Keys to Building the Profitable Contractor, Part II

The most frustrating part of the mechanical construction industry is achieving consistent, sustainable profitability. Few contractors can say they are profitable every year or that they have consistently great returns on the investment in their business.

I want to share what I consider the keys to building a profitable contractor. In a column last month (Keys to Building the Profitable Contractor), I discussed the necessity of strong leadership and retaining good people to building a profitable contractor. Now we will look at the importance of planning and building a solid foundation.

Planning

Consider this: Companies with a written mission statement are 30% more likely to succeed than those without one. And a mission statement, which is the key to a strategic plan that gives a company its long-term focus, is only one aspect of planning. We also have the operations plan, the business development plan, the capital budget plan, the personnel plan and the succession plan.

While these plans are interrelated and depend on one another to succeed, the strategic plan is most important to my mind. The vision and values clarified in a mission statement make it clear to both employees and clients what a company represents and what its goals are. A mission statement also becomes a reminder as years pass of a company's original purpose and ideals. I believe strategic planning is the key to my success.

The operations plan is crafted annually and shared with employees to communicate current company initiatives and issues of concern. Companies that make their workers stakeholders in their success have a unique competitive advantage: The whole team knows what the score is and what it needs to do to win.

A business development plan helps a company focus on its core competency, which I call its “sweet spot.” When contractors match their strengths to jobs or opportunities, that creates a huge competitive advantage. This is the notion of bidding the right jobs at the right price. It is the difference between looking through a scope on a rifle, not down the barrel of a shotgun.

Our company existed for 30 years without a budget, but as we grew, it became essential that we knew where we stood financially. Did we have enough cash? How were our jobs performing? No one has unlimited capital, so a budget plan is necessary to prioritize needs and the acquisition of assets. Contractors need to know their finances, and even simple computer programs can deliver sophisticated financial management tools.

Everywhere I travel the buzz is, “Where do I find good people?” Well, a personnel plan can identify the positions that need to be filled, provide comprehensive job descriptions and define cross-training opportunities. Contractors also need to learn to recognize the type of person who can succeed in their company's culture. They need to know their employees, identify the traits of successful ones and look for those traits in potential new hires.

Finally, there is the succession plan, which goes to the success of the company as well as who will succeed the boss. Companies that plan for promotions and retirements at all levels are more successful. Why? There is less disruption. Team members are cross-trained; they have career goals and paths in place to achieve those goals. This approach goes all the way to the top. A company that has a clear plan in place to fill the shoes of departing top managers is more likely to remain profitable through difficult transitions.

Solid foundation

When I work with companies, the first thing I look for is sound business practices, such as good communications systems, useful financial data, efficient project management and practical safety programs. Without these systems in place, my efforts are futile.

The nature of our businesses does not lend itself to easy communication. We have a lot of moving parts, changing jobsites and people and vehicles in motion, which makes communication that much more critical. Great companies do it well. They are tech savvy but focused on workable solutions. They consult with team members to understand their needs, they use the Internet and they find the right tech tools for the job.

The backbone of a company is its financial reporting. The ideal system gives useful, accurate information in a timely fashion. With such a system in place, the banker becomes an ally. His confidence in company projections makes him a value-added partner. With such a system in place, project estimates have greater credibility. Successful companies also analyze past project estimates and add to their financial database.

A great project management system provides a solid foundation, giving project managers the tools and tactics they need to ensure project success. It lets them work with a sense of urgency but in a controlled and focused manner that gives them a real competitive advantage.

Safety is key to profitable contractors. They have clearly written safety programs, supported by back-to-work programs, incentive programs and top management. Such a company considers its insurance company a valuable partner and works closely with it. Contractors who emphasize safety, lay a solid foundation and plan ahead build successful, profitable companies.

F. James McCarl was president for more than 30 years of McCarl's Inc., a family business that he grew into one of the top 50 mechanical contractors in the U.S. McCarl's became a wholly owned subsidiary in 1999 of electric utility PPL Corp., Allentown, Pa. In 2003, McCarl became chairman of The McCarl Group (mccarlgroup.com), which helps family-operated businesses, mechanical contractors and nonprofits maximize their potential through strategic planning and risk management.