Editor's Note: This article is the second in a series of twelve to lead you toward entrepreneurial excellence by our regular contributor George Hedley, owner of Hedley Construction and Hardhat Presentations. To read part one, click here. To read part three, click here.
If I followed you around for a day, what would I see? What would be your focus? Would you be spending your time on details, scheduling crews, making sure materials are on the jobsite, bidding work, meeting with customers, showing your foreman what to do or completing the job paperwork? Do these activities make you profitable?
There are two main reasons to own a construction company. One reason is to have an enterprise where you get paid a reasonable sum for the work you do, make a decent living and have the freedom of not reporting to an employer. The other reason to own a business is to make a profit for the time, energy and risk you take.
After I spoke at a national convention, a construction business owner approached me for advice. He said he was over-worked, stressed out, hadn't paid himself in months, was having trouble collecting money customers owed him, trying to find time to do the required paperwork and hadn't taken a vacation in years. I asked him to tell me his average profit margin, overhead costs, equity, working capital and available line of credit at the bank. He looked at me like I was from another planet. It was obvious he had started his company with little or no money and expected to build a business without the basics in place for growth. It seemed there wasn't any hope for him to make a profit as he wasn't focused on the most important part of a business-the numbers.
In my last article, I explained step one of the business success blueprint: Build an "On-Purpose...On-Target" Business! Start any journey by figuring out what you want. It was obvious this contractor hadn't taken step one and listed out what he wanted his business to do for him and what it would take to make it happen. Step two in building a successful business is to focus on your bottom-line numbers and always make sure you make a profit.
Are You an Entrepreneur?
Many small businesses are owned by people who just want to work for themselves and like being in control of every decision and detail of their business. They don't delegate much and really don't like employees or customers. They like to stay small and don't want to grow. These businesses are sole practitioners and may only have a handful of employees and customers. There is nothing wrong with these businesses. But entrepreneurs, on the other hand, are business owners who want to grow their companies and create an organized and systemized business that works for them. The business is employee-run, has loyal customers, makes a robust profit and creates wealth.
What do you think successful and profitable construction company owners and entrepreneurs spend a majority of their time on? They are focused on making and maximizing PROFIT. They learned long ago that details, commitments, hard work, and micro-managing doesn't result in profit. Profit is the result of staying focused on making money in everything you and your employees do. Know your numbers, make them a priority and do everything you can to hit your targets. Entrepreneurs know that cash, capital and equity are the lifeblood of their future. This is what I call "profit-driven." Are you profit-driven?
Profit-Driven Test
Take this true or false test to determine if you are profit-driven:
- I know the profit targets on every job.
- I know our fixed cost of doing business.
- I know our exact annual overhead costs.
- I know our annual breakeven revenue.
- I know our net profit year-to-date.
- I know our annual gross profit goal.
