Contractors See Industry Growth Despite Frustrations

Special to CONTRACTOR

ORLANDO, FLA. — If you’re a subcontractor, the most frustrating part of your business probably is managing the productivity of your crews, according to the second annual Intuit Construction Business Solutions industry study released Jan. 14 during the International Builders Show here. More than a third of subcontractors (34%) expressed this frustration.

Residential general contractors in the same survey say their biggest frustration could be you. Almost a third (31%) say that scheduling labor and subcontractors is the most frustrating part of their business.

Conducted for software vendor Intuit by independent research firm Decipher, the study surveyed more than 500 commercial and residential contractors and subcontractors in the U.S. construction industry from Oct. 14 through Nov. 20, 2004. As a group, 50% of all respondents cite scheduling labor and managing work crew productivity as the most frustrating aspect of managing a contracting business.

Additional frustrations for all respondents include:

• Estimating jobs (18%);
• Accounting and bookkeeping (15%);
• Facilitating change orders (10%);
• Purchasing materials (7%).

These findings correlate with other results in the study. Asked about the areas of their businesses that need the most improvement, 65% of all respondents cite greater job profitability, and 57% cite more accurate estimating.

A disturbing finding is that contractors are undercharging customers. One out of two contractors (51%) report they commonly omit costs such as supervision, phone calls and temporary power from their job estimates, depriving themselves of revenue and gross profit.

This is an even bigger issue with larger firms where 61% say they omit these charges.

Despite that, companies posting revenue of $10 million or more per year are the most successful, according to the survey. They have been in business longer and have adopted an integrated business management approach to manage their profitability and productivity.

This approach, advocated by Intuit, combines business functions such as estimating, scheduling and accounting.

Despite the obstacles in managing their businesses, contractors surveyed estimate their current gross profitability per job at 15.5% and anticipate 12% industry growth over the next five years.

To meet growth projections, 66% of respondents say they would hire additional field employees. At the same time, 65% say hiring quality employees is the greatest challenge in the labor force.

“Business growth is not simply about hiring more employees and winning more jobs,” said Carol Novello, president of Intuit Construction Business Solutions. “Success in today’s unpredictable economic landscape depends on effectively managing your business and crews to continuously uncover costly inefficiencies and new revenue opportunities.

“This study shows that the construction industry must make managing profitability and productivity a priority to ensure business success. The successful companies are those that strike a balance between trade expertise and business acumen.”

The Intuit study uncovers several other notable findings:

• A total of 67% of respondents have no exit strategy in place, although 60% of contractors in business for more than 10 years do.
• Of respondents with exit strategies, 38% say they would sell or give their company to family members.
• Interest rates and the economy are the key factors driving construction industry growth, according to 72% of respondents.
• Three-year regional growth projections for the industry are highest in the South (38%) and West (30%).
• Integrated business management and customer relation management are expected to be the top software investments for contractors in the next three years.

More information can be found at www.intuit.com.