Andy from The Trades Coach Part 1: Your business as a leaky bucket

There is a big difference between being a great builder and owning a great building business. To be successful, and secure your future in the long term, you need skills in both. Arguably, as the business environment gets more complicated and tighter, better business management skills are even more vital.
That’s what The Trades Coach does. We help fill in the missing pieces of the business jigsaw puzzle and help great builders become great business owners. Check out our website, download the free report on the 5 Key Strategies to a Profitable Contracting Business, and then talk to Andy about your needs to see how he can help. There are other free resources available, including a no-cost initial diagnostic and strategy meeting for Rave Build clients.

Now that you know a bit about what The Trades Coach does, check out the first installment of the guest blog series below.

Your business can be viewed as a kind of bucket. In the top, you pour revenue, which comes from your marketing and sales process, then deduct (or pour out) the direct and indirect costs of producing that revenue. Unfortunately, everyone’s bucket leaks sometimes, and so the amount leftover (as net profit) is often a lot less than it could be. A lot less than what is required to balance the effort and risk that you assume as the business owner. It leaks out through “holes” such as: Too many overheads, Insufficient margin, Working with the wrong clients, Burning hours on fixed-price contracts… The list goes on, there are a number of other ways.

Over the next few articles, I will be looking at some of these holes and what you could do to minimise or eliminate them. The aim is to help you improve your profits and free cash in your business. Plugging leaks in your business processes is perhaps less sexy than another approach, such as implementing a new marketing plan, but stamping on the accelerator when your business engine is not properly tuned will result in more waste, and ultimately result in money leaking out of your business even faster.

Of these leaks, possibly burning up extra hours on fixed-price contracts is the biggest silent killer. Often this is not measured by owners and so it goes undetected until after the final wash-up is done and you realise that there was a lot less profit in the job than you thought, or maybe even a loss.

So what can you do about it to minimise or eliminate this potentially fatal disease in your business?  There are many areas to tweak in the business that can help but... 

Here is my top 5:

Hire better:  This comes under the old adage to avoid the problem before it starts. By choosing employees or sub-contractors better, checking on references, hiring on a trial basis only to start, and paying top $ for quality, you may avoid many of the headaches before they occur.

Meet regularly: Hold daily site meetings headed by you or your field supervisors, to clearly set out what is to be done and match the best person for particular jobs. Don’t just assume people know what to do. If necessary, have some written procedures to follow. Rave Build’s schedule, checklist task, and project task notes can make this communication easier.

Measure regularly: By tracking allocated hours to a particular task versus actual hours expended on that task, you can keep a running tally of whether you are falling behind on your labour budget. This should be done weekly, or at logical milestones in the build process. The use of a good back costing system or a tool like RaveBuild’s Budget Management System can assist with this. It is a lot easier to make small adjustments to the labour equation, rather than waiting too long and not have enough time to get back on course.

Training:  Don’t be afraid to invest in training your staff - or even your subbies to a point. I know they may leave and take those skills with them, but ask yourself, what is worse, train them and they may leave, or NOT train them and they STAY!

Pay for results:  Link the quality level of work completed to what you pay.  If people make an unacceptable level of mistakes and you have to spend extra to fix it up, then consider deducting the extra hours (or some of them) from what you pay them. This needs to be set out clearly at the start, and clearly, you need to be fair and allow for some errors to occur. You may also balance this with an incentive scheme for those getting through the work faster than budgeted.

Another area where labour hours are “lost” on a job is through variations that are not documented and billed to the client on a timely basis. This will be the specific focus of a later article in this series, so keep an eye out for that.

If you feel that you have an issue with unacceptable levels of mistakes or just slow team members, I suggest to put some (or all) of these strategies in place and just watch that bottom line profit grow!  For help in identifying where profit is leaking from your business and what to do about it, contact The Trades Coach for help.  Head to our website or email me here.

Andy Burrows

The Trades Coach

Phone: 09-912 1901 or 027 6886721

Website: www.tradescoach.co.nz