Success is in the Numbers Part IV, Controlling Costs

Managing a growing construction business can feel like driving a car without brakes.  Some days the road is nice and level with safe places to stop and rest and others like flying downhill trying to avoid crashing.  Daily demands grow, cash becomes scarce and unexpected expenses hit at the worst possible time.  To make matters worse, prolonged stress and fatigue foster cynicism and negativity and endanger relationships.  What began as a passion to build often grows beyond the reach of an owner’s expertise and confidence.  That’s no fun.

When the business becomes a burden it’s time to take action and regain control.  Regardless of your experience, profit-graphiceducation or background you can gain back control of your business and lead it into a successful future with confidence.  It all begins with controlling costs.  While sales may be the lifeblood of an organization, cash is the heartbeat!  No heartbeat, no business!

In spite of all of the daily demands and distractions, leaders in the construction business must focus on cash control systems.  With the future of your company at stake, busyness is just an excuse for not taking care of business!

If you’re really committed to controlling costs and succeeding, start by ruthlessly assessing just two key areas of your business: 1) Accountability, and 2) Systemization.  Although there are a lot of sub-points involved with each, this overview will get you pointed in the direction to protecting profit and building capital.

Accountability is Not Optional

Accountability means responsibility.  There is no autonomy when it comes to spending money!  Owners must first commit to personal responsibility for protecting profit and cash.  This means strict guidelines defining who makes purchases (orders or buys) and who spends money (writes checks).  A purchase order system is a great place to launch a culture of spending accountability.  Even a loosely implemented PO system creates a paper (or digital) trail of cost expectations and provides cost control clout.

If purchasing materials in the field is a must (which is problematic for most construction businesses), put caps on each field purchase in addition to requiring a PO issued by admin, with at least a minimal description of material type and quantities by job.  Field managers cannot ever have an open checkbook, and should be very clear about their own personal responsibility for profit protection.  Most aren’t.  The same goes for admin personnel.

A final word on accountability; overhead expenses should be budgeted each year as a guideline for spending.  Remember, overhead is really an investment vs an expense.  In Success is in the Numbers Part One, Overhead Myths and Musts, I noted that “Every dollar spent on your annual overhead should be invested to make a difference on the bottom line.”  Without a clear budget, you’re behind before you even started and accountability is almost always compromised!  Spending becomes a random exercise driven by “want” vs “need” and dollars fly out the door.

Systems as Profit Protectors

Systems are safety nets that protect cash and profit.  They provide clear steps for every function of a business in order to produce predictable (and profitable) outcomes.  Systems also provide automated disciplines.  Without going into extreme detail, here are five systems that can be implemented (documented, trained and signed off) and leveraged immediately:

  1. Design and Estimating: Main focus: accuracy and timeliness
  2. Job handoff (from sales to production): Main focus – detail and clarity
  3. Communication: Main focus – availability of essential job information and detail for staff, trades and customers
  4. Scheduling: Main focus – daily awareness and transparency regarding job status and potential delays
  5. Change Orders and Variance Purchase Orders: Main focus – disciplined control of field costs

Other systems such as A/P, A/R and job documentation closely follow these, but when combined with a culture of accountability, nothing will change your business more than implementing these five systems.  Systems drive consistency, so if it’s consistent results you want, without the need for exhausting micromanagement, discipline is the answer.

Your challenge; pick one system, implement it this week and watch your business change.  Which one will it be for you?  For more detail, follow the Legacy Business Leaders blog or visit our resources page to download templates and other valuable business documents.

2018-11-06T13:47:10+00:00
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