What’s the Number One Problem Construction Companies Struggle With?

It Would Be So Much Easier If There Was Only One Problem to Deal With

The construction industry is a complicated business and is only getting more so in today’s fast-paced world. If you’re working in construction, or know someone who is, you know how overwhelming it can be trying to keep up with the business.

As complicated and overwhelming as the physical on-site construction portion is, the business part is equally daunting. This includes things like budgeting, scheduling, communication, labor issues, planning, and cash flow to mention a few.

While researching the number one problem construction companies faced, it was confirmed that there is more than one problem, and they are common across the industry. Trying to ensure that projects stay on schedule, within budget, compliant with safety regulations, and running smoothly is difficult.

Wouldn’t it be great if there was only one problem?

Blackridge Research and Consulting is a market research and consulting organization. Their 2023 blog about the Major Challenges Facing the Construction Industry confirms what I’ve been saying for years.

Here are seven major construction industry problems –

  • Cost overruns – This is one of the top construction industry problems. This is when a project exceeds its pre-planned budget. A McKinsey study estimates that 98% of large construction projects deal with cost overruns of more than 30%. This is often caused by poor cost estimates during the planning phase, design change requests, and payment delays. This results in lower profit margins, material shortages due to running out of funds, damage to the company’s reputation, and delays.
  • Delays – The same McKinsey study also shows that 77% of construction projects are at least 40% late. Some factors that contribute to this can’t be controlled, i.e., weather, labor shortages, and equipment failures. But there are as many or more factors that can be controlled and prevented, including scheduling issues, project conflicts, and incorrect data. One of the best ways to reduce delays is through the use of technology but the industry’s willingness to adapt is a problem.
  • Push back on new technology – This is one of the biggest problems in the construction industry. Its hesitancy to adopt new systems and processes that could make their companies more efficient is a problem. Even when construction companies acknowledge that there are solutions that they could benefit from they tend to stick to the mantra, “This is the way we’ve always done it”.
  • Poor communication – One of the most prevalent construction issues is poor communication. Since construction projects require multiple people during the planning and construction, effective information exchange is crucial for the project’s success. Oftentimes, there’s a disconnect between the office and on-site workers. Poor communication is linked to a high percentage of construction problems resulting in complications such as unrealistic expectations and important tasks being overlooked. Keeping everyone in the loop by sharing obstacles and daily progress is a great way to avoid conflicts. Documented communication helps in cases where conflicts do arise.
  • Poor planning and budgeting – When projects aren’t planned well it leads to unachievable goals that can result in construction issues like stagnant productivity. It helps to break larger goals down into smaller and more attainable ones with daily objectives. In terms of budgeting, incorrect estimates can disrupt progress and can cause projects to be delayed or dropped altogether. It can also lead to a reduction in company profit.
  • Lack of organization and poor document management – This is another prevalent problem in the construction industry. Construction involves dealing with a lot of information, from contracts to material orders to receipts to insurance certificates. Document management is not something that people in construction typically like doing. Not doing it is inefficient and creates room for mistakes. Having a system that is digital allows for better access and centralizing important information.
  • Cash flow issues – Problems with cash flow can cause construction challenges. Having a steady stream of funds is crucial to paying employees, subcontractors, vendors, and suppliers on time. When payments fall behind, it further disrupts cash flow, halting project progress and causing delays. The reason so many construction firms struggle with managing a project’s funding is that they rely on outdated systems. Having more modern solutions can ensure that all payments are made and accounted for.

Dealing with these problems is the reason I developed the business tools that I use at Timber Creek Construction every day. Seeing other construction companies struggling with the problems is the reason I started writing about them on Solution Building.

Now we’re going to make these tools available to construction companies that are tired of feeling trapped with no way out.

We plan to open our digital Business Building Toolbox next week. These tools and training are designed to help construction companies build the business that they always dreamed of. We will continue to add new tools and training in the future. If you would like more information about these tools and training and how they can help your construction company with these problems as well as others, schedule a free 30-minute consultation here.

