Editor's Note: This is the fourth in our 2007 series of The Business Owner Toolbox written by our regular columnist, George Hedley. Each article is written to provide you with practical, immediately applicable business management tools to assist you on your path to building a successful, growing business. To read the previous article, click here. To read the next article in the series, click here.
Every company must do a few things perfectly in order to be successful. If these important things aren't adhered to in a systematic and standardized way, the customer gets confused and stops doing business with the company. Would you go to McDonald's if the hamburgers were different every time? Your company can't go forward if you do things in a disorganized and chaotic manner either.
With the pressures of building a profitable construction company, it is often tempting to do things out of sequence or by the seat of your pants. Have you ever hired a project manager, superintendent or foreman too quickly without proper screening or reference checks because you were too busy and needed to fill a slot to get your jobs done? Then several weeks later, because you didn't have time to properly supervise or train them, you discover they're not doing the job the way you want it done. Busy business owners and managers make hasty decisions because they don't have enough time to stop, plan, think and do what it takes to build an organized and systemized company.
Is your company headed where you want it to go, but it's missing a few parts, broken down and taped together with duct tape? For example, do you make hasty purchasing decisions because you don't have enough time to research all the options? Do you get stuck using the same subcontractors or suppliers too often when you don't have enough time to seek new ones? Do you personally order and schedule all job materials because you don't have a system in place to allow your foreman or superintendents to do it for you? Are you too busy to take your best customers to lunch and schmooze them on a regular basis? Do you end up going from jobsite to jobsite making sure your crews are doing things the way you want them done? When was the last time your crews held a project meeting without you leading it? Are you too busy working to fully understand your actual job costs, company financials or profit targets? When was the last time you sat down with each of your crew members and thanked them for a job well done? Do you take time to track, update and review your project and company goals with your key people? Will you die trying to build a better company but can't seem to make it happen?
You know what you need to do to make your company become the best it can be. But most never figure out how to do it. Take a look at successful companies. They have written systems in place to allow managers to supervise and coach their people rather than micro-manage and make every decision to keep things running. When I finally realized I couldn't be at every jobsite and watch everything for everybody, I had a choice. I could shrink my company back to a controllable size so I could continue to be the "do it all" owner of a company that doesn't make very much money. Or I could install and replace myself with operational systems that allow my people to know how I want things done without my constant, full-time supervision and direction. This decision can free you to focus on important things that allow your company to grow and prosper.
What happens or doesn't happen when you do it all yourself? Nothing happens without your involvement when you don't have good systems in place to allow your people to do a good job without you reminding or telling them what to do. The more you do, the less your people do. When you make all the decisions and constantly tell them how you want things done, they won't grow as valuable employees. This toxic behavior controls people and keeps them from wanting to contribute more or become the best they can be. When you finally discover you're the problem and not them, you'll realize installing systems is the correct decision. This will change your role from doer of the work to manager of the systems.
Without organizational and operational systems in place, good people won't help your problems. Six different good people will still do things six different ways. This is not a good solution to your company growth challenges. Start by making a list of the top ten things you absolutely want and must do perfectly for your company to become successful. For example, if you are a concrete subcontractor, you better have a system in place to insure concrete slabs are installed per the plans and specifications and do not crack except at properly placed expansion joints. When estimating a new project, you better have systems in place that give you accurate job costs to use to calculate bid costs. If you want to make a profit, you must have financial systems in place to track and collect money owed, forecast your cash needs and track your overhead and profit goals.
I am a general contractor who builds office, commercial and industrial buildings. We subcontract most of our trades. My top ten "must do" operational systems are as follows:
1. Install One System Every Week
Business is always changing and continually needs improvement as you grow, acquire new projects to build, find new customers and hire people to do the work. If you continue to do business the same way, you won't improve. Look at professional sports. Teams are always installing new plays and trying new things to improve and beat their competition. As a business owner or manager, you must also work on improving. Your goal is to create a "MUST DO" playbook you can use as a training tool and guide. Start by including the things that must be done to insure success. This becomes your operational system book of how your company does business. Remember, if it is not a written play book, everything is still in your head, and you will be the only one calling the plays.
