7 Secrets to Building a Successful Construction Company

Have you ever noticed that some people do really well in construction while others really struggle? What do they know that you don’t? Today we’re talking about seven secrets to building a successful construction company.

Topics we cover in this episode include:

  • Engage in effective financial management
  • Build a strong team around you, internally and externally
  • Develop a niche market
  • Manage your projects effectively
  • Build strong relationships
  • Put marketing and branding in place 
  • Continuously prioritize improvement, innovation, and education

LINKS

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

TRANSCRIPT

[00:00:06] Wade Carpenter: Have you ever noticed that some people do really well in construction while others really struggle? What do they know that you don’t? Today we’re talking about seven secrets to building a successful construction company. Come on in, let’s talk about it. This is the Contractor Success Forum.

If you’re new here, I’m Wade Carpenter with Carpenter Company CPAs. With me, my co host Stephen Brown with McDaniel Whitley Bonding and Insurance. Stephen, did you know construction companies are far more likely to fail than the average business that starts off today? What makes the difference? Any initial thoughts on this?

[00:00:38] Stephen Brown: Well, the construction industry is a tough business. And you’ve got, there’s a lot of risk involved. It’s a risky business., so everything from injuries that occur, to damaging other property, to building something, creating something, and making sure that it works perfectly, even if the engineer and architect drawing up the specs may disagree with you. How do you communicate all these things?

I love the fact that you’ve broken this down into seven elements. So why don’t you tell us a little bit about them? Cause I personally agree with all of them.

[00:01:16] Wade Carpenter: Okay, well I appreciate it.

Engage in effective financial management

[00:01:17] Wade Carpenter: You know, the first one– and I know I’m the bean counter and I know it sounds self serving, but the effective financial management. Cashflow is king in construction and having a good financial accounting system, robust, that does good job costing and budgeting can go a long, long way to having a successful company.

And I know contractors out there that start off today and they, they don’t like the paperwork. They don’t understand maybe some of the nuances of construction accounting, and they don’t value it. They say, we know how we’re doing by what’s in our bank account.

[00:01:54] Stephen Brown: That’s a good point, Wade. And, and, and as always get a construction oriented CPA to help guide you through this maze. You do not have to be an expert in accounting to have this part number one in place. But you do need a good accounting guide, someone that can mentor you.

And of course the good ones are not free. They’re not the cheapest. I always tell people about accountants, you’re paying for good advice, you’re paying for their experience. It’s worth its weight in gold. And building a building from the ground up, that foundation of your accounting system has to grow. And like you said, be robust, which means bearing fruit, just throwing out good information and doing its job.

Right?

[00:02:41] Wade Carpenter: Right. As I’ve said many times, my last name’s Carpenter, but I definitely don’t need to be building anything. And people that are in construction understand–

[00:02:51] Stephen Brown: Wade, I don’t–

[00:02:51] Wade Carpenter: Bad construction can lead to disaster. People in my business know that bad systems can lead to financial failure. Make sense?

[00:03:01] Stephen Brown: It makes sense. And good advisors don’t pretend to do everything. So, again, I’d say the same thing in insurance and bonding. I’m not a contractor. I don’t do what you do. But what are the elements of success among successful contractors? What keeps them from failing?

[00:03:19] Wade Carpenter: I also want to throw in there, which I’ve talked about many times over the years, Profit First. As I said, cash flow is king, and I’ve used it in my business five, six years now, as well as I’ve helped contractors implement it. And there are definitely some nuances, but I truly believe in the Profit First system, and if you implement it properly, you know if you’re bidding properly, you know if, you’re covering your overhead and your bids. And I’ve already said this about the job costing, knowing where you are in your jobs so that you are able to make corrections if things start going wrong. Having good up to date information is number one on the list.

[00:04:02] Stephen Brown: Okay.

Build a strong team around you

[00:04:02] Wade Carpenter: Number two, what I would say is building a strong team around you. And, working with several contractors that have started up over these years, or maybe they start up as a one man band and they’re subbing everything out. And if anything, maybe they got their spouse or somebody trying to do books and trying to do it on the cheap. But they’re trying to do all the estimating, bidding, being out in the field, and they don’t get good at anything.

