlantic Publishing. He did not receive a salary but worked tirelessly 24 hours a day to please his parents. Bear was a rescue dog that turned around and showered myself, my wife Sherri, his grandparents Jean, Bob, and Nancy and every person and animal he met (maybe not rabbits) with friendship and love. He made a lot of people smile every day.
We wanted you to know that a portion of the profits of this book will be donated to The Humane Society of
the United States.
–Douglas & Sherri Brown
The human-animal bond is as old as human history. We cherish our animal companions for their unconditional affection and acceptance. We feel a thrill when we glimpse wild creatures in their natural habitat or in our own backyard.
Unfortunately, the human-animal bond has at times been weakened.
Humans have exploited some animal species to the point of extinction.
The Humane Society of the United States makes a difference in the lives of animals here at home and worldwide. The HSUS is dedicated to creating a world where our relationship with animals is guided by compassion.
We seek a truly humane society in which animals are respected for their intrinsic value, and where the human-animal bond is strong.
Want to help animals? We have plenty of suggestions. Adopt a pet from a local shelter, join The Humane Society and be a part of our work to help companion animals and wildlife. You will be funding our educational, legislative, investigative, and outreach projects in the U.S. and across the globe.
Or perhaps you'd like to make a memorial donation in honor of a pet, friend, or relative? You can through our Kindred Spirits program. And if you'd like to contribute in a more structured way, our Planned Giving Office has suggestions about estate planning, annuities, and even gifts of stock that avoid capital gains taxes.
Maybe you have land that you would like to preserve as a lasting habitat for wildlife. Our Wildlife Land Trust can help you. Perhaps the land you want to share is a backyard — that's enough. Our Urban Wildlife Sanctuary Program will show you how to create a habitat for your wild neighbors.
So you see, it's easy to help animals. And The HSUS is here to help.
The Humane Society of the United States
2100 L Street NW
Washington, DC 20037
202-452-1100
www.hsus.org
table of Contents
IntroductIon...................................................21
chapter.1:.GettInG.Started.–.the.
entrepreneur.MIndSet..................................25
What You Will Do All Day .............................................................26
Beginning a Business .......................................................................27
About Your Personality ....................................................................30
Initiative ..........................................................................................30
Drive ...............................................................................................30
Leadership .......................................................................................31
Confidence ......................................................................................31
Belief in the Product ........................................................................32
Communication Skills .....................................................................32
Willingness to Take Risk .................................................................33
Detail-Oriented ...............................................................................33
Stress Tolerance ...............................................................................33
Leave Your Ego Somewhere Else ......................................................34
Integrity ..........................................................................................35
A Strong Support System ................................................................35
Desire for Knowledge ......................................................................36
Knowledge of the Industry ..............................................................37
Ability to Manage ............................................................................38
Self-Assessment Questionnaire ........................................................39
Why Some Contractors Fail ............................................................41
chapter.2:.the.BaSIcS.of.StartInG..
a.new.coMpany...............................................45
Location ..........................................................................................46
The Portable Office .........................................................................46
Choosing a Business Name ..............................................................48
Your Business Structure ...................................................................50
The Sole Proprietorship ...................................................................51
General Partnership .........................................................................51
Limited Partnership .........................................................................52
Subpartnership ................................................................................53
S Corporations ................................................................................54
LLCs ...............................................................................................55
The Joint Venture ............................................................................56
Bank Account ..................................................................................56
Licensing and Permits .....................................................................57
Licensing .........................................................................................58
Building Codes................................................................................59
Who Is Responsible? .......................................................................60
Bonding .........................................................................................60
Using Computers for Your Business ................................................60
What Computer Equipment Might You Need? ...............................60
Being an Owner ..............................................................................62
Duties for the Owner ......................................................................63
Duties for the Accounting Department ...........................................64
Duties for the Procurement Department .........................................64
Duties for the Estimator ..................................................................65
Duties for the Engineering Department ..........................................66
Duties for the Construction Manager ..............................................66
Duties for the Yard Manager ...........................................................67
Owner or Manager?.........................................................................69
chapter.3:.BuIldInG.your.teaM....................71
Worksheet for a Successful Partnership ............................................72
Job Site Safety Checklist .................................................................74
Repairs ............................................................................................75
Training ..........................................................................................75
First Aid ..........................................................................................75
Key Employees ................................................................................75
Should You Partner With Your Spouse, Friend, or Cousin? ..............76
Employees .......................................................................................78
Hiring Practices ...............................................................................79
Prequalification Form for Potential Key Employees .........................80
Conducting the Interview ...............................................................85
About Checking References .............................................................87
Subcontractors ...............................................................................88
Company Policies and Procedures ...................................................89
The Employee Handbook ...............................................................91
Payroll .............................................................................................92
Company Policies ............................................................................92
How to Hire and Keep a Qualified Staff ..........................................92
Outsourcing ....................................................................................94
Training, Motivating, and Evaluating Employees .............................95
Evaluations ......................................................................................96
Letting Employees Go .....................................................................97
chapter.4:.BIddInG..........................................99
A Few Don’ts ...................................................................................100
The Difference Between an Estimate and a Bid ...............................101
Bidding Is a Logical, Step-wise Process ............................................101
Component #1: Gather Information ...............................................102