Getting Signed Construction Proposals, What’s the Best Number for You?

How to Know What Your Number Is and What You Should Do with It

I have been reading Simon Sinek’s book Start with Why this past week. In it, he discusses how customers will do business with companies and not even really know why. He says that it often has more to do with trust than price.

This is where word of mouth marketing comes in. If someone you trust shares about the great experience that they had with a company, you’re more likely to do business with that company.

This got me to thinking about the closing ratio of our proposals. Our closing rate has almost always been higher than industry standards. This is in large part due to many of our projects either being

repeat customers or someone that has been referred to us by one of our past satisfied customers. It does not seem to be this way for most construction companies.

With the hit and miss way of doing business in the construction industry, it’s amazing to me that there are any construction companies out there at all.

Another thing to be aware of and something that is often overlooked is when our closing ratio gets too high. Selling a lot of jobs is a good thing, but when this number gets too high, it’s a good indication that your pricing is too low.

Is your bid-hit ratio ok?

When asked the questions… “Do you know what your bid-hit ratio is? Do you keep track of it? How do you use it?” Most contractors have no idea. Well over 50 percent don’t have a clue what their ratio is. Less than 25 percent know and track theirs.

This is like driving a car blindfolded — trying to go somewhere without a clue where you are headed!

In order to determine how many jobs to bid on and what type of jobs to bid on, you must know your bid-hit ratio. Track it regularly. Track it for all projects you bid on. Track it by customer.

Having a system will help you determine which jobs to bid on and which jobs not to bid on. It will also help you determine when to eliminate a project type or customer from your plate and seek out better opportunities to invest your estimating dollars.

Knowing the percentage of proposals that get signed can be a critical piece of information and may determine whether your company will stay in business or not.

Most small to medium sized construction companies run their businesses by just throwing a dart and hoping it hits a dart board. They have no real idea of what they’re doing.

I would bet my annual salary that most construction companies have no idea of what percentage of their proposals turn in to actual construction projects. This is vital information to have for building a profitable business.

This is why we have a Job List tool for tracking this information in our construction business. This tool will do a lot more than just tracking the percentage of signed proposals.

You can find out more about this tool here –

I realize that the whole business thing can be daunting and overwhelming, but it doesn’t have to be.

The Job List tool, as well as, the Proposal, Contract, Change Order, Payment Application, and Saving Account Transfer tools are some of the tools that will be coming soon in our Business Building Toolbox.

If you have questions about the Business Building Tools and if they would be a good fit for your construction company, you can schedule a free 30-minute construction company consultation here.

Poor Communication is the Number One Reason for Disagreements, Part 2

Written Communication is Really the Only Way to Avoid This Problem

I have written multiple times about communication and the problems that come from the lack of communication. Most of the time this has been focused on communication between construction contractors and customers. This is certainly a problem, but can also be a problem between general contractors and subs.

Whether it’s subcontractors or customers, the communication responsibility lies with the general contractor.

Verbal communication leaves too many things open to interpretation.

Several years ago, a partner and I were meeting with a customer early in the process of building a new home. The customer pointed out that the distance from the electric meter to the house was more than the 50’ allowance, as per the written proposal.

He asked if this was a problem. My partner told him that it wasn’t a problem. Guess what…

It was a problem.

The problem didn’t surface until later when the customer was billed for the additional 100’. After some “digging”, the communication breakdown was uncovered.

The customer asked, “if it was a problem”. What he really was asking was…”is it going to cost more?”. 

My partner’s response in reality was, “we can dig the additional 100’, but it will cost you three times as much as the 50’ allowance in the proposal”. But this isn’t what was said.

Neither of them intended nor expected this to be a problem. It was a simple matter of misunderstanding…a lack of communication.

Communication is, …the exchange of information and the expression of feelings that result in understanding.

Understanding is the tricky part.