And sometimes you have to bootstrap your company. And I understand that. I did the same thing with my accounting firm. But for you to grow and thrive, you really do need to build a strong team around you. And they don’t have to be employees. Having a great bond agent if you need bonding. People like Stephen can go a long way into ensuring your financial health. The accounting. Having a good banker as well. Having a good construction lawyer. Building a team around you, whether it’s internal or external, can go a long way to your long term financial success.

[00:05:06] Stephen Brown: Okay.

If you have to look in the yellow pages for a good attorney, bond agent, CPA, it’s too late. I used to say that about attorneys and maybe some of our listeners don’t know what the yellow pages are, but back in the old days, it was just a directory and you’d look it up by category.

So yeah, you need an attorney. You go to the yellow pages, you look under attorney and then it sends you to legal or whatever. And then by the time you find a list of them, you have to scroll down until one of the ads mentioned construction. Then you’ve got to call and hope you get ahold of someone. And of course you have the emergency and you need answers today.

So hence that advice. Okay.

[00:05:46] Wade Carpenter: Agree the yellow pages are gone, but I also would say in today’s times, if you’re finding your lawyer off the billboard or the back of a bus where they’re advertising, maybe that’s the wrong place to look as well. So, getting people that–

[00:06:00] Stephen Brown: Maybe so.

[00:06:01] Wade Carpenter: And that, that all goes back to having that strong team around you because typically that strong team knows good players in the legal, the bonding, the bankers, and they can steer you to the right people and put the right people on the bus. And they don’t need to be on the side of the bus.

[00:06:19] Stephen Brown: Your team members may have seen whatever problem you have play out many times before and can be able to tell you exactly what you need to do. What’s that advice worth?

[00:06:31] Wade Carpenter: Oh, it’s we just finished the episode on, the things that can go wrong in that case study. And that still sticks in my mind that all the things that can go wrong. Having proper advice can go a long way to avoiding catastrophes like we had there.

[00:06:45] Stephen Brown: Yeah, we called it anatomy of a train wreck, huh?

[00:06:48] Wade Carpenter: Absolutely.

Develop a niche market

[00:06:49] Wade Carpenter: Number three sort of goes along with that thought. Developing a niche market. We talk about the Sweet Spot, we’ve said it in many different ways, but in that particular case, we had some contractors in that last episode doing things that they weren’t used to doing, and that’s one thing is mitigating risk when you really know the type of construction you’re doing.

But number two, finding that niche market can mean that you can either be a lot more efficient at doing that because you know exactly what to do and you avoid mistakes. If you find the right type of niche, you may be finding something that is a little more profitable. And it could be more profitable because you know how to get in and out or you know the nuances or have the relationships to be able to pull them off where most other people couldn’t.

You ever see that?

[00:07:40] Stephen Brown: Absolutely, and if you don’t think you can have a niche in your business that brings in some reliable income, you’re just not looking hard enough, because it’s everywhere. And who knows better what that is than you, the owner of the construction company?

Looking for opportunities. Using your gut to tell you when is this relationship good and when is it going to pay off. Because remember, what everybody wants from you is a fair price and quick work, and you knowing what you’re doing. People are willing to pay for that. Don’t ever overlook that, is my advice.

[00:08:13] Wade Carpenter: I know a lot of our listeners that might be in, you know, government work or, doing county or, bid work. It’s hard to accept that. It’s like we got to take what comes along. But, you could be building schools, you could be doing, specializes in water treatment plants. You could be doing tenant build out.

There’s a lot of specialties out there. And if you find that specialty for yourself, you don’t have to bid everything that’s out there. You just take the ones that. You can do well on, and that goes a long way.

Manage your projects effectively

[00:08:45] Wade Carpenter: So moving on to number four, which I think everybody would agree is effective project management. Just being on top of your jobs and having workflows that regularly check in on your jobs. Part of this also goes back to the first point was having a good financial management system that has good job costing so that you know where you are on that job.

And it’s not knowing where you are on the job in April, when you’ve talked to your accountant and figuring out how you did your taxes, how your taxes came out, it’s like, how can we have more real time or as near real time as you can have, knowing what’s going on with the costs and if things get off track, how do we get it back on track?