2. Manage the Systems
If you were going to buy another company, what would you want to know about it? I would want to know if the business works without the owner doing all the work. A business that works is in control, systemized and organized. The systems run the business (not the owner). The owner or managers manage the systems (not do the work). The organized and systemized company produces the same consistent results every time. This process guarantees repeat loyal customers, a safe working environment, quality workmanship, on-time projects, empowered employees and an above average profit margin. With systems in place, your job changes from micro-managing and controlling every move for every employee to making sure the company systems are followed.
A simple follow-up procedure for every "must do" company or project system allows you to make sure each system was adhered to. For example, a concrete contractor must have a pre-pour checklist system to insure everything is in place and ready for a successful concrete pour. Before a pour, the foreman will make sure all items on the checklist are completed. He initials the items on the checklist and signs it as complete. Then he sends it in with his weekly paperwork. Your job is to make sure he followed the "must do" system by looking at the completed checklist. You won't have to go to the jobsite to see if he followed your system. The system will force him to do it the company way.
3. Set and Track Targets
Everyone on your crew or in your company needs to know what they're responsible for and when they're successful. Playing basketball without a basket or scoreboard would not be very exciting. Working for a company without a scorecard or targets to hit would also not be very exciting. People need weekly feedback and information about their progress and achievement. This allows them to stay on track and make adjustments to improve and keep on course. What measurable targets can your employees use to hit the goals for their work? What do you want to track? What will keep people focused on the results you expect? Everyone needs three or four things to strive for every week that they can measure. For example, a concrete crew might track safety, quality, schedule and productivity. Each of these areas can be quantified and measured every week. Your job is to make sure they get the proper input and feedback to set their targets and track the results.
4. Manage Your Money
Many construction business owners aren't focused on their bottom-line. They're focused on getting work done and hope they make enough money to pay the bills and have a little left over to pay for their lifestyle or buy a new boat. They often hire a bookkeeper or let their wife manage the money with little direction, support or interest. They think of accounting as a necessary evil instead of a valuable part of their success. Are you in business to do work or make a profit? How can you make a profit without attention to financial details? I didn't say write the checks, I said manage the money and focus on hitting your financial goals. The big financial numbers you must know, watch, control and manage include:
- Job costs
- Overhead expenses
- Company profit targets
- Company gross and net profit
- Final job profit or markup
- Sales volume
- Average job size
- Total number of jobs built
- Bid-hit ratio
- Number of bids per month
- Bid volume required
- Monthly cash flow
- Weekly cash balances
- Accounts receivable aging
- Weekly deposits
- Weekly payroll
Most accounting people are focused on paying the bills and not worried about making money. Unless you are focused on making money and what it takes to make a profit, it won't happen. Know your numbers and watch your bank account grow.
5. Make People a Priority
Good trained help are not sitting out in front of your office waiting for you to find them! Good trained help is a result of you making people a priority and building a great place to work. A great place to work has an ongoing training program where the employees are involved in at least forty hours of training every year. There are incentives in place for people to encourage their friends to apply for jobs at their company. There are reasons people want to work for your company. People must get inspired by leadership and be recognized and praised on a regular basis. People must be empowered to make decisions and become accountable and responsible. Cutting edge ideas, methods and technology must be used and encouraged. The best companies are organized and systemized and the boss is a coach instead of a control freak who screams and barks orders to the hired help.
Leaders who make people a priority do four simple things.
- They provide clear expectations for employees to follow. These are written measurable systems, goals and targets so they clearly understand exactly what is expected on an ongoing basis.
- They regularly recognize and praise their employees. They use words like "thank-you" and "I appreciate..." when noticing what people have done or accomplished. Everyone needs to be recognized at least once every week by their supervisor.
- They show employees they care about them as people. This includes asking people what they hope for in their future, what interests them about their job, how you can help them reach their goals and taking interest in their family and personal life. People who care about others do it by stopping and listening to what others have to say.
- They take time to explain the company big picture and how it affects the future for each employee. People want to know what's happening. Are you getting any new jobs, making money, growing or expanding? If you don't hold regular monthly company meetings, your people remain in the dark about your company and stay worried about their future.