Over the past few weeks, I’ve been reminded of the importance of communication with subcontractors as well as customers. When I had a situation where I hired a sub to do a bathroom remodel that I had never used.

He came with a couple of positive recommendations.

After talking with him on the phone, I sent him a scope of work and before and after drawings. He gave me a verbal price range over the phone. The high end of his price was in line with my budget.

I asked him if he would get me something in writing.

We met at the job site later that week on Friday and physically looked at the project. It so happened that he had a crew that could start the following Monday and have the job done ahead of schedule. This was important because the bathroom that was getting remodeled was the only one they had. Again, I asked for something in writing. Again, he assured me that his price was still good.

He showed up on time and things progressed on schedule. They got the demo done quickly and got the customer a shower back within a few days. Things were going well.

There also was some moisture damage that was unknown when we started. This meant I needed to give the customer a change order for this additional work. I called the sub to get a price. He said the way things were going, it should still be close to the high-end price he had given me previously.

I prepared a change order for the customer based on the extra work and felt that should be sufficient to cover the subcontractor.

When it was all said and done the subcontractor’s bill was almost $4,000 more than he told me or what I had budgeted. On top of that he was unwilling to negotiate a settlement somewhere in the middle.

Surprise! I should have gotten something in writing.

Looking back, I should have pushed back more and gotten something in writing. But I was looking out for the customers and the subs availability. The speed with which they said they could do the work swayed me to move forward without anything written down.

I know that small and midsized contractors don’t like to spend the time and effort to do paperwork.

I understand, it takes time. The question we should ask is this…

Is it better to spend the time communicating before the project starts or wait until there’s a problem and everybody’s upset?

I understand that details and information take time, but I think it’s essential to good communication.

I knew better and can’t blame anyone but myself for being in this situation.

Even though I had the tools I needed to avoid this situation I didn’t use them. If you don’t open the toolbox and get the tools out, they can’t help you build your company.

Most construction contractors don’t have the tools they need for building a better business. That’s why we’re in the process of filling up a toolbox with tools to help you build the construction company of your dreams.

Whether it’s proposals, contracts, change orders, progress payments, or having money to pay your taxes, there’s a tool for it. We also plan to offer instructions, coaching, and consulting to help you learn to use these tools.

If you have questions and would like to find out if these tools would be a good fit for you, you can schedule a free consultation here.

Poor communication is the number one reason for disagreements. Avoid disagreements by taking the time to get the tools needed to avoid costly miscommunication.

How to Build the Construction Company of Your Dreams

It’s Like Building Anything…You Need a Plan and the Right Tools

Labor Day is coming up on Monday. It’s the only Monday holiday that I don’t work. Actually, there are only three holidays each year that I don’t work. Those being Christmas, New Years Day and Labor Day.

I celebrate Christmas because it is the day we honor our Savior’s birth. The other two are days that our family has celebrated together as far back as I can remember.

This sounds like I’m a workaholic. And yes, I’m a recovering workaholic, but…

It’s easy to be a workaholic when you love the work you do.

On the other hand, working a lot of long hours and not having anything to show for it can feel like drudgery. It’s like being stuck in a rut without a way out. I’ve heard it said that “A rut is just a grave with both ends kicked out.”

Owning and operating a construction company can feel this way. We get in a rut and don’t even realize where we are. Plodding back and forth going through the daily routines of operating the business, never looking up to see where we are or where we’re going. If we’re not careful the rut will get so deep that we’ll never get out.

Change can be scary; it might not work. We know our rut, and we like it. “We’ve always done it this way”, isn’t a very good plan for building a better business. Too many construction companies find themselves in ruts, and “rut thinking” doesn’t allow for building your dream business.

So how do you get out of that rut and build the business you always dreamed of?

When you started your construction business you had this vision of how things would be, and I’ll bet that it hasn’t turned out at all like what you expected. This is something that I’ve seen way too many construction companies struggle with.

I know what it feels like because I went through it too.