Information .....................................................................................102
To Do .............................................................................................102
Questions ........................................................................................103
Estimate ..........................................................................................103
Building Notes ................................................................................103
Designer Plans .................................................................................103
Contracts and Change Orders .........................................................103
Subcontractor Bids and Contracts ...................................................103
Component #2: Direct Costs ..........................................................104
Component #3: Overhead ...............................................................105
1. As a uniform percentage of direct costs .......................................105
2. Overhead costs as a gross profit margin ......................................106
3. Different-size project markup .....................................................106
Component #4: Profit .....................................................................107
Uniform Percentage .........................................................................109
Markup as a Proportion of Labor ....................................................109
Marketing to Meet Markup .............................................................110
Gross Profit Margin Method ...........................................................111
Adjusting Bids .................................................................................113
Creating a Project Plan ....................................................................114
The Schedule ..................................................................................114
The Budget .....................................................................................115
Logistics ..........................................................................................115
Quality Control ..............................................................................116
Warranties .......................................................................................116
Reverse Bidding ...............................................................................117
Web Referral Services ......................................................................118
chapter.5:.contractS.....................................119
The Structure of a Contract ............................................................119
Before You Sign ...............................................................................122
Contractual Terms to Watch Out For ..............................................124
Hold-Harmless Clause ....................................................................124
Right of Rescission ..........................................................................124
Arbitration ......................................................................................124
Lien Rights ......................................................................................125
General Conditions .........................................................................125
No Damage for Delay Clauses .........................................................125
Time Is of the Essence .....................................................................125
Owner’s Right to Stop Work (or Owner’s Right to
Carry out the Work) ........................................................................126
Terminate for Cause ........................................................................126
Common Grounds ..........................................................................127
Types of Contracts ..........................................................................128
Pay When Paid ................................................................................128
Lump Sum ......................................................................................129
Unit Price Contract .........................................................................129
Cost-Plus-Fee Contracts ..................................................................130
Cost-Plus-Percentage-of-Cost Contracts ..........................................130
Cost-Plus-Fixed-Fee Contracts ........................................................131
Incentive Contracts .........................................................................131
Cost-Plus-Award .............................................................................132
Guaranteed Maximum Cost ............................................................132
Delays, Extra Costs, Dispute Resolutions ........................................132
Special Costs ...................................................................................132
Mediation .......................................................................................134
Arbitration .....................................................................................134
Responsibilities ................................................................................135
Responsibilities of the Project Owner to the GC .............................135
Responsibilities of the Contractor to the Owner ..............................136
Responsibilities of the General Contractor to the Subs ...................136
Contract for the Subcontractors ......................................................136
chapter.6:.leGalItIeS.&.MInIMIzInG.rISkS....139
Attitudes .........................................................................................140
Job Site Theft ..................................................................................141
Resolving Conflict ...........................................................................141
Company Structure .........................................................................142
Agreement Between Partners ..........................................................142
Use an Employee Handbook ...........................................................142
Contractual Language .....................................................................143
Notice to Proceed ............................................................................143
Hold-Harmless Clauses ...................................................................143
Contracts With Cost Errors .............................................................144
Substantiating a Claim ....................................................................144
Safety Issues ....................................................................................145
Asset Protection ...............................................................................146
Bonding Requirements ....................................................................147
Mechanic’s Liens, Lien Wavers .......................................................148
Insurance .........................................................................................149
Government Regulations .................................................................152
Labor Law .......................................................................................152
Labor Relations ...............................................................................154
The IRS ..........................................................................................155
Environmental Issues .......................................................................155
chapter.7:.BuIldInG........................................157
Registration and Licensing ..............................................................157
Environmental Studies ....................................................................158
Other Preconstruction Activities ......................................................158
Team Structure ................................................................................159
Small Businesses ..............................................................................159
Larger Volume Models ....................................................................160
Managing Overhead ........................................................................161
Checklist for Project Overhead Items ..............................................161
Project Setup ...................................................................................162
Scheduling the Project .....................................................................164
Creating the Flowchart ....................................................................165
Sub Special Orders ..........................................................................167
Inspections ......................................................................................167
Setting up the Site ...........................................................................168
Summary of Steps to Production .....................................................168
What Is in Your Shirt Pocket? ..........................................................168
How to Give Great Customer Service ..............................................169
Bills and Budget ..............................................................................171
A Guideline for Change Orders .......................................................171