6. Leverage Yourself
What holds your company back from profitable growth? With you at the helm holding the controls and in power of everything and everyone, you are most likely the problem! To grow your company, you must leverage yourself by letting go of things you can delegate. When you delegate to others, they become more valuable and responsible. This allows you to concentrate on things that make a big difference in your future. Every day, go through your in-basket or to-do list and delegate one thing to a key manager or employee. This habit will become one of the best things you ever do.
7. Mandatory Meetings
Unsuccessful people are usually too busy to hold meetings. Meetings are a simple way to manage systems, leverage yourself and communicate expectations with your employees, managers, subcontractors and suppliers. The most important meetings for me are:
- Weekly Team Huddle-Up: The crew or team gets together every Monday morning to review their targets for the upcoming week. They discuss progress and action plans to accomplish the week's goals. Review the systems for any upcoming tasks for the week, and get input from everyone on how to achieve the goals.
- Pre-Project Start-Up: Before every project starts, get the entire team together, including subcontractors and suppliers, and review the project plan. Go over the schedule, priorities, manpower requirements, long lead items, approval process, payment procedures, coordination issues, jobsite management, job rules and safety, quality and customer relationships.
- Weekly Field Coordination Meeting: Every week hold a mandatory meeting for all project foreman, superintendents, subcontractors and suppliers who will be needed on the job within the next four weeks. This mandatory meeting allows your field foreman or superintendent to make sure everyone and everything will be ready to meet the schedule. Use a similar agenda as the Pre-Project Start-Up meeting.
- Monthly Project Management Meeting: Every month hold this meeting to discuss every project under construction. The attendees should include the project manager, superintendent, foreman, office administrator, project accountant and estimator. Review the job progress, photos, updated schedule, proposed and executed change order logs, accounts receivable and payables, shop drawing and procurement logs and the job cost update report.
8. Focus on Your Field
Most field employees and managers think a few hours or days ahead. To improve field scheduling, quality and safety, install simple systems to help your foreman and superintendents look ahead and think about the future. Install a four-week look ahead scheduling system. It forces each project leader to draft a schedule of project activities happening or needed to occur in the next four weeks. Provide blank bar chart forms to hand draft bar charts of upcoming project milestones and requirements. Every Friday, have each project foreman or superintendent fax it into the office for review.
To improve quality and safety, require every job foreman to take a few minutes every Wednesday and walk their job looking for potential safety issues and quality improvement areas. Then fill out a pre-printed form describing the work or problem observed with their recommendations to remedy the situation, the responsible party and when the problem area must be fixed. This forces project leaders to look for and anticipate problems before they occur. It also notifies people and companies to fix problems now and not wait until the final punch-list is issued.
9. Know Your Costs
Profit starts with your estimate. Mandatory "must do'" systems must include accurate time cards to obtain accurate job costs. A fully integrated job cost and accounting system must be installed and maintained to grow a profitable business. This will allow you to keep accurate cost history for each type of task and project you perform resulting in accurate estimates.
10. Go See Your Top Customers
Want to make a lot of money by getting lots of negotiated projects at your price? Go see your top ten to twenty customers every two to three months. Take them to lunch or dinner, to a ballgame or an industry event. Get to know them. Find out what makes them tick. See what it takes to make them loyal and use your company whenever possible. Money is made by creating relationships with your top customers. If you don't install systems to build customer relationships, your only method to get work is to bid projects and hope to be awarded the job by being low bidder.
11. Bonus Must Do-Seek Wealth Building Opportunities
When I speak at conventions, people often ask me for my best business tip. My advice is to buy your building before your next truck. Wealthy construction company owners own real estate. Poor contractors own equipment. The choice is yours!
By replacing yourself with operational systems, you'll have time to buy your own building, seek better customers, look for profitable jobs, find better people and seek business opportunities. When you work too hard and make all the everyday decisions, you'll never have time to get better, and you'll peak out at the level of what you can control. It's your choice: Die trying to do it all yourself ,or replace yourself with written operational systems.
Construction Business Owner, April 2007