That’s why early on in my business when I became aware of these issues, I decided to do something about it. I wanted to get out of the rut.

I began researching the problems and studying alternatives. Then I began to understand what was needed to get out of the rut. This is when I started building and designing business building tools that I could use to build the business of my dreams.

If you’re like I was and started your construction company with a dream and no plan, you probably find yourself stuck in a rut. Building a business is like building anything…if you don’t have a plan, it probably won’t turn out well.

After I understood what was needed, I designed and built business tools to help me build that business that I had dreamed of.

If you would like to build the construction business of your dreams but don’t want to spend the time and energy making your own tools…I have good news. At Solution Building we’re going to be offering our Business BUILDing tools and training to help you get out of the rut quicker and easier.

If you’d like to get out of your rut, check out our tools and systems to help you build the business of your dreams. complete with the 5-step business BUILDing process for implementing and learning to use them.

Becoming aware of the rut you’re stuck in is the first step to building the construction company of your dreams.

Clarity of the Plan is Key to Knowing What to do and How to do it

How an Operating System Can Help Your Construction Company Navigate the Business Fog

The past couple of weeks we’ve discussed how an operating system can help you build a successful business and a list of what should be included in a standard operating procedure. This week we’ll look at style and formatting ideas for putting together a plan for operating your company.

It takes thousands of pieces to construct a building. If these pieces aren’t put together in the right place and in the right order, the end project is not what was expected. It might even lead to the building collapsing.

This can be avoided with a clear plan and good communication.

The same is true for a business. There are thousands of pieces that need to be put together in the right place and in the right order if the company is going to survive and become successful.

You don’t want your business to collapse, do you?

A Standard Operating Procedure (SOP) is the current hot title for this document. I will agree that these three words do a pretty good job of summarizing what this is, but don’t want to get caught up in what it’s called. You can call it whatever you want.

Just like you can call it what you want, you can design it however you want. Here are some ideas that you might want to include in your operating system.

  • Determine the format – This can be as simple or as complex as you want it to be.
  • Gather the relevant stakeholders – When you start discussing the system you should include anyone who has a stake in the process.
  • Define the structure – Bigger companies will likely have a more formal structure and startups, or smaller companies may use a more informal process.
  • Determine the scope – Keep in mind that you should have a clearly defined scope. It may involve multiple areas and people but be sure to not lose focus on your goals.
  • Be consistent in style – This makes it easier for the person who’s going to be using it if it’s a clear consistent style throughout the whole document.
  • Include all steps of the process – Record all steps that are required to complete a certain process.
  • Choose the right metrics for measuring success – To understand if you’re achieving your target results, you need to determine what the key performance indicators are.
  • Test the process – To make sure that your system is good or to make any final edits and tweaks, ask some of the team who will be using it for their feedback.
  • Implement the process – Once you’ve completed the above steps, you’re ready to implement. Keep in mind that these procedures are dynamic and will change with time.
  • Plan for regular reviews and updates – Since the construction industry and your business processes are changing all the time, your standard operating procedures should too!

An SOP is not a document to be made and forgotten about. It’s a manual that people use daily. So…it must be reliable.

Revising your SOPs every 6 or 12 months is a must if you want to stay on top of any changes and keep on delivering the best possible results.

As the owner or operator of a construction company, your head probably feels like it’s going to explode with all the things you’re trying to keep track of and do. Wouldn’t it be great if you had some help doing some of those things?

The problem with this is…now you have to teach and train them, and either you or they are going to forget something. Wouldn’t it be nice if there was an operating manual that they could refer to?

There could be. You just have to decide if you want to continue doing things the way we’ve always done it, hit and miss way. Or use the better, clear plan that can be implemented by a new hire or used by the most experienced team member.

If you would like to discuss this more set up a free 30-minute construction company consultation.

