Why contractors fail

““Why Contractors FailWhy Contractors Fail”” – – Ten Pitfalls To AvoidTen Pitfalls To Avoid

and Ten Ways to Avoid and Ten Ways to Avoid ThemThem

Ten Pitfalls To AvoidTen Pitfalls To Avoid

1. Accounting & Financial 1. Accounting & Financial Management ProblemsManagement Problems

Inadequate cost tracking systems

Estimating or procurement problems

Underinsured

CPA does not follow guidelines contained in American Institute of CPAs Audit Guide for Construction Contractors

1. Accounting & Financial 1. Accounting & Financial Management Problems (cont.)Management Problems (cont.)

Bank lines of credit constantly borrowed to limit

All credit fully secured

Lines not being renewed

2. No Comprehensive 2. No Comprehensive Business PlanBusiness Plan

Contingency plans are not developed

No “road map”

No goals

No objectives

3. Unrealistic Growth/Over 3. Unrealistic Growth/Over ExpansionExpansion

Expansion in volume, work type, or geography faster than resources allow

Significant increases in the size of individual projects

Expands too rapidly to meet staffing and/or working capital requirements

4. Poor Project Management4. Poor Project Management

Inadequate supervision

Inability to get reasonable prices on change orders

Projects not being completed on time

5. Poor Estimating and Job 5. Poor Estimating and Job Cost ReportingCost Reporting

Revenues and margins decrease over time

Continued operating losses

Loss or reduction of bonding capacity

Bidding jobs too high or too low

6. Communication Problems6. Communication Problems

Disputes between contractor and owner

Poor communication from field to management

7. Changes in Ownership 7. Changes in Ownership and/or Personneland/or Personnel

Leadership of company changes (owner dies, retires, sells company; no continuity plan in place when key person dies or becomes disabled)

Key staff leave company (inadequate time to train new staff; need time to teach company policy & operations)

8. Changes in Scope or Line 8. Changes in Scope or Line of Businessof Business

Changes in type of work

Changes in the location of work performed

9. Factors Beyond a 9. Factors Beyond a ContractorContractor’’s Controls Control

Unexpected economic down-turn

Weather delays

Labor difficulties

Material & equipment shortages

High inflation

Owner’s inability to pay

10. Loss of Loyal Customers10. Loss of Loyal Customers

Decreasing reputation for company’s ability to perform contracts on time & within budget

Ten Ways to Avoid Ten Ways to Avoid These PitfallsThese Pitfalls

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.) (cont.)

1. Develop a Business Plan, including establishing a Succession Plan

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

2. Identify and hire CPA with construction experience

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

3. Hire experienced estimator, even if only on a part-time, or “as-needed” basis

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

4. Develop relationship with surety bond producer prior to requests for bonding

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

5. Put into place an automated job costing system – e.g., Timberline, etc.

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

6. Develop banking relationship, including seeking reasonable line of credit

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

7. Establish clear job descriptions, including fair compensation structure

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

8. Incorporate supervisory and field training in operations

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

9. Manage expansion and growth

Ten Ways to Avoid These Pitfalls Ten Ways to Avoid These Pitfalls (cont.)(cont.)

10. Be visible to customers and perform beyond expectations