Five ways for road contractors to be more profitable during COVID
Even with all the work you can do, all the tools you need, and all the right people, your business can’t Rob recently attended the World of Asphalt conference in Nashville, TN. It got us thinking about what road contractors, and contractors in general, can do to continue building profit and protect themselves from increased costs, labor shortages, and other issues we’re facing in today’s climate. Tune in for top tips from your hosts and other industry experts.
Topics we cover on this episode include:
- Why maintaining your equipment should be a priority
- The importance of job costing, especially in today’s environment
- How to use your contracts and bids to protect yourself from increasing costs
- How to attract the right people to work in your business
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
Rob Williams: Welcome to the Contractor Success Forum. Today, we’re broadcasting from The World of Asphalt, and we are talking about the top ways during this market, this crazy market we’re in, to be more profitable for contractors. Road contractors is a lot of the specific conversation, but this will probably apply to just about everybody.
But as we’re at The World of Asphalt, we are talking specifically about those tips for the road contractors, which I think almost all of them apply to everybody in the contracting world.
Stephen Brown: Wow! World of Asphalt. The only thing I can think of more exciting than that is the world of bonding and insurance, but you know,
Rob Williams: Yeah.
Stephen Brown: I’m geek, I’m aware I’m a freak.
Rob Williams: Very exciting. Very exciting here.
Stephen Brown: Well, I’m glad you’re there. [00:01:00] It’s the center of the asphalt world. And it’s very appropriate that your topic today is about making profit as an asphalt contractor. I was going over your notes, Rob, and I thought a lot of this is really good.
And like always, some things you might go, come on guys. That’s so common sense. Well, really? Are you doing it? Sometimes the best ideas are something you haven’t thought about or you’re not implementing it. And so I want to encourage everyone after this show to be sure to give us your feedback. Because we’d like to know. If you want us to argue a point further with you about something, we’ll be happy to do that.
Or if you want to try to change our way of thinking, we’ll put that out in front of everyone. We are there to serve our listeners, wouldn’t you say, guys?
Rob Williams: I would. And, and where do they find us on there? Stephen? How do they find us to have these discussions?
Wade Carpenter: I’ll answer that
Rob Williams: You answer that, Wade!
Wade Carpenter: They can go to the ContractorSuccessForum. [00:02:00] com or find us on Spotify. We also have our Contractor Success Forum podcast LinkedIn page. We’d love to connect with you.
Rob Williams: Yeah.
Wade Carpenter: Rob, I’m really excited to figure out how you’re going to tell us to become a big ass fault contractor.
Rob Williams: Big ass faults here on the Contractor Success Forum. So we, the first one, I think this is the traditional one as I was interviewing people for this and getting ideas is you can’t get paid if you don’t spray. No spray, no pay.
Keep your equipment in good shape
Rob Williams: You’ve got to keep your equipment running. So keep your equipment maintained and keep your people trained to do that. So right now, during this market, the people are so hard to get. So you’ve got to spend the money and the time on the training of the people.
But along with that, one of the things that [00:03:00] I guess I had thought about, but just pointing out is keeping spare parts. That is one of the biggest problems for these people. They’re breaking down, or, just normal maintenance that you normally order these parts. But in this market, because we’re doing this during COVID, the supply chains are broken, and you cannot get these parts. So as the springtime comes in, the road, work is opening up again, you better have a bunch of spare parts that you’re going to need, because if you don’t spray, you don’t get paid. No spray, no pay. That was the equipment manufacturers’ big point.
Stephen Brown: That makes sense.
Rob Williams: Along with that is getting those people that can run it and that know how to run it. They can keep it running without it breaking. So a lot of that training is the employee turnover has been so huge recently. That’s a big, big factor.
Wade Carpenter: Well, you threw out a bunch of points there, Rob.
Rob Williams: Well, that’s one. That’s one point of keeping your equipment running, I think [00:04:00] is the main point, the number one thing. And how you do that is keeping those parts in stock, keeping those people running and keeping that equipment stream.
Wade Carpenter: Yeah. I think a lot of people in this industry probably, there is some seasonality. But in your downtime, you’ve really got to work on that maintenance. I’ve seen it time and time again, that people want to put off spending money on these things. And, as you said, sometimes it is hard to get these parts. So, pay attention. Look ahead. guess I would say.
Rob Williams: And I think this first point is the productivity. This is the main one that most people actually think about. And some of the other points I’m looking forward to talking about are some of the things you may not think about, or be as conscious of it because this market’s a little bit different.
