I’m pleased to introduce Doug Helm from Mountjoy, Chilton, Medley LLP as this week’s guest blogger. Mountjoy, Chilton, Medley LLP is a CPA firm with a team of accountants dedicated to construction accounting.

Bank lines of credit are lifelines for many contractors, yet convincing a bank to provide or renegotiate a line of credit is not easy. Building your case beforehand can certainly help and makes you look better in the eyes of the bank. I would like to share the following tips to use before approaching the bank(s) or other financial institutions for additional financing, and some non-bank financing options.

1. Crunch the numbers – Banks like proactive business owners. Bring all your financial documents to the initial meeting. The banks want to see all of the following:

• Analyzed projected balance sheets
• Projected future earnings
• 3 years of year-end financial statements

You’ll also need to realistically assess how large of a line of credit you’ll need. Lines of credit are meant to be a short-term cash solution while you’re waiting for accounts receivable to come in. Being fully extended on your line of credit can make it harder to obtain surety bonding and can be viewed as a weakness by the banks. Plan to use the funds for basic operational items — not capital purchases, such as construction equipment.

2. Choose the right lender – Depending on your needs, you might be better off with a locally-owned or community bank versus a large national bank. On the flip side, the larger banks will typically have more funds to lend and may have more in-depth knowledge of the construction industry. When you approach your chosen lender(s), be open about your financial situation, including any typically slow work and cash-flow periods. It is well received by banks when you are aware of your weaknesses and are seeking ways to mitigate them.

3. Other alternatives – Banks aren’t the only source of funding out there. Many contractors negotiate payment due dates with their vendors to get themselves out of short-term cash binds. There are also some approved finance companies, such as GECC, that will finance heavy equipment purchases. One caveat: The fees and interest rates in these arrangements are typically higher than those in traditional lending.
Banks are attracted to profitable business. They also, however, are attracted to smart and proactive business owners. Being prepared for these crucial meetings with your bank is essential for greater chances of success.

www.dexterchaney.com

I’m pleased to announce that this week’s blog is written by David DeVita, President of Carolina Safety Consultants.

I was talking with the owner of a company the other day. He said they had just received a penalty from an OSHA inspection. The violation was regarding Hazard Communication Program, or I should say, the lack there of. The owner looked at me and said, “We train our employees about the hazards of the job and how to control them.” He also goes as far to say that they have a good comprehensive safety program and a great safety record. He is only partly right. They have had luck in their favor that nothing bad has happened in a long time. His heart seems to be in the right place, however, he has failed to take the next step of having a designated safety person in the company to make sure that they are up to speed on the OSHA standards. If this sounds like you, please take action and take the next step.

Complying with a bunch of laws should not be the driving force behind your safety efforts. If it is, you are on the wrong track. Complying with the laws is just a piece of the safety puzzle. It is a part of the foundation, however, not the cornerstone. Your safety culture and desire to do what is right and keep your employees safe should be that cornerstone.

This story is just one example of the many discussions I have with owners and upper management regarding safety. There are many approaches to safety and to developing a program that works for you. Don’t buy one of those canned written programs and just put your name on it. You know your demographics better than anyone and what would or would not work for your company. At the same time, however, keep an open mind and be willing to go outside the box with your thinking. You are only limited by your imagination with the development of an effective safety program.

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Tablets are back – and this time, they’re not made of stone. Every so often I see an article listing devices that future generations will never know about, such as VCRs and record players. With the invention of the tablet computer, some tech experts are predicting the inevitable end of the personal computer. Whether or not you plan to do away with your PC and adopt a tablet-only way of life, one thing is certain: software must adapt to the new environment.

A Lesson from the Music Industry

It may not seem obvious as to why business software needs to change with the adoption of new hardware, but if we look at the music industry, the answer is clear. Not all that long ago, people used CD players to listen to their music. A selling point for cars was the number of discs the CD player in the car could hold. Then the iPod and other MP3 players came long, and with them, a whole new way to access music. No longer do you have to purchase a CD in order to listen to music; you can now purchase it and access it from multiple devices wherever you can connect to the Internet.

