Don’t race to the bottom

We can extort workers to show up and work harder for less, in order to underbid a competitor. We can take advantage of less sophisticated customers and trick them into buying items for short-term satisfaction and long-term pain. We know how to do this. There’s always the opportunity to cut a corner, sacrifice integrity and quality and suck it up as we struggle through this lean period.
This might bring more cash-flow for now, but not for long and not without dire consequences down the track. Someone will always find a way to be cheaper or more brutal than you.

The race to the top makes more sense to me. The race to the top is focused on marketing design and respect and dignity and guts and innovation and sustainability and client-centric generosity.

The race to the top is the long-term path with the desirable profit outcome.

Your margins give you lifestyle and options, a few percent in Gross Margin could mean plenty on your bottom line. For example if you’re turning over $2 Million and you move from a 15% to a 20% Gross Margin, that’s a $100,000 and probably around a 50% (or more) increase in your Net Profit. So how do you go from 15% to 20% you ask? here’s five ways;

1) Design a “marketing system” which allows you to put 1% on your pricing.
2) Identifying your biggest inefficiencies on jobs and saving 1%
3) Shopping around and shaving 1% of your materials and subbies
4) Targeting higher margin jobs for another 1% increase ie. Jobs with higher labour or carpentry content.
5) Shaving 1% of your running costs

This all takes a little time and analysis but its well worth the additional bottom line result.

If someone selling a flatscreen TV can give you options and delver value to the exstent that you’re prepared to pay more (ie. Extended warranty or free delivery), you should be able to do a hell of a lot better on a new home or reno. Don’t settle for lower margins because the that’s what everyone else is doing. The big problem with the race to the bottom is that you might win.


Inadequate Designs & Specifications – What do you do?

Unexpected ‘variations’ on a build is a common and often discussed frustration in our industry. Now I’m the first to admit publicly that the less I see of lawyers the better! However recently I met with an ‘industry specific’ lawyer who’s opinion I respect. He had this to say about inadequate designs and specifications;

Inadequate Designs & Specifications – What do you do?

Imagine this scenario – you are in the middle of completing a home building contract and you discover that something in the architect?s plans is not quite right – perhaps they neglected to specify an essential component in the plans, or perhaps the plans would not adhere to the Building Code of Australia/NZ („the Code?). What do you do? Should you proceed to build based on the plans and specifications? Should you alter the plans and specifications to comply with the Code?

In this scenario, the best course of action is for you to:

1. Notify the architect that the plans are inadequate and/or not compliant with the relevant laws;

2. Notify the home owners that:

(a) you do not recommend for them to instruct you to proceed with the building works based on the plans and specifications; and (b) you require further plans and specifications from the architect.

Notwithstanding the above, sometimes it is easier said than done and accordingly, we outline some relevant and very recent Consumer, Trader and Tenancy decisions:

if there is an omission, an error, or a lack of guidance in the plans, you should report same in writing to the owner and architect and await their guidance before proceeding;
if a builder proceeds to remedy gaps in the plans and specification without instructions from the owner and/or architect, the builder can be held liable for rectification costs if the remedy is defective; and a builder has a contractual and statutory obligation to build in accordance with the plans and specifications AND the building works must comply with the Home Building Act or any other law such as the Code;

Tips

Do not proceed to build if there is a gap in the plans and specifications;

Do not proceed to build if you are aware that the plans and specifications do not comply with the relevant codes of practice;

Get everything in writing as you are required to do so pursuant to the Home Building Act 1989 (Cth) and the contract.

Did you find this article useful? If so, please feel free to subscribe to Damins’ mailing list by emailing reception@mclp.com.au with the subject title “B&C Subscribe”. If you have any questions in relation to this article or their Building and Construction Law Corporate Retainer, please feel free to contact Mr Murdock on 0422 730 999.

