Building Contractors — Not For Wimps - 1/26/2004 - Real Estate Education Training Schools Conferences

Building Contractors — Not For Wimps

Dear Tim,

I understand you were once a general contractor. Why did you give it up?

Freddy L, Sedro-Woolley, WA

It is true, in the early 1990s, I started a construction company with two other guys — also engineers. Each of us brought a heck of a lot of real-world construction experience and knowledge to the table. If anyone could have made it, it was us.

With grand visions and boundless enthusiasm, we started up, bidding anything that came along.

I quickly learned that the very thing that allowed us easy entry into the market was a double-edged knife. In Washington State at that time, anyone with a pickup truck, a hammer and a six thousand dollar bond could be a general contractor. There were no testing or qualification programs as in other states.

I don’t know how many times we came in second at bid openings. It was awful. Many times, the successful bidder either botched their takeoff, or needed the work so badly, they didn’t mind taking it at zero profit.

Call me pompous, but I consider profit a necessary part of doing business and require a certain amount on every job.

Living just above the poverty level, I wimped out after two years, spinning off an engineering company. My software company, ConstructionCalc, came along a few years later. But every time I look back on those humble beginnings, I am reminded: being a contractor is a darned tough row to hoe.

What’s my point? Business ownership has taught me a few things:

• Choose Your Partners Carefully. A business partner is like a spouse. You’d better be compatible. Work ethic, vision, risk comfort, honesty, compulsion to spend money and leadership ability, are a few of the more important characteristics. I’ve been through seven partners in the past 12 years, one of whom was my brother. Though I’m still friendly with them all, I currently, happily, have no partners.
• More Is Not Always Better. Regarding employees, there is a certain number that yields maximum profit. In consulting, I found it either less than three or more than 50. Anything in between and profit suffers.
• No Get Rich Quick. Be sure your spouse buys into this concept too. Building a business is a long, expensive process. Every spare nickel gets folded right back in. Also, when money is lost on a job, it comes out of the owner’s paycheck.
• Employees Are Only as Good as Their Supervision. Give a man a hammer and by golly, he’ll hammer something. Might not be right, but he’ll hammer up a storm. Employees absolutely require supervision, daily. Mistakes cost you twice — or more.
• Minding Money Is as Important as Making it. Owners expend amazing energy saving pennies, while through poor management, waste thousands. An hour or two should be spent daily with accounts receivable and payable, executing action plans to maximize profit. Contractors, especially, tend to get caught up in the technical aspects, letting slip the money side. Changing this requires a complete change of mindframe — a whole new dedication to the almighty dollar. Don’t be bashful to admit it: money is, after all, the very thing you’re chasing the hardest. Sure, customer service and a job well done are critical, but those things vaporize if the owner doesn’t make enough profit to healthfully keep the business running.

Tim K. Garrison, P.E., is the author of “Basic Structural Concepts for the Non-Engineer” and is the president of ConstructionCalc.com. He can be reached by e-mail.

The views expressed in this article represent the personal views, statements and opinions of the author and do not necessarily represent the views, statements, opinions or policies of the National Association of Home Builders. NAHB does not necessarily endorse any of the views expressed by the author and NAHB is not responsible for any direct or indirect consequences arising out of the views expressed in this article.