Straight Answers to Tough Questions

Q:

I have read your articles in CBO and attended your Profit-Builders boot camp last year. Have you ever hit a point where your volume took a huge downturn? Our volume has significantly dropped in the past six months, while our gross profit percentages are still good. We have already trimmed our overhead and eliminated our least profitable employees. Now what? What are some good ways to turn our sales around? What marketing really worked for you? Should we attend trade shows, join business associations or go to meetings like the Chamber of Commerce to meet new customers? What about networking groups? What is the best way to market to architects for work? It’s funny, I am an architect by profession, but I still don’t know how to approach them without looking needy or greedy. Help!
 

Jimmy Rustin

R & B Builders Inc.

 
A:

You will not like my answer Jimmy. Sales is hard work, and going to a few networking meetings will not get you enough jobs to fix your immediate problem. First, make a list of your top ten or twenty existing or repeat customers that might need your services or have jobs to build in the next three to six months. Then, make a list of ten new and potential customers who are going to build in the next few months. Get out of your office and go do what it takes to find them. Next, make a list of five to ten referring parties who know your company and might refer you work. Delegate 50 percent of your job description and free up 50 percent of your time. (You said you were slow. I bet every one of your employees have extra time to do some of your job now.) Next, go buy some sales clothes and get ready to sell starting next week, and spend at least 50 percent of your time calling on your targets. Take them to lunch, golfing, fishing or to a ballgame. Ask them what they have coming up and how you can help them. Tell them what extra services you will offer and provide to get on their project team. Ask them what else you can do for them. Or the other alternative is to sit and wait for the phone to ring and die a slow death.
 

 
Q:

After working for other companies for many years, my friend and co-worker are starting a new commercial HVAC company. If you were starting a new company from scratch, what would you consider the most important first decisions? What abilities would you look for in the first two or three people that you hire? How would you handle payroll or compensation until the business becomes more established?
 

Tom Kelsey

Cool Air Systems
 
A:

The most important parts of any new company are cash and customers! Do you have enough cash and customers to grow your business? A new donut shop needs lots of $$$ to open, perhaps as much as $250,000 for equipment, advertising, management, personnel, overhead and materials. So do you! First, I would hire a part-time professional construction bookkeeper who can install and maintain a professional $10,000 to $20,000 construction software package, which will allow you to grow. Next, I would hire a professional office manager, project manager, estimator and field superintendent, in that order. Then, hire great foreman and crews. Don’t hire cheap! Hire the best! Your job is to get profitable jobs, create loyal customers and manage the business (not do the work). Let your employees do the work! In the best construction company partnerships, one owner is fully responsible for everything that happens in the office (administration, project management, estimating, sales and accounting), and the other partner takes care of everything that happens out in the field. Each partner gets a fair salary every week based on what you would have to pay to get someone to replace yourself. Your initial investment of cash should be enough to pay yourself, cover your overhead and all expenses for at least six months. Good luck, and I hope to see you at the bank!

 

 
Q:

My business partner and I just recently returned from our semi-annual planning getaway. Our No. 1 issue was how we could use or invest our pre-tax income to avoid paying taxes to the government. (We pay only federal taxes in Washington state.) Our accountant says to be happy we made money to pay the taxes. I agree but cannot see turning those dollars over to something so inefficient (Uncle Sam). It just doesn’t fit within our conservative nature. The only tax break we use is our charitable giving, which is roughly 10 percent. We reside in a city that is just starting to develop the waterfront property and is luring more commercial tenants from the Seattle area. I thought you might have some input on our troubling situation and use our tax dollars more efficiently.
 

Sam Belladune, President

A-1 Construction Inc.
 
A:

Do you like living behind bars? Taxes are part of life in the United States. You’re lucky you don’t live in California where the state tax rate is 11 percent. Listen to your CPA. There aren’t many deductions for a profitable construction company unless you want to cheat Uncle Sam. Pay your fair share unless you don’t want to drive on the roads, send your kids to school or have a police force ready to protect you. The economy has been good to you. It has helped maintain positive growth in your community. How well would the economy be without roads or street lights? I recommend you take 50 percent of your after tax net profit every year and invest it in income rental property (see my Business Owner’s Toolbox article in this month’s issue) like apartments, shopping centers or business parks. Buy some waterfront property, upgrade it and then rent it out—a win-win as you get a construction job and future income!

Construction Business Owner, December 2007