How Can I Prepare a Standard Operating System for My Company

Why Building a Successful Construction Business Requires Having a Plan

Over the past few weeks, we’ve discussed how building your business is critical to the success of your business and the importance of keeping your business in balance. After more than forty years of construction experience, I tend to view most things from a “building perspective”. Today we’re going to compare once again building a business and a construction project.

One of the most important parts of the plan for building a good building has nothing to do with physical construction. It has to do with processes and systems.

I have written about how building and operating a business can be like standing in the shadow of an overwhelming mountain and not knowing how to get past it. When you find yourself facing a mountainous obstacle it helps to have a plan.

One of those mountains when running a construction company is being pulled in too many different directions. Trying to operate all the different pieces of a business can be a big mountain. Having a clear plan and being organized can help you manage your mountain.

In your business, you have a specific way of getting things done.

But things are constantly changing, employees come and go, customers come and go, and if your company is going to stay in business you need to keep delivering high-quality construction projects regardless of the obstacles. This chaos just makes the mountain bigger.

So how can you maintain steady consistency with your company’s end results?

In an online article Workflow Automation shares how having standard operating procedures (SOPs) can help your business eliminate confusion around processes that are performed daily. This will allow your employees to be more productive and minimize mistakes! These procedures help you break down even the most complex processes so even a novice can manage these tasks from start to finish.

So, what exactly is a standard operating procedure?

A standard operating procedure is a set of detailed step-by-step instructions that describe how to carry out any given process. Companies that are serious about process management use SOPs to manage their day-to-day activities.

Having Standard Operating Procedures allow you to:

  • Achieve consistent results. With standard operating procedures, you complete your processes in the same way and achieve the right results every time.
  • Reduce costs and increase productivity. When everyone does the same task in different ways, eventually your organization will run into inefficiencies that cost you time and money. With SOPs you can streamline the process and increase productivity.
  • Create a consistently higher level of standards. SOPs are very useful when it comes to getting everyone on the same page and provides a standard way of getting things done.

Organizational paperwork is critical to having a business that operates smoothly and successfully. Having an organizational plan can answer a lot of questions before they’re ever asked.

This whole operational procedures thing sounds like a great idea, but also sounds like a lot of paperwork.

And the problem is…most construction people don’t like paperwork.

In a future post we will dig deeper into what is included in an operating procedure and how to prepare and implement one in your business.

Having an operational procedure is an important part of the Blueprint for Building a Better Business and is one of the tools that we plan to include in the Business Building Toolbox.

Portions of this are from a previous post on 10/27/18

The Time Spent on Clear Communication is Worth Every Second

So, if it’s Worth It…Why is it Not Done?

You probably guessed it already; this week’s topic is COMMUNICATION and the all-too-common lack of it. Because poor communication is such a big issue, I’ve written about it a lot.

In a production meeting with a customer yesterday I was once again reminded of the importance of clear communication and…the lack of it. The conversation revolved around how the subcontractors were doing.

The customers were very happy with their work and pleased with the effort to put plastic over door openings and to cover furniture in the work area. But she said, “We’ve never had an interior construction project done before.

I wish I had known how much dust was created, and I would have covered some additional things.”

Keep in mind that after forty plus years of doing construction, I knew that this was a very clean job site. The point is this…she didn’t know what to expect, and I should have let her know.

I should have communicated better.

Let’s look at reasons, results, and remedies for…

  • Misunderstandings due to poor or no communication
  • Being blindsided by cost overruns or hidden costs
  • Completed projects not being what you wanted or expected
  • Not understanding construction terminology

What is communication?

According to the Britannica Dictionary, communication is:

            “…the act or process of using words, sounds, signs, or behaviors to express or exchange information or to express your ideas, thoughts, feelings, etc., to someone else”

We all have our own perceptions and understanding of words, phrases, and gestures. I presume I know what you mean, and you do the same thing. This happens with spouses, family, close friends, and people we know well. If it happens in these relationships, it only makes sense that it will be more common with strangers.