To your on-going success,

Kurt
MASTER BUSINESS COACH
E: kurt@builderscoach.com
www.builderscoach.com


Produce Quotes That Win

I’ve had a few builders ask me about quote presentation recently so I thought I’d share some insights.

Working on tenders, producing quotes obtaining estimates from your subcontractors, it is all money spent with no guarantee of a return. It gets pretty frustrating, especially when you find out the client has punted their plans around 10 different builders. Do they think builders have nothing better to do?

You have probably heard this a hundred times before, qualify the client. But even so, you are still up against at least another two competitors. So, how do you win? Forget competing on price, if you have qualified your client we can assume they are not idiots, so the guy that forgot to add a slab into the price will not win by default.

It’s not the only factor (I always recommend a strong ‘sales process’ first), but presentation is certainly a BIG component. By presentation I mean detail, not prices (apart PC’s and PS’s) but specifications. The more you tell them about what is included in the price the MORE they think is missing from your competitors price. With margins the way they are you need to be 10% dearer than your competition and still win. It can be done.

Aim for a 30-35 page Quote Presentation. Hard work? Yes, but would you rather do a 6 page quote 5 times and still not win anything? Anyway, once you have done the first quote the subsequent ones are easy. 70% of the detail is the same; you are just tweaking the selections, PC’s, PS’s and the final amount.

This can be done in an Excel Spreadsheet quite easily, but if you want to get really clever, Co-construct will do it for you. Create a template; enter your base specifications and more importantly your exclusions (No Allowance for tree removal etc). Now add your base selections or choice of Gold/Silver/Bronze options or maybe just a PC.

Now you can use the template on every job going forward. But that’s not all, your client can’t afford it can they? So they make changes. Tweak it, print it. Tweak it print it. Tweak it print it. Finally, they push the button and you have a readymade contract addendum. The contract will take 15 minutes to fill in, the addendum is already done. What’s more, all the selections & specifications are now part of your project management system. Cloud Based Software, accessible from anywhere, every selection, every detail. Hallelujah!!


Here’s the ugly truth

A recent international study showed that less than 4% of builders and contractors make it past the 10 year mark in business. If you’re reading this, congratulations you’re probably in that 4%. The hands down number 1 reason for failure is no surprise, poor cash-flow! When the money stops, the business ends.

Lets look at the six main reasons builders and contractors suffer from poor cash flow;
1. not charging enough for their work
2. failure to use or incorrect use of variations
3. failure to use or incorrect use of legal contracts
4. too many employees for the volume of work being produced
5. Too few payment schedules on their contracts
6. lack of profitable jobs

Now I could go on for days talking about the importance of having adequate financial controls, knowing your Breakeven Point, having the correct pricing strategy, eliminating inefficiencies etc. The reality is I’d be wasting my time if I didn’t first make sure you had the “Leadership Mindset” to make it happen. If you’ve found yourself going around in circles for years, perhaps its more about what’s going on in your head than anything else.

Most of the builders and contractors I’ve worked with have strong egos, are independent, and want to be self-directed in their business. I might even accuse some of being stubborn, myself included! This is neither good nor bad, it’s just the way we are. It gives us the go power that we need to make things happen. However, it can also work against us.
I had a builder come to me recently asking for help with his business, work was drying up and he wanted me to help him with his marketing and advertising. Before we got started I wanted to check in with him and see if he had the right mindset and an open perspective. If you’re not open to new information, you learn nothing!

The first sign that something was wrong was when he started debating everything I said. Now I’m not a genius by any means but having studied Marketing on three continents and worked with hundreds of builders and contractors 1 on 1 qualifies me to have an opinion on the subject.
For the duration of our conversation he sat there with arms folded resisting any new idea I put forward. Not surprisingly when I followed up two weeks later to see how he was progressing with the Marketing projects we’d discussed, he hadn’t done a thing. And of course when I asked him why, of course it was my fault!

Although Profit and Cash Flow are our highest priority with all our clients, without the right mindset or attitude its impossible to achieve a result with any business.

