Why Contractors Fail — And How You Can Ensure Your Business Succeeds

2018-09-19

For those of you in business during the 2007-8 crisis or who remember that challenging time, you may have personally witnessed many of your (potential) competitors fail—and even experienced some stops and starts yourself.

A 2007 FMI study, “Why Large Contractors Fail: A Causal Analysis of Large Contractor Bankruptcies,” took an intensive look at why 30 contracting companies closed their doors under those difficult circumstances.

In a nutshell, most factors that contributed to business failure fell into three primary categories:

• Misguided strategy – Unrealistic growth, an overemphasis on volume, etc.
• Organization – Inadequate cash flow, inefficiencies in operation, legal problems, etc.
• Factors beyond control – Banking or bonding issues, poor economic conditions, etc.

As you can imagine, most businessowners at the time chalked up failures to the third category: a bad economy. What the study found, however, was that economic factors beyond businessowners’ control simply exacerbated existing conditions.

In other words, factors that contributed to failure were already in place; the recession only accelerated them. “Undisciplined management and a lack of good strategy [led] to failure,” Gregg M. Schoppman of FMI wrote in this article for ConstructionBusinessOwner.com.

So, how can you prevent business disaster?

1 – Truly develop your team.

After you’ve hired that great team, make sure that your people are getting the training and mentorship that they need to do the job right, and handle increasing volume. Nothing replaces real-world experience, but good hands-on training, with experts on hand to answer questions (such as Citadel regularly hosts) is a great place to start.

2 – Have consistent operational systems and practices.

In 7 Critical Areas Every Contractor Needs Systems in Their Concrete Coating Business, we talked about how systems mean that as you onboard new team members for growth, they have an operational model to fit into. In the absence of systems, new employees will default to old ways (good or bad).

3 – Streamline operations.

Are you losing time to long cure times or hard-to-apply coatings? Using a quick-cure material like polyurea reduces job time to one day of labor. You can prep the surface, coat it with primer, broadcast vinyl chips, finish with a topcoat and return it to service 24 hours later. Some of our customers are multiplying revenue and productivity by taking advantage of a quick-cure coating system.

4 – Be proactive rather than reactionary.

Have a strategy and stick to it as best you can. Only “course-correct” after careful consideration—and perhaps say “no” to that client if it would push your business beyond capacity. Think long-term over short-term.

5 – Manage cash as well as profits.

Volume and profitability are justifiable obsessions in the contracting world—but without cash flow to sustain operations, neither volume nor profit matters. Overextended credit, poorly managed collections, and equipment lost or damaged due to poor operations or an inadequately trained team can whittle away at capital and put contractors in a precarious position.

Our flooring experts, engineers and manufacturing team have been in the industry for decades. They’ve seen—and heard—everything. If you have a question, most likely there’s someone here who can answer it. Need support training your team? Help putting together your next bid? Schedule a chat with one of our flooring experts today.