A Summary of Good Customer Service ...........................................172
Closing out the Project ....................................................................173
The Warranty Period .......................................................................174
chapter.8:.accountInG.&.recordS...............175
Accounting Terms ...........................................................................175
Bookkeeping ..................................................................................177
What Are Financial Statements? ......................................................177
Accounting Methods .......................................................................179
Cash versus Accrual .........................................................................179
Percentage of Completion ...............................................................180
General and Administrative Expenses ..............................................180
Reports That Are Part of Your Financial Statements ........................182
The Income Statement ....................................................................182
The Balance Sheet ...........................................................................183
Current Contract Status Report ......................................................184
My Current Status Report ...............................................................184
Financial Ratios ...............................................................................185
Other Ratios That Matter ................................................................187
Gross Profit Margin .........................................................................188
Overhead ........................................................................................188
Callbacks .........................................................................................189
Taxes ...............................................................................................190
Tax Deduction for Construction Companies ...................................191
Cost Segregation Studies .................................................................192
Hidden Tax Refunds .......................................................................192
State Sales Tax .................................................................................193
Company Assets ..............................................................................193
Company Liabilities ........................................................................194
Finding Capital and Financing ........................................................195
chapter.9:.capItal.&.coSt.control..............195
Applying for Financing ....................................................................199
When You Visit a Bank or Other Lender.... .....................................200
How to Apply ................................................................................202
Anatomy of a Bank Loan .................................................................208
Leasing and Purchasing Equipment .................................................209
Lease-to-Own ..................................................................................210
Buying Equipment ..........................................................................210
Cost Controls ..................................................................................211
Improving Cash Flow ......................................................................213
Billing .............................................................................................214
Collections ......................................................................................214
Financing ........................................................................................214
Operations Reviews .........................................................................215
Tracking Smaller Costs ....................................................................215
Out-of-Town Expenses ....................................................................216
chapter.10:.SaleS.&.MarketInG....................217
Market Positioning ..........................................................................218
Create Your Market Position ...........................................................220
Develop a Marketing Plan ...............................................................221
Stress the Benefits ............................................................................222
Keeping ahead of the Competition ..................................................223
Must-Have Marketing Materials ......................................................224
Publicity ..........................................................................................226
Tracking Results ..............................................................................227
Using Press Releases ........................................................................227
Radio ..............................................................................................227
Be an Author ...................................................................................228
Media Planning and Pricing ............................................................228
High-Profile PR ..............................................................................230
Attracting New Clients ....................................................................232
Community Service.........................................................................233
Marketing to Public Agencies ..........................................................234
Networking .....................................................................................234
Free and Low-Cost Ways to Generate Business ................................236
Advertising Online ..........................................................................238
Getting Past the Initial Contact .......................................................239
Meeting in Person ...........................................................................240
Creating Repeat Business .................................................................241
Telephone Interview Checklist ........................................................243
concluSIon......................................................247
Learn to Flow With Market Trends .................................................247
Put the Money in Your Pocket .........................................................248
Never Forget That People Are Key ...................................................249
appendIx.a........................................................251
Construction and Business News and Data .....................................251
appendIx.B........................................................255
Industry Associations and Government Information .......................255
Information for Minority- and Women-owned Businesses ..............257
Places to List Your Business .............................................................258
Bidding Opportunities ....................................................................258
Periodicals .......................................................................................259
Construction Books ........................................................................259
Training and Educational Opportunities .........................................259
Other ..............................................................................................260
Industry-Specific Associations .........................................................263
appendIx.c........................................................271
Free Software for Business Owners ..................................................271
Office Products ...............................................................................271
Web Site and Domain Name ...........................................................271
E-Mail Hosting ...............................................................................272
appendIx.d........................................................273
Items that Might be Reimbursable ..................................................273
Reimbursable Items .........................................................................274
Books ..............................................................................................275
GloSSary...........................................................277
author.dedIcatIon.&.BIoGraphy.................285
Index.................................................................287
introduction
We are builders. As long as man has been on this earth, he has found ways to create structures — buildings to live in, meet in, and work in. Also, buildings to play in and buildings for storage. Man had a desire to build and he has continually increased the complexity of the structures he is compelled to build. They have become taller, bigger, and made from increasingly different materials. These structures, such as highways, airports, bridges, and dams, are so pervasive that we hardly even notice them anymore.
The construction industry in our country is huge; it corners 12 percent of the United States business market and employs 6.6 million workers in the U.S., according to the U.S. Census Bureau. In 2005, $1.1 trillion
— which is about 12 percent of the gross domestic product — came from the construction industry. Obviously, starting a contracting business is a terrific field.
