Your business’s purpose is not to build buildings, install pipe, hang drywall, pour concrete, erect steel or move dirt. You are in business to make a profit, build equity, seek wealth-building opportunities, and enjoy the benefits of owning a successful business.
After 20 years as a commercial general contractor, I finally realized why I was in business. Year after year, I worked hard to scrape out a 2% to 5% pre-tax net profit, which didn’t leave much after taxes, bonuses, etc. While my company did most of the work, our customers made most of the money. Why? Because I was in the contracting business and my customers were in the wealth-building business.
What Business Are You In?
The purpose of your construction company is not to build projects for other people. The purpose of your company is to deliver results the owners want. Owners want their company to make significant profits, which will build wealth, grow equity, generate passive income opportunities, and, therefore, deliver financial freedom.
Wealth also reduces the stress of continuously generating construction revenue to handle cash flow pressures, cover overhead, pay bills and debt, collect money, keep crews busy, and provide compensation packages for both employees and owners.
Building wealth and equity is the outcome of consistently making and retaining a generous profit, and then investing it into other business opportunities, which will grow net worth and create passive income. Achieving wealth provides owners the freedom they desire and deserve for the demanding workload and risk they take.
Wealth and freedom allow business owners to spend their time doing what they want to do and where it generates the highest return, such as building loyal customers, seeking joint venture opportunities, finding and mentoring talent and more.
Wealth-building assets, like real estate, owning shares in other businesses, or other investments, create regular positive cash flow, reduce debt and are passive instead of needing constant attention and supervision like running a construction company does. Liabilities cost money, decrease in value, and take a lot of work to get them to pay for themselves.
Owning a small industrial building and renting the space to a tenant is an example of a wealth-building asset. The building creates a net income every month without much effort or work. Assets that create wealth increase in value over time while reducing debt against them.
Assets can also include owning stock in growing and successful public or well-managed private companies. Some of the richest people in the world made their money buying Microsoft stock when it was only $10 per share, and then sat back and waited for it to grow in value.
What Is Wealth?
Wealthy contractors invest in their future by building a strong management team, hire the best talent available, build a great place to work that attracts and retains good people, replace themselves with systems and structure, know and track their numbers, and seek high-margin, negotiated work with loyal customers.
Wealthy contractors also own their office and yard and spend time on the top priorities that will move their business to the next level. They work hard to develop relationships, are active in their industry, stay abreast of the economic trends, read and research business publications, belong to a mentorship programs, are members in the best local organizations, and are active in local charities. And most importantly, they regularly dedicate time and money to creating and developing investment opportunities to build their wealth and future.
Making a profit creates equity, which allows for building wealth, investing in the future, and living a fulfilled life. Wealth includes more than just money. It can include anything that makes you happy—such as investments, money, family, time, freedom, friends, faith, peace of mind, contentment, success, or owning a business that works without you. Financial success allows you to design your life to do, attain and enjoy what you want, and make choices how to spend your time and money.
What Is Your Wealth-Building Vision?
When I coach and mentor construction business owners, we start by defining their vision and what they want to achieve over the next 5 years.
By identifying their wealth and investment portfolio vision, it helps to determine the roadmap to build the kind of company they want to own. Here are a few examples of how to start your wealth building program:
Joseph’s vision included owning several small rental homes he could manage while still operating his construction company. As a general contractor, he made a decision to hold back 20% of his net profit every year to start an investment portfolio.
His first investment was buying a well-priced, rundown three-bedroom home in a lower-income area with upside potential. With a $30,000 down payment plus remodel costs, he was in the wealth-building business.
After buying the property, he and his construction crew renovated and upgraded the home to attract a reliable family tenant. After successfully leasing the home with a positive cash flow, he is eager to repeat the process again soon, with a goal of owning 20 homes within 10 years.
George’s construction company built commercial projects for real estate developers. His customers always needed investment money to create the equity required to finance their projects, and George sought after becoming one of those investors. To find the cash required to invest, George offered to invest his contractor’s fee into the development if he was allowed to negotiate and be the project’s general contractor.
By investing his fee as a small partner, he was involved in the complete development process and learned how to finance projects, prepare pro formas, handle title and escrow, hire and negotiate with real estate brokers, and lease and project manage projects. Over the years, this strategy founded other investments and led to many larger investments as his portfolio grew.
Sam met a top commercial real estate broker named John while building a multitenant, industrial project for a customer as the general contractor. After working closely with John, the two discussed working together on buying or investing in projects.
They agreed to seek out older, industrial properties to buy, renovate, raise rental rates, and then hold for the long term. After a few months, John found a fixer-upper that was priced to sell and presented it to Sam to joint venture as the developers. Working together, they found a lender who would provide a loan based on the purchase price, plus the value-added construction improvements required to raise the rental rates.
Next, they needed to raise the cash equity to fund the down payment. After hounding their friends, family, golf buddies and co-workers, and emptying their own savings, they raised the money to buy and improve the property. Fast-forward 10 years—the property now returns over 50% per year to Sam and John as general partners and their investors.
Mark is a pre-engineered steel building contractor and erector. To build his wealth portfolio, his goal was to seek out and buy at least one low-priced, beat up, older small steel building per year that required lots of work.
With his hands-on experience and crews, he was able to repair and upgrade these properties into attractive income-producing buildings. To date, he owns and manages eight buildings producing a solid return on investment.
The Key to Building Wealth Is to Start
You must dedicate some investment cash and the time required to learn about and find the right type of investment for you. You must learn how to analyze, manage and operate those investments. And you must find investors, lenders and experts who can offer advice and expertise.
Don’t wait until the time is right, or you have enough cash saved up, or you have more time to dedicate toward the effort. The time is now. To get started on the right track, seek qualified business partners who will take the risk with you and get things going. Remember, 10% of something is better than 100% of nothing.
You can make this a reality by starting with a vision of your company’s future and defining what you want. Design your construction business to allow you to seek wealth-building opportunities and make it a part of yours and your team’s weekly activities.