Defining a contractor’s business is a challenging exercise. There are so many different types of contractors and types of work. We are hard pressed to try to write a definite explanation without ignoring several segments of the construction industry.
We observe over 100 market sectors in the construction industry. F.W. Dodge reports in its construction permit data 30-odd categories and that is just the type of projects. Multiply that by the all the different types of contractors. The old CSI classification methodology outlines 16 divisions of work. Each division typically has several construction firm types occupying each of those.
Regardless of the type of work and the type of projects, all contractors must perform the following.
Acquire Work — This includes the functions of estimating, pricing, bidding, marketing and selling. If we estimate and price work but don’t win any work, we must be a pricing service.
Build Work — This include the functions of project management, field management, material procurement, and labor productivity. Contractors do and love to install work. In this step payment is made by the client.
Keep Track — The functions included are accounting, financial management, administration and tax reporting. A majority of contractors don’t enjoy this part however; it is certainly a necessary evil to continue to be in the construction industry.
After completing steps one through three, we repeat the process. The speed of this cycle is where a competitive edge resides. If you are slower than you competition, you have a disadvantage. If you are faster than your competition, your have an advantage. It is that simple.
This is the business cycle of a Construction Contractor. The big don’t beat the small, the quick kill the slow. The faster you are in the cycle, the bigger your competitive edge.
Speed Kills the Other Guy
Speed of process gives a competitive edge to any contractor. It is not about working hard every day but working smart. Those processes which are faster and just as accurate allow contractors to earn more with less investment.
You have speed, the other guy doesn’t, who dies? Not you.
Part of working smart is to address the risk which is wholly evident in the industry. We have to make sure that are processes keep us covered from the liability that others will surely try to give us. (There are more lawyers than ever before).
From time to time, we will give to you best practices in the construction industry. Some may not strictly apply to you. However, we can assure you that many do. That means that there many ways to be faster tomorrow in your processes.
As rule of thumb in a contracting business, you should be turning over your working capital 8 to 12 times a year. So as an example, if your revenue is $10 million dollars, your working capital should be approximately $1 million. That is speed of process.
Read these best practices and take them to heart. They have been researched for more than a decade and confirmed by dozens of contractors as to their value. You will find them to be a better approach.
For more information on this critical subject, 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