Simplifying the Complex

The software industry is currently going through a fundamental change like this, as developers try to adapt their software to the new hardware trends and the growing acceptance of web-based applications. Their success depends on whether their applications can be adapted for use via web-browser and how well their applications can be translated to non-PC devices.

I’ve mentioned in previous blogs that cloud computing isn’t really cloud computing if the software is just being accessed from a remote computer. This virtualization model just gives you the PC environment on a tablet computer, rather than optimizing the software for the tablet environment. In order to create tablet-ready software, developers must more than likely redesign their user interfaces to be simplistic without losing functionality, which is no easy feat!

No Waiting Around

Discussions about tablet computing often come up in the construction industry groups and forums that I belong to. Usually people are wondering if and how others are using tablet computers in the field, as well as the benefits of using tablets. I’ve even read of contractors creating their own applications to fit their business. While not every contractor has the resources to create their own “app,” the need for construction applications is present, and demand is growing. Current software providers can jump on the bandwagon, or risk losing out to new developers, or perhaps even these specialty apps created by contractors.

Do you use tablets in your office or on the jobsite? What are the pros/cons?

www.dexterchaney.com

As a general contractor a few years ago, I was working on a tenant improvement project. One day I remember starting the demo on a wall. We took off the drywall and found out that there were all kinds of wires and pipes running through it. These did not show up on the drawings. So, I took some photos, wrote an RFI attached the photos to the document and sent it to the architect noting its urgent status. Then I waited, not knowing if he had even received the RFI. So, I called and left a voice message – and waited some more. Eventually I received a response to the RFI, but not without losing time sending and following up on the RFI.

While we don’t always encounter projects that require significant mid-stream alterations, there are nearly always questions, that must be submitted tracked, resolved and ultimately, if everyone agrees, incorporated into the project. And because of the environment we work in, there are procedures to be followed, communication channels to be adhered to and process that has to happen to keep things legal and everyone properly informed. In addition to the initial question, there is usually additional correspondence, drawings, sketches, submittals, email discussions, sub and vendor input, design team input, owner input, pricing and other information, which, can be quite a pile of “stuff” to keep track of. All of these items, whether in an RFI, ASI, or other communication create an issue.

Some issues are easier to resolve than others, but for the ones that are more complex, or involve multiple disciplines or take a while to resolve, it’s important to have an easy way to check on status. A lot of contractors track these issues in an Excel spreadsheet, which is great, but takes time and energy to keep current. Do you have a quick way of finding all of your outstanding issues? Do you have a process for organizing, storing and attaching all supporting documentation for an issue?

Some, if not most issues revolve around document management and project team communication. Without good document management, you may lose emails, plans, sketches, and correspondence related to the issue. Obviously, this can result in costly errors. In an ideal world, you should be able to search for an issue and see all of the supporting documents for that issue, without having to do multiple searches through files, folders and emails. What happens if one sketch or specification change affects multiple issues? How do you track that and how do you make sure that all issues have current information? Lots of questions about a difficult area.

Do you have any tips or tricks for tracking issues? Let me know what your method is by commenting below.

www.dexterchaney.com

I’m pleased to announce that this week’s blog is written by Jim Schug of FMI. Jim is a senior consultant with FMI and specializes in building profits by developing tailored operations strategies for his clients.

During the last upturn of the mid 2000’s (remember the glory days?), leadership decisions were relatively easy – who to hire, where to grow, which jobs to bid and how much margin to put on them. If leadership success was measured only on profitability, then there were certainly many “great leaders” sitting in the CEO position of many contracting companies.

During the difficult downturn of the past three years, leadership decisions for companies in distress were simple, yet relatively limited and certainly not pleasant to make – decisions that boiled down to who and how much to cut back. For these companies, staying afloat depended in large part on how successful the company was when the “easy” decisions were made during better times.

