A big thank you to the 40 or so business owners and managers in the construction trades who attended the “Building a Better Business in the Construction Trades” conference hosted by Webb Ross >>> on the past two Thursdays. David Grindle – partner at Webb Ross – put this conference together, and his plan is to make this an annual event. Great effort, David.
My contribution to the event was to discuss the behavious and habits that separate the excellent operators in the construction trades from the average operators. We work closely with quite a number of clients in the construction trades, so we’re well placed to comment on this.
Here are our top seven behaviours and habits (in no particular order) that separate the excellent from the ordinary in the construction trades:
1. Excellent operators manage cash closely
Resolve disputes quickly – especially those that are holding up payment.
Get paid retentions – don’t let those few minor tasks like painting manholes etc drag on and slow up receipt of retentions.
Make sure you issue valid payment claims under the Construction Contracts Act.
Don’t use IRD as a bank. Its easy to ease cashflow by paying GST and provisional tax late, but it’s expensive money.
Keep your bank in the loop. If you have banking covenants, honour them.
Get a variation agreed if the scope of a job creeps outside what has been contracted for.
Keep a cash reserve. Preferably enough to cover 30 days of overheads.
2. Excellent operators monitor profits closely
Back Cost most if not all jobs on completion. Did they go as planned. If not, why not?
Set KPIs – and monitor them monthly.
Set and monitor budgets.
Prepare monthly financial statements promptly, compare them with budget and understand variances.
3. Excellent operators always use contracts
Although the Construction Contracts Act only requires written contracts for jobs over $20,000, we recommend written contracts for all jobs.
Know your payment milestones and manage the job around them.
Manage variations – and communicate these immediately.
Get the best from the claims process – follow the process laid out in the Construction Contracts Act to the letter.
Get paid retentions in a timely manner.
4. Excellent operators are compliant
Comply with the legislation that applies specifically to your industry such as the Construction Contracts Act.
Keep proper accounting records.
Always use employment agreements for employees.
Pay people through the system – not in folding.
Deduct withholding tax from subcontractors where required.
File GST, PAYE and tax returns on time.
Comply with health and safety best practice.
5. Excellent operators manage risk
Don’t rob the next job to pay for the last job as this creates huge financial risk if work slows down or stops.
Have proper insurance.
Get basic structuring right. Operate through a limited liability company, always sign contracts as director rather than as an individual - and don’t accumulate valuable assets in your trading company.
6. Excellent operators are organised
The construction trades require careful organisation – and the lack of it is a big predictor of failure!
7. Excellent operators manage their brand
Appearance, apparel, vehicles, stationery and telephone manner are all important. Be seen to be professional.
Know where your referrals come from and nurture referrers.
Network and get involved in the industry.
It is my belief that the more ticks you can put beside the items listed above, the better your chances of excelling in the construction industry. As you will know if you are interested enough to have read this far, the bar is much higher in this industry than it was a few years ago – and the ways of operating that were once acceptable just don’t cut it any more.