Keep a close eye on your job costs
Rob Williams: The second point that I was talking to you about, Wade, was watching your job costs carefully as these prices are going up. Do you want to speak about that a little bit, Wade? This is right in your wheelhouse.
Wade Carpenter: Well, yeah, across all industries, we’re seeing price spikes [00:05:00] and all kinds of stuff. And I’m guessing in the asphalt industry that the cost of, oil and gas right now is heavily playing into what they’re doing as well as making sure their equipment is running properly.
But I guess the point when we were speaking last week about it was the WIP schedules because people are not factoring in the fact that, number one, the costs have gone up. And so maybe you know, they’ve got more costs in it than they expected, but their cost to complete has gone through the roof.
Rob Williams: Yeah.
Wade Carpenter: So when it goes through the roof, you could be in a losing situation. I’ve seen different contractors now losing on a job where they’re stuck with a certain price per square yard or whatever. Sometimes we’re not paying attention to the cost to complete.
And if we don’t, we’re artificially inflating that percentage of completion, artificially inflating that revenue and that profit, and our equity. But then, a year down the road, when these jobs don’t [00:06:00] come in like they expect, Stephen would probably be losing faith in the contractor’s ability to estimate when they see these bad job fades.
Rob Williams: One of the points, as I’ve learned from you guys in the show, and some of these classes that Stephen and I have taken together, when you’re talking about the inflated Work In Process, I don’t know how many people understand that those costs can really throw your reports and your percent completion. Because Wade’s talking about it like we, we all understand because he understands it so well, but you’ve got to take those WIP reports and adjust them for how much you’re over so your percent completes are actually correct because of the way that that percent complete is done based on our costing.
So when your cost has done more than your percent completes off as well. And so you keep those adjusted in there to make your bonding guys happier up front. It may not look as good right now, but you don’t want to have a big surprise. If you want your bonding guys, [00:07:00] let them know now. The earlier the better, and they’ll understand this because at least they will know that you understand what’s happening through these cycles. So they’ll have confidence in you. Is that a true statement there, Stephen?
Stephen Brown: It is, but I can tell you, most asphalt contractors would say, I can’t stand bonds. It’s just but a headache for me. But bonding companies give a lot more bonding credit to asphalt contractors because there’s a lower amount of working capital that’s required, especially if you have the equipment. They’ve got to take your, what they call off the books net worth of your construction equipment that may be depreciated off into account for underwriting an asphalt contractor.
So why is that? And why do bonding companies want to know this? It’s not to be a pain in the butt. It’s to know how you’re doing. The better they can figure out how you’re doing, the more bonds they can give you. And the better you can figure out how you’re doing, then the less stress you have, and the more profit you make.
Write your bids and contracts to protect yourself from increasing costs
Rob Williams: [00:08:00] Okay, so we’re on this and we were just talking about that second one is watching your costs and WIP, but what do you do about it? Why do you even watch it if you can’t do anything about it? So the third point, the third tip that we got, and this is really, Stephen, in your wheelhouse is, writing these contracts and bids to protect yourself from the increasing costs. Or locking in those costs and what do you do about this?
Stephen Brown: Well, that would be a lawyer question. I’m not a lawyer, but I do know that all the Department of Transportations have that type of language in their contracts. But there’s a lot of asphalt paving contractors that are doing parking lots for WalMarts and other projects. There’s a lot of asphalt out there that’s done through city contracts and municipal contracts beside Department of Transportation. But it’s called force majeure language and it has to do with price escalation and how you can file a claim when the price escalates to a certain level. So most of us design where, you [00:09:00] take the risk with us a little bit. So the better you can control your cost, and you can’t control them if you don’t know what they are. Right, Wade?
Wade Carpenter: Absolutely.
Stephen Brown: So there you go.
Wade Carpenter: Going back to the point of knowing where you are, well, you may be behind on a job, but sometimes you can do things to mitigate your losses, like how to speed it up and get it done and push on that contract and make sure that you’re doing the best you can with what you’ve got on that contract. Even if you’re gonna lose.
Stephen Brown: You don’t know what you don’t know.
Rob Williams: Yeah I was amazed this week talking to some of these people, they’ve been doing business the same way for so long. They did not realize, until this extreme situation, that they could put things into the contract. I was talking to one speaker Jeani Ringkob was telling me that one person put in their bid, “…If we can get the labor” at the end. They didn’t have the labor. It’s like, well, what are they going to [00:10:00] do with this one? And say, well, they may not get a bid that says, they’re going to guarantee that they’re going to do the job if the labor– but that, that was probably the most extreme contract clause that I’ve heard of.