Companies I’ve encountered who are doing better than getting by in what has been called our “muddle through” economy are those whose leaders accept that change and transformation are inevitable, but also that a stabilizing vision is key. I’ve created some questions to ask yourself and your staff that may help develop your company avoid a “muddle through” mentality.

How do you create a strong relationship with your employees while transforming the company?

Difficult times are engines for change, yet many organizations are unfamiliar with how to effect change at the organizational level. New best practices, new strategies, and new productivity programs are necessary in order to cut costs and create efficiencies, but even when the upper management embraces the need for change, the transition can be difficult. Mid-level managers are often the pivotal leaders within an organization, and they are the ones most likely to struggle with incorporating new guidance from above while still managing day-to-day operations, often with fewer resources than ever. Consider how you can help the key “field leaders” in your organization effect necessary changes while still holding them accountable for results.

How do we pull legacy values through these tough times?

“We take care of our people” is a common and heartfelt sentiment among most every contractor. Yet, during the downturn, many companies have had to cut 401k contributions, have gone through several rounds of layoffs, and have not been in a position to pay bonuses for perhaps three years. While it would be great to reinstate everyone and everything in the name of leadership, it isn’t feasible. Yet it is vital to future success that employees do feel that their interests are at least part of the hard calculations that need to be made to get through difficult times. Consider how you can maintain motivation and stay true to core company values in the face of the financial rationing we’re all experiencing.

How do we create a vision for the company in this volatile market?

The military acronym VUCA (Volatility, Uncertainty, Complexity and Ambiguity) defines the conditions you find in modern urban warfare (those of you who know me are likely not surprised I weaved a military example in the blog!). While our economy and the construction market certainly aren’t comparable to complex and dangerous military operations, there is no denying that they share many “VUCA-like” characteristics. In these conditions, true leaders can shine and they do so by shining a light of vision and direction. When people know the objective and their role in achieving it, they are fortified against a difficult present and an uncertain future. Consider what you are doing to create and share a vision for success with your staff.

I realize that I’ve posed questions here, not specific answers. But the first step to transforming your business is asking the right questions, so I hope this has stimulated some forward thinking. What are some things YOU are doing to lead your company through this ‘muddle through’ economy?

www.dexterchaney.com

Hello from Las Vegas! It’s been an exciting week here at World of Concrete, and I’m proud to announce that the latest version of our construction management software, Spectrum Construction Software v14, was launched this week. I don’t usually talk about Dexter + Chaney’s products, but given that this new version drastically changes the way users operate and interact with the software, I couldn’t help myself.

What’s New in Spectrum version 14?

In the last year or so, there’s been a lot of talk about “The Cloud,” and how it is going to change software. We’ve also seen increased use in mobile devices, such as smart phones and tablet computers, with easy to use interfaces and applications. With all of this in mind, we’ve designed Spectrum version 14 to be easy to use and access.

Accessibility

Our customers told us they wanted to be able to access Spectrum anywhere – whether they were in the field, the office, or snowed in at home. Because version 14 is web-based, there is no software to install, upgrade, or maintain. The user simply needs to login on an Internet connected device.

Information a Click Away

Spectrum’s user interface has been completely redesigned to give it the look, feel, and usability of other web applications. Simply put, all the information you need is one click away. In Spectrum v14, you start with a dashboard that you can customize with the apps you need to do your work. Once you pull up a job screen, you’ll instantly see all of the links related to that particular screen, such as vendors, subcontracts, and cost projections. Just as you can open web links in tabs, Spectrum v14 allows you to open multiple tabs or screens so all the information you need is in front of you.

Affordability

Perhaps one of my favorite aspects of Spectrum v14 is that it’s more affordable than ever. Because Spectrum v14 is web-based, users don’t need to purchase, maintain, and constantly update hardware, operating systems, and databases just to use our product. With v14, users don’t need to install software and maintain the software on every user’s computer, because it’s all accessed from the web.