Reasons people don’t communicate:

  • Takes time – People now expect things instantaneously. We have high speed internet at the tips of our fingers. Photos are developed the moment they’re taken and can be printed instantly via a wireless connection to a printer. We don’t have time to prepare or read through a multi-page document explaining a construction project.
  • Overwhelming – Reading through pages and pages of descriptions and explanations of construction legalese is a daunting task. As a customer, I probably won’t understand half of it. It’ll be easier to just go ahead and start. We’ll figure out the details as we go. I know what I want and I’m sure the contractor does too…NOT!
  • Lost skill – Communication is a two-way process. It requires both giving and receiving, speaking and hearing, writing and reading, expressing and understanding. If we don’t know how to use these skills, we can’t communicate effectively. Good communication requires more than emojis and hashtags.
  • Don’t like conflict – Most people don’t like conflict, but it can be positive. Conflict is always difficult but can lead to growth and change. It indicates commitment and can lead to better outcomes. It allows us to see the other side’s position. We should be willing to discuss disagreements without our feelings being hurt.

Results of poor communication:

  • Project wasn’t what you expected – You have a vision of how your finished project is going to look. You can see it in your mind. When you come home one evening, excited to see what has been done and then…it doesn’t look anything like the picture in your mind. What happened?
  • Cost overruns – You’ve saved and/or borrowed the money you think you’ll need to do the upcoming construction project. You get an estimate of what it’s going to cost. Sure, it’s more than you expected, but that’s alright; it will be worth it in the end, right. Then you get the final bill, and it’s a lot more than expected. Now what? Where are you going to find the additional money?
  • Time overruns – The contractor says, “Your project will be done in no time.” “This won’t take too long.” “We’ll be finished by the end of the month.” “This project will only take a few weeks.” This sounds great, but how long is too long, by the end of which month, how many weeks is a few? Trust me, your contractor’s definition of time idea is most likely different than yours.
  • Not knowing what’s going on – As you’re talking with your contractor, he’s telling you how this thingamajig is going to support that doohickey. We use the newest and best gadget to build our gizmos. All the while you are nodding your head as if you know exactly what he’s talking about. When, in reality, you have no clue. Wouldn’t it be worth it to ask some questions?

Poor communication can be solved with time and effort.

Trust me, clear communication is worth every second spent so just do it.

Updated post from 9/23/19

How a Business Plan Can Help You Keep Your Business from Crashing

It’s Hard to Keep Your Business in Balance Without a Plan

Most of us who are self-employed spend way too much time feeling like our businesses are out of control. We started our businesses with grand ideas and dreams. Then one day we woke up and wondered what in the world we were thinking.

Last week I wrote about needing a plan for building your business and how many businesses fail because they don’t have one. We compared a plan for building a business to a blueprint for building a building.

I recently finished reading the E-Myth Revisited by Michael Gerber. This book does a great job of pointing out the misconceptions around starting your own business and shows how commonplace assumptions can get in the way of running a business.

Michael walks you through the steps in the life of a business, from entrepreneurial infancy, through adolescent growing pains, to the mature entrepreneurial perspective.

Gerber draws the vital, often overlooked distinction between working on your business and working in your business.

As I read through the book I was reminded and encouraged to review and improve our business and the operating procedures. If we don’t have a plan and aren’t intentional about implementing it, we are doomed to failure.

Business is like a three-legged table. If one leg is short, it gets kind of wobbly.

I know I have felt this way about my business and sometimes still do. This is why after reading the book I was reminded that I have not been giving each of the leg’s equal attention.

You have probably heard the saying ‘feast or famine’. This is used quite often in the building industry. It refers to the common problem of having way too many projects to do. Or not having enough and worrying about how you are going to pay the bills if you don’t get some work soon.

Sometimes this is caused by situations beyond our control. The economy, the weather, or some other external force. More often than not it is due to an ‘out of balance business’…like a table with a short leg.

As in Gerber’s book, we usually start a business knowing the trade but not having any experience in operating a business. We know what we know and don’t know what we don’t.