From a leadership perspective, you need to take ownership of your business and your business education. If you don’t who will?

This includes becoming more self aware and making the necessary changes to a become a better leader and businessman. Ultimately this is about thinking differently and developing new “habits”. The specific changes you need to make will differ depending on what habits you already have. When breaking bad habits or developing new positive ones you need to follow the 30 day challenge i.e. 30 days to break a habit and 30 days to form a new one.

Time management and financial management are two critical “behavior change” areas which we always looked at first. Everyone can improve their time management; the majority of builders and contractors in this industry need to dramatically improve how they manage their financials. If you and I were going to invest in a business together, here are the business basics that I would expect you to have:

1. An open mind and unyielding commitment to your own leadership growth and personal development
2. an understanding of “Sales process”
3. a commitment to education
4. an understanding of mark-up, gross margins and breakeven points
5. a readiness and willingness to do whatever it takes to get the job done

Make sure you’re not like the pigheaded bloke I met a few weeks ago and and stay “open” enough to enjoy the business success and lifestyle you deserve.


Could this be you?

Below is a transcript of a conversation I had with a builder who was comfortable enough for me to confidentially share our discussion with you. Have a read through now and look for any similarities in your current situation. If something strikes a cord with you, then drop us a line for a free 15 minute phone consulation to discuss your situation.

Kurt & Chris the Builder Conversation;

Kurt – “Hi Chris, what was the specific reason that made you decide to contact me?”

Chris – “I’ve been in business for 15 years now and it feels like I’ve got NO control, I’m like a hamster on a wheel. Every day I get out there and give it everything I’ve got but there’s always more that pops up in my face. Its too much for me. I can’t stand the feeling of being out of control, I am the business. I’ve got the typical cash-flow and profit problems and I’m sick of chasing money. I’ve got worked booked for the next six months but I worry about what happens if I don’t get more work booked in after that. There’s money in my account but Im not sure which is mine. I need to get the right structures in place so that I can expand the business and make a profit.

“I want to improve my sales and marketing so I don’t have to worry about work drying up and making sure my boys have work lined up and keep them busy. I’m not too proud to put my hand up and get some outside advice. I really need someone to give me some guidance and direction. I need to figure out what we’re doing wrong. It seems like there’s always problems.”

Kurt – “Ok Chris well it sounds like its worthwhile us catching up…… So Chris, tell me, what would you ultimately like to achieve with your business?”

Chris – “I’d like to get it to a point where I’m doing about 4 Million a year turnover, 20 jobs a year. I want some systems both on-site and in the office and a good supervisor who knows what he’s doing who can run the jobs. Then I can take care of the office and make sure the boys have got work. If I can do that, then I’ll be able to bring on bigger jobs and also check the profit on the jobs more closely. I just want to be able to take a small holiday in the middle of the year and then again later in the year as well. Once I get to a certain point I’ll do my own developments and use those profits to do more projects on the side. Once I’ve got the office and the sites running well then I can look at finding someone to take a leadership role and I can start doing developments for myself. I’d also like to set the business up so that my sons or one of the senior guys can take it over down the track.”

Kurt – “Ok, I understand. So Chris, what is your biggest frustration in your business right now?”

Chris – “Money, definitely the cash-flow and the lack of profit”

Kurt – “How is that affecting you personally Chris?”

Chris – “Well its definitely affecting the wife and kids, its not pretty. The wife’s even talking about me maybe going back to work. Something needs to change, we can’t keep going the way we are, that’s the bottom line. If I keep going on like this I’m going to burn out.”

Kurt – Ok Chris you’ve given me a good idea of where you’re at, what I’d like to do now is get more clarity on what you want to achieve and give you a better idea of how the coaching process works….”

If you can realte to Chris’s situation and would like to hear and see exactly what I covered with Chris next, contact us for a free 15 minute phone consultation