I hope you find this dramatic change in construction software as exciting as I do. We also happened to launch a new product for construction operations at the World of Concrete, but I’ll let my colleague Mark Reich explain this new addition.

Anyway, enough about me – what do you think about the changes we’ve made?

Last week, I discussed how the Internet is becoming a utility via common applications. This is all well and good, but I know from the emails I received, I left some of you thinking “how does this affect me?” Well, there are three very important reasons to care, but I’ll get to those in a minute.

Remote Business Software

Until recently, most business software was delivered on discs in packaged boxes, or downloaded onto company servers and workstations. Now, as the Internet becomes more and more of a utility, access to software only requires an Internet connected device and a subscription login.

In an effort to make access easier for their employees, some companies are moving all or most of their software and computing resources to an outsourced hosting service. While there are advantages to this type of so-called virtualization model, it is not a true browser-based or “Cloud” solution. </P

The following explains three significant benefits of moving to the cloud.

3 Reasons to Move to the Cloud

1. Access: Browser-based software provides anywhere, anytime, any-device access to business applications. Unlike virtualized environments, browser-based software typically only requires that the device – computer, tablet, smart phone, etc. – have the ability to launch a browser. With this technology, management can access up-to-date business information anytime, anyplace and field staff can stay better connected to the office and to each other.

2. Usability: I think most Internet users expect anything in a browser to run quickly and easily. This means that the user interfaces of browser-based applications must be designed for ease-of-use, and information must be presented in an easy-to-understand format. Vendors moving their software to the Internet are redesigning the way the software is used, creating smarter, easier to use products.

3. Affordability: Browser-based software should not only make users jump for joy, but management should be pleased with the lower costs of ownership. Companies generally have the option of purchasing the software or purchasing on a subscription basis. Regardless, the user enjoys a significant reduction in hardware and IT infrastructure costs. Figure 1 shows the leading reasons why companies adopt cloud computing solutions, and cost is clearly a primary motivation. Browser-based software is “zero-footprint,” meaning that no server and no special user hardware are required. From an IT perspective, there is no software to install, update, and maintain.

Better Business

The growing wave of business software over the Internet holds particular promise for the business of construction contracting. Unlike many other industries, construction occurs in remote and varied locations, every project is unique, and nearly every new project involves a new collection of project partners and vendors. In addition, project information is constantly changing, it must be shared with many individuals in many locations, and there is always a lot of it. The benefits of browser-based software help share this information by keeping everyone connected.

It seems like every time I turn on the television, I see a commercial for something “in the cloud.” There used to be commercials from a well-known company that proclaimed in a super-hero-like fashion, “To the cloud!” And most recently, we’ve been hearing quite a bit about the iCloud.

I’d be understating the obvious if I said that cloud computing is the latest buzzword. However, I think there are a number of misconceptions about what the cloud really is, so over the course of the next couple of weeks, I’m going to help clarify the basics of cloud computing.

Power Stations & The Grid

To begin a discussion of cloud computing, let’s draw some analogies from the world of public utilities. Take for example electric power distribution. When electric utilities were developed, power stations were first built in high population areas. Buildings and then entire neighborhoods were connected to the stations, and then the stations themselves were interconnected, beginning the creation of what we know today as “the grid.” This robust network of power allows us to turn on the lights and never have to wonder where the power is coming from. This is the essence of cloud computing – A network that serves up what you need without you having to worry about where it came from.

More Pipe Than Power

Now consider the Internet. Instead of centralized stations, the first years of the Internet consisted of network growth. From the first network connections of the 1960s until recently, the Internet has been “more pipe than power,” serving more as a network of connections than a distribution grid. To draw an analogy, imagine a situation in which individuals connected their own personal power generators to create a shared power grid. This is not a viable way to distribute power resources, but for sharing bits and bytes, it works fine. However, something was missing from this picture – namely, the equivalent of the “power station.”