We started out by learning our trade as an apprentice, while working for someone else. I know this is how I got started. The problem with this is that while I learned how to build a building, I wasn’t taught how to build a company.

Like a three-legged table, when all the legs are the same length, it provides a level sturdy platform for my company to sit on. When any one or two of them is short the table starts leaning and begins to tip over. If it tips too far the company will slide off.

It’s never good when a company crashes onto the floor.

The three table legs of a construction company are:

1 – Sales/Marketing – Searching for and finding customers that you can help by providing your service and/or product through word of mouth, advertising, and awareness. Meeting with potential customers, determining what they want/need, and preparing estimates, proposals, and contracts.

2 – Production/Operations – Organizing, scheduling, and maintaining the projects. Determining who the right people are to perform specific tasks. Knowing the parts that are needed and making sure they fit. Maintaining communication between all parties involved. Ordering, delivery, storing and returning of building materials. Facility and equipment maintenance and repairs.

3 – Administration/Finance – The preparation of documents needed to communicate, track, and record all aspects of the business. The filling out and filing of income, expense, banking, and tax papers. This leg is one of the easiest for ‘tradespeople’ to neglect and can cause the table to lean quickly.

The top of the table – This is the big picture planning and organizing of the company. It’s what connects the three separate legs. It’s one of the hardest parts for the tradesman to understand and the most important. If there is no attention or work done on this part, you may just as well throw the legs in the fire and go to work for someone else.

It’s easy to give too much attention to one or two legs and forget the other parts. To get so focused on the production of a project and forget to follow up with a new customer. To get so into preparing proposals that we forget to invoice. To work so diligently on tracking expenses that we don’t leave enough time for working on the project.

There is no perfect solution to keep the table from ever leaning. The most important thing is to BE AWARE that it can happen, UNDERSTAND the problem, gather INFORMATION and get INSTRUCTIONS about the tools needed to keep the business from crashing and LEARN how to use these tools in your business.

Keep your business from crashing by intentionally working to keep the table balanced.

Portions from a previous post on 4/30/16

How Building Your Business Is Critical to The Success of Your Business

Like the Construction of a Building – You Need a Plan for Your Company

If you own your own business and aren’t being intentional about the organizational operation of your company, it is likely that you won’t make it past your 5th year. This is according to the Bureau of Labor Statistics.

Just think about the number of businesses that you have seen come and go.

Whether you are a solopreneur or have a team. It doesn’t matter if you have been in business for 30 years or just starting out. Regardless of the kind of work you do, the organizational plan is just as important as the work you do…maybe more.

I know in my 40 years of being in business I have learned some lessons the hard way. Let me tell you, the tuition for ‘The School of Hard Knocks’ (SHK) is expensive. There were times when I got behind on taxes to pay bills and other times when I got behind on bills so that I could pay taxes. Neither of these is a very good business plan.

One of my SHK professors once told me, “That when you steal from Peter to pay Paul, you make Peter a Paul bearer”. If you want to avoid the need for a pallbearer for your business…you need a plan.

Starting a business without a plan is not a very good plan.

Often, someone who has learned a trade or a craft decides, for whatever reason, to go into business on their own. Most of the time they have given little, if any, thought to business structure.

You show up every day working hard and then…surprise, you owe some taxes and don’t have the money to pay them. You needed a plan…a Blueprint for Building a Better Business.

There are a lot of similarities in constructing a sound building and constructing a profitable business.

  • Both need to start with design plans – The thing that gives you a clear direction of what you want the outcome to be.
  • Both need an architect – The person that can see the vision of what the finished product will be.
  • Both need a good solid foundation – The thing that will support you when the storms come.
  • Both need a good framework – The thing that holds everything together.
  • Both need a builder – The person that reads and understands the plans and puts all the different pieces together correctly.
  • Both need the proper tools – These are what allow the pieces to be shaped and fastened together in the right places in the right order.
  • Both need a good team – These are the different people with the different skills and knowledge needed.

