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 Learn to manage your business instead of having the business manage
you.
Few contractors are familiar with the financial workings of their
own operations. Here’s why: most start out as installers, working
for someone else. They don’t realize what it costs to run a
business. And they’re not in the habit of writing things down.
That’s where getting control of your business actually starts.
Writing things down (a business plan) is essential. It gives you
and your business clarity and a road map showing where you want
to go.
Critical Measure
Businesses are measured by sales growth and by consistent
profitability. Here are some things you can do to keep business
growing and profitable:
Set financial goals. Set sales and revenue targets at
year’s end, laying out what you’d like your company to do in the
coming year. Then compare sales and bottom line results with the
month’s projected goal and with what you did last year. Each
department —sales, production, and administration — also has its
own goals.
Track leads daily. If your organization relies wholly or
in part on leads, pay attention, daily, to the number of leads
you’re getting. Compare them to your weekly, monthly, and yearly
goals. If leads aren’t coming in, your sales are not going to be
what they should be. You should also know what percentage of
those leads you’re closing on, again, on a daily basis. Train
yourself and your salespeople to sell your products, not give
them away in the bid process.
Weekly sales reports. Every Friday, get a weekly report
that tells you how you’re doing by salesperson and by lead, and
the percentage of leads that are generated by advertising versus
repeat, referral, or self-generated. Let’s say you get about
6,000 leads a year, and 53% are repeat, referral, or
self-generated. These sales figures and closing ratios should be
compared with figures for the previous year, as well as with
monthly goals. A track record allows you to constantly upgrade
and train your weaker salespeople.
Materials and labor costs. Unusual changes in materials
costs can signal that something’s out of whack.Track materials
costs, labor costs, and revenue (actual work installed). This
will tell you whether or not you’re making enough gross profit.
Know all of your costs so you can develop the right selling
price based on your company’s costs, not the other guy’s price.
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Could you increase your gross profit margin from 24% to 28% in
six months? We know one remodeling company that did. 
So where do you start? Increasing the contract price on future
jobs by 1% should be a “no-brainer.” Decreasing job costs might
be another matter. Look to greater control on materials
purchases and charging for every change order. Manage labor
productivity through the use of one-and two-week look-ahead
schedules that are specific to each job and that define
materials and subs needed to complete the planned work. Reducing
overhead costs by 1% requires a focused look at current overhead
expenses. Give your office manager the task of finding that 1%
over the next month and updating the annual budget to reflect
those changes. The lesson is clear: Apply the 1% solution consistently and
watch the bottom line climb. 
The string of four
consecutive years of record lumber demand should end in 2006, as the
red-hot home construction market begins to cool, according to a new
forecast released by Western Wood Products Association.
