Masonry Magazine April 1994 Page. 30
STRATEGIES FOR SURVIVAL
Strategy #5: Simplify the Materials Handling Process
Instead of calling it inventory, call it cash because it is. Contractors are in business to put materials in place, not to store them. Make suppliers do their job by increasing their roles and responsibilities for product quality assurance, technical support and training, and increased cooperation for material deliveries. Use fewer suppliers, concentrate your purchasing, and create a spirit of teamwork to make your suppliers a risk-sharing partner in the build-through process. Stop accepting mediocre service and the "No, we can't do that" attitude. Make the supplier an integral part in the material handling process, and he will see himself that way. Strive to reduce your inventory to the minimum or eliminate it altogether.
Strategy 6: Reduce Cost of and Increase Utilization of Your Equipment
Construction equipment drags profitability for 90% of all contractors. In the future, managing equipment will require raising the level of sophistication as it relates to finance and management information. A successful contractor understands when to lease equipment and when to purchase it. He makes his decisions of whether to lease or purchase based on where the dollar will ultimately do the most good.
Equipment sitting idle is a waste of time, money and manpower and is a result of poor communications, weak controls and lack of accountability. As a rule of thumb, you should buy equipment when it can be utilized 65 percent of the time or more. While equipment sits idle, its maintenance, license fees and insurance costs continue to erode your working capital. If it isn't used, it's not helping you make money, and it's eating into profit.
Charging too little for one's own equipment, or not charging anything because "it's paid for," costs you job profits and lowers your return. Don't forget that the money you invested in your iron could have been used somewhere else within the organization. Would you be satisfied investing that money into field labor, and then not charging it to the job? The job profits that your equipment earns allow you to purchase more when the current equipment wears out. Under charge for it, and you'll pay for that new piece of equipment our of your profits. Focus your efforts and the efforts of your top managers on the key variables of your business, and watch your profits increase.
Strategy #7: Eliminate Waste and Redundancy
Appreciating your corporate resources means assessing risks and understanding the returns associated with such risks. Exhibit 2 outlines the classic risk/reward scenario. Too many contractors don't understand the risk that is inherent in the industry, and as a result, don't require the necessary return. Begin to act as if you must generate this return, and the entire organization will develop this sense of urgency.
Business as usual isn't good enough in the 90s. You must explore ways to transcend established business practices by asking what can be changed in your company to turn today's impossibilities into tomorrow's possibilities.
This is the difference between operating a profit-driven firm versus a volume-driven colossus. Minimize waste. Don't focus on paper clip counting campaigns; focus on the issues that really matter, the key variables of your company. Ask yourself what areas of your business are important in the success or failure of your organization. Ask yourself what areas are significant enough to prompt action to ensure profits or prevent loss. These areas are often overlooked by management. Possible areas for examination and what to do about them are included in Exhibit 3.
Strategy #8: Improve Financial Information and Controls
It isn't enough to prepare a budget and cash flow projection on a yearly basis. These instruments must be dynamic and reflect management's best assumptions about the future. A strong emphasis on cash management will be the only way to survive the market changes in the '90s. Charge your controller with a mission that surpasses the usual historical record keeping and reporting functions. He or she should be the in-house financial advisor and be familiar with basic tax law changes, lease vs. buy decisions, risk/return analysis, capital budgeting, banking, surety and insurance requirements. Too many decisions are left to the outside CPA who is not familiar with the specific conditions of the company as the controller. Your controller will be glad to take on the additional responsibility. After all, this is what should have been qualified and hired to do in the first place. Often, this is one of the most underutilized positions in the company.
Strategy 9: Plan for Profit, Not for Volume
In 1985, President Reagan said, "We have lived through the age of big industry and the age of the corporation. But I believe this is the age of the entrepreneur." So far, the '90s are proof of that statement's accuracy. We see more and more clearly that unbridled growth is not the end-all as it was in the past.
Construction companies go out of business "through the top." They often grow too quickly to properly plan for and finance the growth. The lesson to be learned is that deliberately choosing to limit growth can result in new opportunities. Your capability to focus on increased customer service and markets is enhanced. You can also be more selective in the kinds of growth you want for your company and direct it into those areas without loss of function and profitability.
The changing market is requiring many banks and bonding companies to focus on specific risk reduction and profit relative to revenue growth. Money is tight, and lenders are learning that risk-taking is expensive. This new attitude has resulted in increased scrutiny in lending. Lenders are insisting on a business plan that provides a firm foundation for future success. The business owner in the '90s has to place more emphasis on risk versus return relationships. Growth has to be reevaluated and re-thought as a company's sole objective.