It doesn’t matter if you have been in business for years or are just starting, YOU NEED A PLAN. If you would like to minimize the time you spend attending ‘The School of Hard Knocks’, then keep following our blog. We are working on some Business Building Solutions for just this purpose.

In what areas of building your business would some ‘higher education’ be helpful?

Originally posted 2/24/18.

How Using the Payment Application Tool Communicates Clearly with Construction Customers

Learning About Business Tools Isn’t Necessarily Fun, but it is Necessary for Business Success

I know that the topic of the Payment Application over the past couple of weeks hasn’t been one of the most exciting topics. Learning about any tool, how it works, and how to use it isn’t one of those things that scores high on our “fun meter”.

This is true for most men. Just think about Christmas time and how most of us guys just want to dive in and put that new toy together without bothering with the instructions. We don’t need any stinking instructions!

This, “get ‘er done” attitude gets amped up even more for those of us in construction. Afterall…building things is what we do.

However, you know as well as I do that, more times than not, this doesn’t turn out so well.

That’s why years ago as I struggled trying to put my business together, I decided I needed to read the instructions. The problem was…I couldn’t find the tools or the instructions. So that’s why I decided to make my own Business BUILDing Tools, complete with instructions. 😊

One of those tools is the Payment Application.

Last week we went through the process of getting started with a blank Payment Application and getting it filled out so that it is ready for the customer’s first payment. Now let’s look at preparing the Payment Application for recurring progress payments.

Preparing for the next progress payment –

Step 1 – Updating the application information – In the application information box, change the application number to the next sequential number i.e., from 1 to 2. Change the date from the previous date to the date through which this application includes. This consists of the material provided or ordered and work done by this date.

Step 2 – Moving dollar amounts from work completed to previously billed – On the previous Payment Application you have dollar amounts in one or both columns D (materials presently stored or ordered) and E (work completed this period). The numbers in these columns need to be added together and added to the number, if any, already in column F (previously billed).

Step 3 – Clear dollar amounts from Work Completed columns – After completing the previous step you need to clear the dollar amounts from both columns D and E.

Step 4 – Confirm the dollar amounts – After clearing the dollar amounts from columns D and E you need to check the dollar amounts in columns F (previously billed) and G (total completed and stored to date). These numbers should be the same. Also compare these numbers to column G on the previous Payment Application to confirm that these numbers are correct.

Step 5 – Entering dollar amounts – Now you can start entering new dollar amounts for Material Presently Stored or Ordered (column D) and Work Completed this Period (column E). These numbers will be determined by the material provided and the work done since the last application.

Step 6 – Figure and enter sales tax – Depending on the jurisdiction and the state in which you are doing the work, determine what your tax rate is and whether it is on material only or both material and labor. We use a bookkeeping program on our computer to provide the sales tax based on the jurisdiction. Then, depending on whether it is material only or both material and labor, enter the sales tax amount(s) in the row marked Sales Tax and in the appropriate columns D, E, or both.

Now you have the next Payment Application ready to be given to the customer, in conjunction with the invoice.

Miscommunication happens too often when dollar amounts are left floating around in the customer’s head due to making multiple payments strung out over the duration a large project.

Most customers don’t bother to write invoice amounts down and/or keep a running total. They’re just writing checks periodically with at vague running balance and then are surprised that the final invoice is more than they expected.

The Payment Application lets the customer see –

  • What the original contract amount was
  • What is included in this current invoice
  • What they have paid for previously
  • The total of what they have paid for previously and the current invoice
  • The percentage of the job that they have been invoiced for at this point
  • The balance of what they have left to pay

They get this updated information with each invoice and can easily see where they started, where they are, and what is left to pay.

This is how the Payment Application provides clear communication for the construction customer.

Having this business tool and learning to use it will not only make your customers happy…it will also help you to BUILD a successful construction business.