[00:09:30] Stephen Brown: Sure. And let’s talk too, briefly, about the project manager themselves. Are they having any personal issues? Are they having other things going on in their life that keep them from being focused on the project? Do they have experience in what you’re asking them to do? Have they been asking you for help? Have you been giving it to them? Have you been communicating with them regularly.

Your project manager can make or break you. And I’ve heard many successful contractors tell you that their project managers made them, especially during difficulties. Their experience and their ability to work through difficulties can make you as a construction owner a lot of money, and they need credit for that.

And the ones that are really good at it, they’re probably the ones that you need to let them buy into your company. Make plans for their future. If they’re taking care of you, you should take care of them.

[00:10:24] Wade Carpenter: Well, again, a lot of these are so interrelated that, that goes back to building that strong team. It’s always tough in the construction market, but finding those people that are really good at what they do. and are conscientious about managing their projects and know what they’re doing.

And they’re also, you need to look and make sure that they’re within the scope of work that they understand, as you said.

[00:10:48] Stephen Brown: Well, number four ties directly into number five, doesn’t it?

[00:10:52] Wade Carpenter: It does.

Build strong relationships

[00:10:53] Wade Carpenter: Again, as I said, everything’s interrelated here, but that’s strong relationships. There’s a lot of things we can say about the relationships, whether it’s internal with our own team, with our external advisors, or just knowing people in the industry. And I know you can talk about that too, but you know, having people in trade organizations that you know, even though they may be your competitors, sometimes you become friends with them. You can bounce things off of them. Or if you’re a general contractor and you need some subs, or you need a sub that does some specialty work, knowing who to go to.

[00:11:28] Stephen Brown: But You’re right, Wade. Networking and attending different trade group meetings, making friends. Some of my best friends are competitors of mine in the business. We bounce things off of each other all the time. Good people are good people, even if they’re competitors. And they’re the people you need to know.

Not to mention if you’re a general, you need to meet and greet with the subs and vice versa. Cause remember you’re each taking a chance on the other one. So, I don’t think, like a speed dating app for subs and generals was a good idea. But the more you hang out, and you get your friends to introduce you to people that you want to work with in favorable terms, they’re like, ah, cause they’re as glad to meet you as you are to be introduced to them.

So.

[00:12:13] Wade Carpenter: And again, all these are interrelated, but I’m thinking back to working with bond agents and bankers and, lawyers, and when you have that good relationship, or maybe it’s your competitor. I know some of my contractors’ competitors had introduced me because they wanted their friend to succeed and needed some advice.

And so–

[00:12:37] Stephen Brown: Yeah, nothing’s more important to a professional than getting a referral. Feels good, doesn’t it, Wade?

 Put marketing and branding in place

[00:12:43] Wade Carpenter: Number six, if you’re doing bid work or bonded, you may dismiss this one, but number six is marketing and branding. And you may not think you need that. If you’re maybe in residential trades, sure, maybe you’re out there trying to market to the homeowners or whoever it is. But if you’re in bid work, You may think, well, I don’t really need that. But we just had Amanda Darr on here in a previous episode in the last couple of weeks. Having a good website or, having a email address that doesn’t say Gmail on the end of it. That goes a long way to even talking to somebody like Stephen or their underwriters. Do they have pictures on their website that shows what they do, or are they just a Gmail address out there?

[00:13:30] Stephen Brown: It’s worth its weight in gold or it’s useless.

[00:13:34] Wade Carpenter: Yeah.

[00:13:34] Stephen Brown: And also, Wade, if you don’t have a brand, and you just don’t start thinking like that, how are you going to ever sell your company someday for any amount that’s any more than the market value on whatever equipment you own? Having a brand, figuring a niche, figuring out how to make money regularly is something that others are willing to pay for. And so I would say any work you put in in that regard will make you a successful contractor.

[00:14:04] Wade Carpenter: Well, I also think that when you have a good brand and you, say, taking care of your employees, that you get a reputation. And so if you’re trying to attract better employees or better subs, having that brand out there that there’s a reason that, when you see a new project breaking ground, you got this big sign up there for the big GC. And they want the world out there to know who’s doing it.

