Masonry Magazine June 1997 Page. 40
Washington Update
Continued from page 39
government. The fact remains, however, that in order to do that, spending must be cut. In the 104th Congress, Republicans submitted a budget which contained not only spending cuts but also tax relief. Thus, they became vulnerable to the charge of "cutting spending to give tax cuts to the rich."
The lesson of the 104th Congress should be quite clear-pairing tax relief and spending cuts is political dynamite.
What we have are two issues supported by a majority of Americans, that don't go well together. Therefore, the logical thing is to split them up. We should present a budget with lower spending to the President, without tax cuts, and let him decide whether to support or veto our legislation. If he disagrees with our methods of trimming government, then we will submit new versions, all with the goal of shrinking the size of the federal government. Ultimately, we will present the American people with exactly what they want, a smaller federal government - which the President must sign, or explain his unwillingness to end the era of big government.
We should pursue the same course with tax cuts. Since most Americans support tax relief, the President would have difficulty opposing such legislation in a stand alone bill. If he does not support immediate relief, we will send him a bill phasing in tax cuts over three years. If he does not support three years, we will send back a bill phasing in over four years. Again, the President will be forced to support tax relief, or explain his unwillingness to live up to his campaign promises.
The end result will be a smaller federal government and tax relief. Perhaps not as soon as some would hope for, and perhaps not identical to what some would want-but a smaller federal government and tax relief nonetheless.
If Republican members pull together and use the strength of our majority properly, we will continue to pass meaningful and positive legislation, and our mark on this nation will be infinitely more profound than anything we could do individually.
Profit is not a Dirty Word
Continued from page 16
overhead items are variable and can be adjusted to fit the demands of the marketplace at any point in time. One of the keys to being profitable is to be the most efficient provider of service-including overhead expenses.
5. Capacity is Underutilized - This is another oft-used, but highly suspect, reason for growing the company. The company has the organizational capacity or financial capacity to do more work; therefore, let's go get some. Too many contractors define their capacity by the bonding credit available to them. If the bonding credit and organizational capacity cannot be used profitably, then why use it?
Although the reasons for the volume-at-any-cost mentality are easy to understand, the effects of this attitude and action is very destructive. For example:
* Low margins lead to conflict between the contractor and the owner/architect, between the contractor and subcontractor, and between the subcontractor and supplier. Conflict leads to slow (or no) pay, litigation, poor quality, bankruptcies, etc.
* Low profits mean no funds are available for training, value engineering, customer service, improved technology, better productivity, and improved safety. Funds have to be spent on getting new (cheap) work.
* Low profits do not attract outside capital into the industry, thus providing funds for research and development, industry consolidation, or ownership transition.
The survival instinct sometimes causes honorable men to do dishonorable things. Operating on the edge of disaster is not in the long-term best interest of the individual, the company, or the community.
What is the solution to this dire state of affairs? The construction industry needs a collective wake-up call. Every contractor needs to decide to take a job only if they can earn a reasonable profit. (What is reasonable? In the AGC survey, more than 20 percent of the contractors reported earning in excess of 5 percent net pretax profit.) Every contractor needs to understand that properly managed reductions in volume nearly always result in higher profits. Every contractor needs to believe that profits are more important than volume.
Every contractor needs to maintain volume and equity at a level that will ensure survival when the inevitable financial reversal occurs. Every contractor needs to take immediate steps to double or triple their profit margins by the end of the decade.
A higher level of profitability would have nothing but positive effects on construction industry shareholders, employees, customers, suppliers, and creditors, as well as society at large. When are you going to start making more profits?
Hugh L. Rice is a senior vice president for FMI's Mergers & Acquisitions Group. He specializes in providing in-house consulting services in the areas of mergers and acquisitions, joint ventures, stock valuations, and business continuity and management succession. FMI, management consultants to the construction industry, has offices in Raleigh, North Carolina. Denver, Colorado, and Tampa, Florida. For more information, Hugh can be reached in FMI's Denver office at (303) 377-4740