Editor's Note: Following is part two of our eight part series called "Better Next Year," by Fred Ode, CEO, chairman and founder of Foundation Software. To read the previous article, click here. To read the next article in the series, click here.
Keep the best...and get rid of the rest! Eight steps to improve the financial health of your contracting company.
1. Avoid Spreadsheet Dependency
2. Hire Expert Construction Advisors
3. Understand and Use Management-Level Reports
4. Fine-Tune Project Management Reports
5. Improve Communication between Office and Field
6. Minimize Resistance to Change
7. Owner, Open Your Eyes
8. Commit to Ongoing Education
It's a common scenario among the small but growing, family-owned construction firm: In an effort to save money and closely monitor the business, an owner recruits relatives and friends to help with professional services, such as accounting, tax and legal advice. Things run smoothly for a while. But as the business grows, the company soon requires more specialized skills than some of these advisors can provide. Somewhere along the way, the business outgrew their expertise.
Every business owner eventually learns this important lesson: You can't do everything yourself, nor can you rely on your spouse (or brother-in-law or friend) to handle the jobs that have outgrown them. There comes a time when you need to hire people with the education and the experience to help your business grow (even if it means letting go of Cousin Joe).
No one knows your business better than you. But hiring someone to do what you and your staff cannot, well, that's just about one of the smartest business decisions you will ever make. Not only can these experts handle certain duties much faster and more effectively, but they can allow you to focus on what you do best.
When it comes to technical or highly-specialized areas, such as accounting and law, these matters are best handled by outside experts. And when it comes to construction, contractors should focus on hiring professionals who know and understand this highly complex industry.
One of the most important consulting hires for any contractor is an outside construction CPA. Why? Because just as fast as the construction industry changes, so does construction accounting and financial management. A construction-focused CPA is likely to know the current tax laws and complex reporting requirements that affect contractors. With a solid understanding of project-based, job-cost accounting, they are also able to offer sound financial advice to construction companies and help with such growth-related issues as depreciating equipment, adding city or state tax entities and succession planning.
In addition, your CPA is one of the key players, along with your banker and surety broker, to help with securing or increasing your surety bonding. Depending on your needs, some construction accountants also offer other business consulting services, such as job costing setup, software selection and implementation and human resource advice.
Likewise, contractors need the help of a good construction-specific attorney if they hope to grow. Because construction is primarily a contractual-based business, the typical contractor is exposed to more disputes, claims and lawsuits than the average business owner. Selecting the right attorney-perhaps one that can help implement policies to reduce risks and uncertainty-is therefore, a very wise investment.
Upgrading Your Professional Partners
Are you still working with the same lawyer, accountant or even insurance agent that you hired when your business began? If so, it may be time to evaluate these key positions. The needs of a growing business are different from those of a startup, and your current advisers may no longer measure up.
Let's say you hired your neighbor, Joe (an attorney), for help with the documents and contracts needed to launch your new company several years back, and your wife has been handling all bookkeeping and accounting tasks. Now, Joe's been a good and loyal friend and having your wife on the payroll certainly has its advantages, so you don't relish the thought of replacing either one.
But it's time to ask some tough questions. Is Joe the best person to give advice in matters of construction claims, dispute resolutions, contracts or any other legal issues unique to construction? Does your wife have the expertise or the time to fully manage and control not only accounts payables and receivables, but also payroll, job costing, bonding and cash flow projections? Does she understand the reporting methods, job costing systems and technology available to help you make good decisions and hold people accountable?
Meanwhile, maybe it's time to reconsider your commercial insurance agent. If you are her only construction client, chances are she may not be knowledgeable of all the risks involved in construction. For instance, does she recommend safety programs or specific solutions that will keep your liability insurance or workers' comp rates low?
Important financial and legal matters, in the hands of the wrong people, can be just as detrimental to your business as having no expert help at all. The key is to determine exactly what kind of help you need, and balance what you can afford with outsourcing those duties best left in the hands of professionals.
Choosing the Right Fit
Having access to construction-specific legal, accounting and other professional service expertise is essential to your business' long-term health. But it can also be expensive. So how do you know if you really are hiring an expert?
Referrals are the best way to find a professional service provider that's right for your company, and other contractors are your best source. Talk to peers at association meetings, tradeshows or other industry events. Professionals are also good sources. Your banker might know of good construction-specific CPAs, or your CPA might have a lead on a good construction attorney.
Once you've identified potential professional advisers, interview your best prospects. Ask for lists of their construction clients, and be sure to shop around for quotes from several providers. Just as you would interview a potential employee, you should take note of the rapport, communication and other signs that this person will mesh well with the company culture and will understand your business goals.
If you truly want your construction company to become better next year, you must acknowledge that you can't do it all yourself. You also can't cut corners when it comes to hiring a team of professional advisers. Whether you need to let some people go or locate just the right partners, the process is sure to involve some tough decisions. But hey, no one ever said business is easy.
Construction Business Owner, July 2007
Fred Ode is the CEO/chairman of Foundation Software, developer of construction job cost accounting software called FOUNDATION for Windows. For further information on FOUNDATION for Windows, visit www.foundationsoft.com. Ode can be reached directly by phone at 800.246.080