But, that’s partly, yeah, we do this good type of work and maybe it’ll get somebody’s foo t in the doors because at least I know the name, but, attracting the right type of people, whether it’s the employees or the bond agents.

Reputation is a lot. And even though I’ve seen, some work is bid out there. They don’t always take the lowest bid, especially if it’s private work. And if you’ve got a good reputation, sometimes that can go a long way.

[00:14:56] Stephen Brown: All the time.

Continuously prioritize improvement, innovation, and education

[00:14:57] Wade Carpenter: So, number seven on here, which I would say in any business, but continuous improvement, innovation, education. Contractors are, a lot of them will shy away from the technology, and I’m not just talking about the technology, but there is a lot of things in the, that have come up about with, technology, whether it’s just software or applications to track, say, your equipment or, there’s a lot of different things like time tracking.

[00:15:24] Stephen Brown: There’s so many of them that are continuous. Any trade organization you belong to, anybody you respond to by email, asking a question about their services, is going to nuke you with things that they think you need to know. Robotics, AI, all these things. BIM, project Management. Every, everything that you can do better, more cost effectively, if you’re not doing it, it’s costing you money. But it’s also getting old, doing the same old thing over and over and over again, just wear out your employees, and they get tired and they move on.

So you want to keep them interested. And part of that is putting money into their professional development as well.

[00:16:06] Wade Carpenter: Well, again, continuous improvement, innovation can mean a lot of different things.

And, a lot of contractors don’t have the systems put in place. And even if you do put the systems in place, one thing I’ve noticed is technology changes or the way the world does things change.

We were talking between the episodes, I think you mentioned like ERP systems and the payable systems where some people want you to use their portal system to to get paid. And keeping up with that kind of stuff you just, you have to learn it. And you can’t just sit in a bubble and say, I’m not going to learn all this stuff, right.

And I guess we can say this now, not that anybody enjoyed the time with COVID, but one of the big things that COVID really did for contractors is getting people on a Zoom call or something like that. Most everybody wanted to always go and meet in person– and there’s always value to meeting somebody in person and having your project management meetings.

But I think there’s a lot of, I know I do Zoom meetings with contractors all over the country since, I think some contractors are figuring out, well, hey, we can do project management meetings and we don’t have to spend two hours in the truck going to a meeting that we could spend time doing better things.

And so those are just a couple of examples. Did you have any other thoughts on those?

[00:17:31] Stephen Brown: No, I just I was hoping you would name all seven again for our listeners before we finish and encourage everyone to let us know, what did we miss? What do you think?

[00:17:42] Wade Carpenter: That’s a good point, yeah.

Well, so going down the list again, really quickly. Number one is a robust, sound financial management system that has good job costing. I still believe in the cashflow is king. And so I still believe in Profit First. Number two is building a strong team around you.

Number three, developing niche markets and specializing in something that you can make good living at. Number four, project management and having an effective and good people around you that know how to manage a project, bid a project properly. Number five, strong relationships. Again, these are all interrelated, but it doesn’t just mean your team.

It’s like everybody in the industry. It can go a long way to your success. Six, marketing and branding. If you’re bidding, if you’re trying to get out there to the public, it makes sense to you, but having a strong brand goes a long way with trying to get your bankers, your bonding and the respect you need on that.

And number seven is never forgetting to continuously improve on the way you do things. So, I agree. Any other thoughts that, we could have done better or we should have put on the list?

[00:18:57] Stephen Brown: This is fantastic. It covers so many and you can go to our website and get the outline. It highlights these seven spots and then some key things to think about under each one of these spots. So, thank you, Wade.

[00:19:13] Wade Carpenter: Well, we’re always happy to answer questions or hear your thoughts on these topics if you’d like us to cover, whether it’s something, maybe it sparked something that you were thinking about. Drop those ideas in on our YouTube page or on the comments section of the show notes. We’d love to hear from you.

Thank you all for listening to the Contractor Success Forum. Check out the show notes on contractor success forum.com or the Carpenter CPA’s YouTube channel for more information. We would appreciate it if you consider subscribing to the podcast like us and follow us every week as we post new episode and we will look forward to seeing you on the next show.