But the fact that people are putting things in their contracts about the escalating costs is the more, I think, thing. So if you’re a small contractor, you can’t survive that, if it goes up. You may, but probably not. If you don’t have a really big chunk of reserves, you may not be able to do that.
It may be that your owner of the project, whoever’s putting those bids out, can handle that, but you got to put that in there. If you’re going to stay in business for the long run, especially in these markets, you’re going to have to put that in your contracts, or you may not be a contractor for very long.
Stephen Brown: And if you know your job costs right up front, you don’t need a lawyer to argue with you for an owner. say, no, we’re not doing that. No, no, no, no, no, no, no, no, no, no, no. [00:11:00] Then you say, well, okay, well, then I’m going to have to inflate my price.
Rob Williams: Yeah.
Stephen Brown: Because you’re asking me to play the futures market and I’m just a contractor.
Rob Williams: Inflate the price. And then that gets into, I had a lot of actually contracts that I did have to lock in the prices. And that was one of my competitive advantages is that I’d lock in prices for a year, but I was not eating the risk myself. I was contracting that to my suppliers. So I was getting that material and purchasing it in advance.
So don’t just, put those things in your contract, try to work with your suppliers as well to see, what can they do to lock these things in? What can you do to force those? If you can’t get your contract with your client or customer the way you want it, you need to see if you can pass that down so you’re not the one taking the risk. So those are some of the things we can do about that. Anything on that before we go to my favorite comment that I [00:12:00] had?
Stephen Brown: No go to your favorite comment.
Attract good employees by celebrating your team’s achievements
Rob Williams: Favorite one, this was not what you’d be thinking of. This is outside of the box. Because the labor has been very difficult in I’ll give credit to Jeani Ringkob on this. Some of her clients were advertising, not for their projects, but they’re advertising what a great job that their own employees are doing.
And there was one of her companies that she had on there that their whole social media page is the trip that they took all of their employees to Mexico. They’re having awards for the contractors. The employees see, their families see that. There are things that they’re doing for their families.
This company doing that, when they need employees, all they do is post it and they’ve got them lining up at their door to come to work for them. So that’s just been a huge thing. So, what a simple idea.
Stephen Brown: Good employees want to work for the [00:13:00] best and you’ve got to promote that. Think about it. Every single thing that employee does costs you money or saves you money. And employee cares about you and you care about them, it shows in the bottom line. Take, for example, someone just getting hurt on a paving job. The whole job shuts down.
You’ve got EMTs coming in, or someone’s got to take them to the doctor. Productivity stops during that time. So you care about safety. You care about them as individuals and you care about supporting and promoting these quality individuals. Rob, I can see why this is your favorite topic.
Rob Williams: Yeah, he was so outside the box. That was why that one hit me. I was not expecting that one. So.
Wade Carpenter: Well, I guess I can see it because I’ve had a rash of contractors asking me, how can I implement like a retirement plan or get health insurance for my employees now? And [00:14:00] it’s always designed to like, how can we keep these people? I know in my business having a consistent crew that always does the same thing and they know how it works, I’m a lot more profitable because of it. And if you have a constant turnover, it will kill profitability.
Rob Williams: Yeah. And as Jeani said, she said have the employees be the hero of your story. So that was their storyline. I think they get it from the StoryBrand. But yeah, have those employees be the hero of your story on your social media.
I didn’t mention that I had stolen that comment from Brian Horner of Etnyre Equipment, because he was saying, if you don’t spray, you don’t pay. Or if you don’t pave you don’t get paid. So no spray, no pay. So, uh, uh, the same thing with those employees, because you can’t be doing it if you don’t have anybody to operate it.
Stephen Brown: So you’re saying you needed to spray the employees. I lost that.
Rob Williams: Hopefully you’re spraying the roads, or the pavement.
Wade Carpenter: [00:15:00] Can we get the spray at Sam’s club?
Rob Williams: Yeah.
Stephen Brown: Maybe it’s not spray.
Rob Williams: You’re at the World of Asphalt. There’s all kinds of allusions there.
So, but, but it is great and I’m glad we got to learn so much here at the World of Asphalt and here on our show, the Contractor Success Forum, bringing you ways to be more profitable with your as…phault. That’s what we do on the Contractor Success Forum.
Come back and see us. We have Stephen Brown, McDaniel-Whitley bonding and insurance company. We have a Wade Carpenter, Carpenter, and Company, CPAs. And I am Rob Williams, ironGate Entrepreneurial Support Systems. All of our information is at the Contractor Success Forum dot com or check out the Contractor Success Forum on LinkedIn and ask your questions and give us your favorite tip for profitability.
See you at the next show.