I have spent time in your state in the 80’s building two projects, one in
I am aware of the clean air initiative in
Construction companies are analogous to the family farm. There are more owner / operator and closely held firms in construction than any other kind. Of all construction firms, most are owned by individuals and / or families and operated by the same in many cases. These people rely on construction income and thus, profit to insure their financial futures.
Families working together in the construction industry have a healthy social consequence making family relations closer, local and long term. To ignore this fact is to be unobservant of the quality of a good society.
Nearly all California Construction Companies are home grown, will stay in
Information provided by Risk Management Associates (RMA) deserves careful consideration. We are using Annual Statement Studies – Financial Ratio Benchmarks / 2005 – 2006. This publication is a statistical compilation of source documents furnished to banks and other lending institutions. It is information in which we can be statistically confident.
The average profit before tax for contractors is currently less than 5%. As a breakdown:
- Heavy / Highway Contractors (composite of multiple NAICS) 2.6%
- Site Preparation Contractors (NAICS 238910) 3.3%
- Highway, Street and Bridge Construction (NAICS 237310) 3.3%
- Other Heavy and Civil Engineering Construction (NAICS 237990) 3.8%
As shown above, there is very little room between profit and loss. Construction contracting is not a generous business. If demands of the new legislation are sudden, thoughtless and otherwise unfair, then bankruptcies are certain to rise (construction is the second riskiest industry currently). Subsequently, costs to Californians will rise in governmental and business costs in among other things, uncompleted contracts, uncollectible debt and business expansion delays.
Most construction is built by small business. According to RMA, approximately 65% of all construction companies have 10 employees or less. These are not large faceless enterprises but, ones comprised of a few individuals who are working as a team and who are impacted greatly by changes. These small businesses may be unfairly treated by the implementation of the regulations. I strongly feel care should be taken in the formulation of these rules.
We don’t debate the need for clean air and in essence, the health prospects of the citizens of California. We do debate the unilateral burden that the preliminary legislation places on construction company owners and their families.
For more insights on the construction industry, purchase a copy of my McGraw-Hill book, Managing a Construction Firm on Just 24 Hours a Day. We offer a bundle with Excel templates that are featured in the book to help assist in making financial, estimating and project management decisions.
Matt Stevens is President of Stevens Construction Institute, Inc. A management consulting firm which works only with construction contractors. Learn more at www.stevensci.com