Kitchen & Bath Business - February/March 2019 - 28

Better Business

Keys to Expansion
Focusing on four important disciplines
will pave the way to success
GROWING A PROFITABLE CONSTRUCTION BUSINESS requires more than just
increasing the top-line revenue. In fact, selling more work at the wrong price to
the wrong customers will ensure that yours never grows in a sustainable manner.
Edward Abbey, an American author and essayist, said, "Growth for the
sake of growth is the ideology of the cancer cell." Construction businesses
often grow in the same way.The more they sell, the more they consume, and
the more they consume, the unhealthier they become. Eventually, the growth
overwhelms the business' ability to sustain itself, and it dies.
If you want to grow a profitable construction business, you need to focus on
these four key disciplines: margins, metrics, methods and meetings.
"
Margins. Construction is a cost-based business. You must calculate the
cost of the things you buy, mark up those costs to determine your price,
and then sell that price to your customers. Price = cost x markup is the
most important equation for your construction business. The difference
between your price and your cost is your (gross) margin. The margin for
your construction business must be enough to pay for your expenses and
leave you with a net profit.
I know this may seem elementary, but most construction business owners get this wrong because they guess at their costs and their markup.They
don't understand the difference between costs and expenses and markup
and margin, and they don't understand how to organize and read their
profit and loss statements.
The costs for labor and subcontractors are skyrocketing because of the labor
shortage, and the recent tariffs are also increasing the cost of materials.These
cost increases mean construction businesses have to sell their work for a higher
price to maintain their margins. Everything in your business will change
except for the math; the math of your business doesn't change, math is math.
The guesswork you did in the past may have worked for a while, but
you can't guess your way to profitability, you must calculate it. Tracking
the activities that produce the margins for your projects is the next key to
running a profitable construction business.

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28-29_KBB_0219_BetterBusiness.indd 28

SHAWN VAN DYKE is a construction industry consultant,
a business coach, a Fine
Homebuilding Brand Ambassador and a featured keynote
speaker. He is the author of
two books: Profit First for
Contractors - Transform Your
Construction Business from
a Cash-Eating Monster to a
Money-Making Machine and
The Paperwork Punch List
- 28 Days to Streamline Your
Construction Business.

"
Metrics. Peter Drucker, management consultant and author, once said, "What's measured
improves." If you want to improve your construction business, you must determine the right
things to measure.
Labor is usually the largest cost for a construction business. If you don't measure your
labor the same way in which you estimate it,
you'll never know if you're making a profit on
your largest cost. Implementing a labor-tracking
system involves establishing billing codes, training your employees on how to fill out their time
cards and developing a system to analyze the
results.Tsheets, which is owned by Quickbooks,
makes time tracking super simple and integrates
across many platforms.
The key to any time-tracking system is the
integration of a billing code system. Each labor line item in your proposal has a quantity of
working hours associated with it. A billing code
system assigns a unique identifier (a number) to
each of the tasks on the proposal. When your
employees spend time on that task, they report
that time on their time cards according to the
billing code assigned to that task.
Labor is essentially time, and time is money.
Estimating time on tasks becomes extremely accurate when you measure the actual time it takes
to perform the tasks. Implementing a standard
billing code system will show you exactly where
you are making money and where you are losing
it. Tracking the metrics of your business is vital
to your success.
"
Methods. Next, you must develop a method to
analyze the data your metrics produce. I call
this analysis the "Gravity Versus Frequency Reporting Method." The basic theory behind the
method is this: The GRAVITY of a report is
inversely proportional to the FREQUENCY
at which that report is reviewed. Or in other
words...the more often you review a report, the
less weight it carries; the less often you review a
report, the more weight it carries.
The Gravity Versus Frequency Reporting
Method allows you to establish a systematic
review of your business' performance on a
weekly, monthly, quarterly and yearly basis. Using this method, you will be able to determine
the progress of your construction business in
these four areas:
""
Weekly reports will define the ACTIONS
you are taking to drive the day-to-day operations of your business.
""
Monthly reports will identify the TRENDS
that occur during the regular cycle(s) of your
business.

Kitchen & Bath Business / FEB.-MARCH 2019 / KBBONLINE.COM / The official publication of KBIS (KBIS.com)

1/23/19 3:10 PM

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Kitchen & Bath Business - February/March 2019

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