The industry affects the economy in other ways as well. The Associated General Contractors of America states that for every $1 billion in new construction, 47,000 jobs are created. These are in the construction field and also in the related supply and service industries.
The industry is diversified between public and private, residential, commercial, industrial, heavy construction, and specialty trades. This
22
How to open & operate a Financially SucceSSFul conStruction company allows a contractor to choose from a wide variety of fields for his own area of specialization.
But the picture is not entirely positive. The U.S. Bureau of Labor reports that only 43 percent of the U.S. construction startups that began in the second quarter of 1998 were still in business four years later. That means there is plenty of room for missteps, poor management, and financial risk.
The projects are expensive and time consuming. They must meet codes, standards, and specifications. They must be built in a particular order and in a certain pattern. Plus, many people begin a business without knowing whether they are in actuality cut out to own and run a business.
Most startup construction companies in the U.S. are small firms — only about 8 percent have more than 20 employees. They are started by smart, ambitious people from surprisingly diverse walks of life — construction tradesmen, project managers, business executives, and recent college graduates who have majored in construction training. These people are proficient in their trade but may lack the management, leadership, or organizational skills to help them run a business successfully. More often than not, they struggle from year to year because they do not have the tools to manage risk to achieve a reward for their efforts. They live almost exclusively in crisis management mode.
This book was written with those people in mind; in an industry that constantly changes its demands as a response to the ever-changing market conditions, a business owner needs to devote some time to assessing goals, capabilities, and even personal issues that might get in the way of success.
Every construction project is different — designed for a certain taste, function, and environment. Even the most routine building is created through a new and unique process, which allows for an exciting business for people who love change and creativity. If construction is your craft and your passion, it is possible to grow it into a lucrative business.
introduction
23
Most new business owners find that entrepreneurship is extremely people intensive. A great deal of communication is required between the owner and his employees, as well as with other contractors, subcontractors, manufacturers, vendors, the government, and regulatory agencies. A self-assessment questionnaire at the end of Chapter 1 will help you confirm your ability to meet these and many other needs as a business owner.
This book attempts to share not only the basics of business ownership, but also ways to work with partners and employees, create company policies, methods of figuring and presenting bids, contracts, minimizing your risk, and more. One of the main things I noticed in interviewing construction companies was that the successful ones have a marketing plan in place at all times, so Chapter 10 reveals ways to create your marketing plan. There is also a section on customer satisfaction and building sales.
In interviewing people who are involved directly and indirectly in the construction management business, I have repeatedly asked them to share the risks and the ways to avoid the risks or pain they have encountered along the way. A business or engineering degree does not guarantee success; several years of experience of project management does not guarantee success; even running another business will not guarantee that your construction firm will be financially successful. This book cannot eliminate all your risk, of course, but it attempts to give you as much information as possible to identify possible hurdles and even roadblocks to running your business.
By the time you finish this book, you should have learned numerous ways to make your operation run more smoothly. You will use these ideas to cut out wasteful methods that are not working, thereby reducing your costs and increasing your profits. You will have learned about niche contracting, also referred to as specialization, a strategy that many contractors are using to become larger, more profitable contenders for contracts in the business.
The ideas, principles, and techniques presented here are given in order, so
24
How to open & operate a Financially SucceSSFul conStruction company that if you are just starting a business it is possible to start at the front of the book and use it as a step-by-step guide. But even if you are a contractor, employee, subcontractor, or business person, you will find that you can use the book to further your management and leadership skills.
1
Getting Started – the
entrepreneur
mindset
When considering various startup business ideas, most people see that construction is easy to get into. It does not require special degrees or training. And business is always good
; even when the market is soft, construction still takes place. The nature of your niche might change with the economy — for instance, when people are not building new homes, they are more apt to remodel, upgrade, and repair.
Some people get into construction after having built their own home,
usually meaning that they hired a contractor to oversee the job. It looks simple enough, so the person might decide to start his own business. If this describes you, that is terrific — but be sure to take the self-assessment quiz at the end of the chapter. After all, most professionals make their own job look easy. The reason that the contractor’s job looked easy to you might be that it is a good fit for you or it could be that he has experience, and he was doing it right. People who do things well often make them look a lot easier than they are.
Anyone who has been around construction has probably heard the 4 Ms
of the business: men, machines, materials, and money. Using these four resources in a balanced, efficient way is the key to success in construction.
But when considering going into business alone, there are many more
26
How to open & operate a Financially SucceSSFul conStruction company things to think about. Most of these things deal with your personality.
Do you have what it takes to run a business? Are you prepared to handle the day-to-day pressures? Can you stand to work all day every day while
everybody else
is out playing? These are the things we will consider in this chapter.
Some of the reasons people have for starting their own business are:
• I have the knowledge and expertise to do it better.
• I have new ideas that