A New Utility Is Born

Roughly ten years ago, the large and growing network of “data pipes” that was the Internet began to transform. Advances in technology enabled this transformation, but what really drove it was the fact that the Internet was finally becoming a true utility, taking over much of the role of traditional telecommunications. The Internet is now supporting the operation of central “power plants” – plants with names such as Google, Facebook, Amazon, and others. Internet traffic is projected to continue doubling every two years, and the driver will be the larger and larger role it will play as the information utility.

A New Breed of Applications Emerges

In addition to the “Internet power stations” that deliver communications and consumer applications, we are seeing the emergence of browser-based applications designed for business. Software applications for business have traditionally been delivered as discs or downloads installed on company servers and workstations. With the Internet becoming an application utility, this model is changing. More and more software can be accessed online with nothing more than a subscription login and a device that has one of the common web browsers. And these are not light-weight “apps” – these are powerful enterprise systems for accounting, financial management, project management, HR, and more.

Accessing and processing all your business information may never be quite as easy as flipping a switch, but browser-based software (a.k.a. cloud computing) is going to bring us closer to that idea. Has your company adopted any browser-based business software or do you plan to?

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At Dexter + Chaney, we’ve been spending some time talking with Dr. Mike Vorster, probably the leading construction equipment thinker in the industry, and who we have teamed up with to provide our customers with a world class equipment management system. As a result of these conversations, I have come away with some interesting thoughts.

After working with contractors for 30+ years, it still concerns me how many do not have a real handle on their equipment costs. It often sounds like this: “I am pretty sure we are close.” Or, “Labor is the only variable I have control over.” Or, “We do our best to gather equipment data, but I know it’s not always right.”

Know Your Fleet’s Health

I think that the days of not knowing accurately your costs per hour for a piece of equipment, a class of equipment, and your entire fleet are (or should be) long gone. With the number of companies bidding on each job increasing and the margins getting smaller, it is imperative that you know the true health of you fleet. The following chart shows the health of an example contractor’s fleet of Class M Excavators:

To understand this graph, imagine that you have separate data on both the current cost of owning and the cost of operating for these pieces of equipment. Notice that the horizontal axis represents your operating cost budget, and the vertical axis your capital (i.e., cost of owning) budget. If both the owning and operating costs for a piece of equipment are exactly what you planned for, then the “dot” for that piece would be placed in the center of the graph. Equipment that is performing better than expected with respect to operating costs move to the right of the graph. Equipment that is cheaper to own – i.e., being used enough to generate better-than-expected return on investment – they move up the graph.

4 Categories of Equipment

This creates 4 quadrants that are powerful indicators about how best to manage each individual piece of equipment in your fleet. Equipment can be categorized as:

1. Well utilized and economical to operate
2. Well utilized but expensive to operate
3. Underutilized but economical to operate
4. Underutilized and expensive to operate

Putting Equipment Data to Work

With this understanding, let’s look at our example company’s fleet of Class M Excavators again. As a whole, the class is a little underutilized, but economical to run. By gathering repair, maintenance and ownership costs, and accurate meter readings from each piece of equipment, the equipment manager of a well run operation can know how each piece of equipment within a class is performing, and keep rates constant by making proper repair/replace decisions within the fleet. This in turn lets the estimators use equipment rates that are spot on when estimating forthcoming work, which helps to get new work, and bring that work in profitably.

A combination of smart data collection and the right construction software can help tremendously with this process. First, you need a system that can gather both expenses and ownership costs for each piece of equipment. These range from depreciation and license costs, to fuel and repair costs. As a piece of equipment ages, the ownership costs go down, and the operating costs go up. With proper systems in place, determining the “sweet spot” for a piece of equipment – how much you should use it and whether it’s time to replace it – moves from an exercise in guess work to a business decision based on real data.

Determining your equipment costs is only part of the equipment management process. Please join Dr. Mike Vorster for a webinar on Wednesday, November 30 as he outlines the Roadmap to Equipment Excellence.