When you decided to enter the contracting business arena, you made an investment that you wanted to recover, and increase, by bringing in more money into your business than the investment you made. That makes unadulterated sense.
Some of you opened your business doors, so to speak, from your kitchen table with little actual monetary capital, but a whole lot of heart and technical capital to invest since you already had a truck, tools and your technical expertise.
Or, you may have actually had the monetary capital needed to set up your endeavor with a sound financial base. And, then there are those of you who were fortunate enough to have had both of those situations.
But how many of you, at the time you entered the business arena, actually had the business expertise needed to make your business successful?
The answer to that question requires that you first properly define the word success.
Success is defined as the accomplishment of an aim or purpose.
The aim or purpose for you, the contractor, is to service the wants and needs of consumers while bringing more money into your business than you spend providing those services.
Then, there is the aim of delivering excellence to your clientele so they can receive value for the dollars they pay for your services.
The delivery of excellence also has yet another benefit. Since excellence costs more to produce than mediocrity, the value you deliver to consumers is worth more to the consumers.
And, value-buying consumers know and accept the fact that you might not be the cheapest contractor around, but the excellence you deliver certainly makes you the least expensive in the long run. That’s due to the fact that what you install, repair or replace for consumers lasts longer since excellence is included in your performance of the task.
Your true proportionate cost
That also means that if you apply a profit margin to your true proportionate cost of any task, you will make a bigger profit than the schlock contractors in your area because your true cost to perform the task is higher.
Allow me to explain. If a schlock contractor does a job whose cost to him is $1,000.00 and he uses a mere 10% profit margin while delivering his shoddy workmanship, his selling price would be $1,111.11 for the task ($1,000.00 ÷ 90% = $1,111.11). And, $111.11 (profit) ÷ $1,111.11 (selling price) gives you a 10% profit margin.
In that case he made $111.11 above his true proportional task cost assuming he estimated his costs correctly.
Now let’s arbitrarily say that your true proportional cost to perform the same task is 25% higher since you incorporate excellence into your services. In that case, your true proportional task cost to provide the task would be would be $1,250.00.
If you chose the same 10% profit margin, your selling price would be $1,388.89 ($1,250.00 ÷ 90% = $1,388.89). Using the same mathematical sequence, your profit would be $138.89 when you subtract your true proportionate task cost of $1,250.00, you get to keep that $138.89 that is $27.78 more than the schlock contractor.
And, as a proof to the profit margin percentage, $138.89 (profit) ÷ $1388.89 (selling price) = 10%.
Obviously, if your cost or profit margin is higher yet than the example, you will make your purpose in business easier to accomplish.
Another thing to consider is how many hours you work. You might consider working extremely long hours that encroach on your valuable family time that dissipates with each tick of the clock as successful.
If that is your aim or purpose, and you accomplish it, congratulations.
Although running a business usually requires much of your time, working harder rather than smarter is never wise.
And, it’s not my definition of success. I think that you have to ask yourself another question. Am I really profitable or do I just have two or more jobs to make ends meet?
Success in the contracting business, as I see it, is setting up a viable sound business game plan that includes:
• Thorough knowledge of the services that will be offered to the public;
• Selection of an area in which to offer those services that has the need for those services;
• Creation of a logical, pragmatic budget that includes all possible legitimate business expenses that you will incur so that you can accomplish the aim of your business – that is to bring in more money than it costs you to be in business;
• The intent to deliver, and actual delivery of, excellence to the consumer for the benefit of the consumer and your business’ reputation;
• The maximization of profits commensurate with the delivery of excellence by properly and profitably developing your selling prices based on your true operational business costs and desired profit margin in order to give you an opportunity to achieve the reason your business exists;
• The hiring and continued employment of administrative and technical personnel who can deliver excellence to the public;
• Monitoring the quality of service that employees deliver to consumers;
• Standing behind the work your business delivers when the services you provide are the type that should be warranted;
• The payment of your obligations in a timely fashion; and
• The implementation of logical procedures that will help limit the stress and frustration that often comes in the operation of your business.
Once you set up a viable sound business game plan, you must implement that plan in a correct manner that includes adjustments as they are needed if you truly want to earn a profit that makes your investment in your business – a wise investment.
Your investment in your business requires you to properly allocate the time you spend on your business in order to recover your true operational business costs and earn a profit above those costs.
The allocation of time can be spent directly doing everything yourself. But you only have so much time in each day. And, that direction leads to you having more than one job.
And, as the old saying goes “All work and no play makes Jack a dull boy.”
And, dullness will affect your ability to accomplish that which can make you successful.
Proper and smart delegation of duties will allow you and your employees to remain sharp so that you can receive your true business operational costs while maximizing your profits.
If you are wondering on how to make your business investment in your contracting business pay off; get on the right track so that you can attain the reward you deserve for your business investment; understand the way to arrive at your prices, address consumer questions; make tedious daily business duties easier; hire top quality employees; or address any contracting business matter, that can lead to whether or not you will have an opportunity to succeed in business, just find a knowledgeable business coach who knows the industry and implements sound concepts that are steeped in the fundamentals of mathematics and common sense.
You might even consider taking some business courses.
If you are intending to eventually selling your business, it would be wise to consider making your business enticing to buyers. The worth of a contracting business is based on inventory and hardware; reputation; and the return on investment that the buyer believes he or she can realize from buying your business.
If you are a schlock contractor, your reputation can be detrimental to the selling price of your business. If your business’ history is one that shows that you have not maximized your profit potential in the area you service, your value is less rather than more. If your inventory is not worth anything to your potential buyer, chalk up another issue that lowers your business’ worth to the buyer. And, that also goes for your hardware.
If those issues should arise when you are trying to sell your business, the potential owner, is he/she is smart, might just think that they can start from scratch and avoid the hurdles that you put in place with the way you have run your business. It would probably be less expensive for them than buying your business with all its baggage.
After all, a smart potential buyer of a contracting business that intends to deliver excellence would never consider purchasing a contracting business whose clientele are used to paying low, and probably not profitable, prices for services.
If your business’ clientele consists of consumers who are price buyers rather than value buyers the value of your business is greatly diminished.
And, if you were not wise enough to maximize your profits, then the aim of the potential buyer of your business probably would have a difficult, if not impossible, time recovering his/her investment in the purchase of your business.
So, make sure you are running your business in a businesslike manner.