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ineight.com
Construction Market Outlook
• Most Companies will fail during the
recovery, not during the recession
• All the issues that cause failure are
• Identifiable
• Predictable
• Within the Contractors Control - Avoidable
ineight.com
Increase in Project Size
One of the most common causes
Typical defined by
taking a job 2-3 times
larger than any job the
company has
previously
completed
ineight.com
Increase in Project Size
It can be done, but can it be done profitably?
• Need more resources - you don't know what you
don't know
• Longer time to turnover job
• In beginning cash flow is good (mobilization/front
loading) but back-end retention strangle the cash
flow
As jobs (volume) gets bigger, margins get smaller.
10% withheld on a small job (15%-20% margin) has
less of an impact than 10% withheld on a large job
(3% - 5% margin)
• More supervision is required
ineight.com
Change in Geographic Area
Companies serve a geographic area
• County, 1/2 state, 3,5, or 50 states
Reasons for new area
• Normal growth
• Lack of work
• Special opportunity
ineight.com
Change in Geographic Area
It can be done, but can it be done profitably?
Little differences can be big problems
• Methods, procedures, inspections,
regulations, labor conditions (union)
• Dewatering for utility construction
• Crewing up during hunting season
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
ineight.com
Change in Type of Construction
Contractors are more specialized than they realize.
• Because they are good at bidding and executing a
certain type of work, they tend to win and
successfully execute that type of work.
Learning curve for new types of
work may require having a few
loosing jobs
ineight.com
Change in Type of Construction
Public Work vs. Private work
• Many companies start with public work to build
their experience and reputation
• As they grow they get more invitations to bid on
private jobs
• Private work tends to be higher initial price but
allows for less change orders
• Going from public work to private -> bid too low
and irritate the owner with Change Orders
• Going from private work to public -> Bid too high
and can't be competitive, put too much quality in
the work.
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
ineight.com
Change in Key Personnel
Successful construction companies 1. Get the Work (Sales & Estimating)
2. Do the Work (Operations)
3. Get Paid (Admin/Accounting)
You can’t just be good at
building things, you need
to be able to manage the
business of construction
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
ineight.com
Lack of Managerial Maturity
• Growth requires delegation of duties
• One person can only do so much, juggle
too many balls and start you’ll start
dropping them.
• Activity does not equal productivity
• The difference
between
leadership
and management
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
• Poor use of Accounting Systems
ineight.com
Poor use of Accounting Systems
Accounting is an afterthought "if you don't
make any money, there wont be any to
count"
ineight.com
Poor use of Accounting Systems
• There is a misconception that accounting
is too confusing
• Gets delegated to a bookkeeper
• The biggest accounting/reporting issue
facing contractors is that its NOT Timely.
ineight.com
Poor use of Accounting Systems
• Most contractors are growing and that
makes identifying loosing jobs difficult
• A shrinking bank balance can be a good
indicator of growth
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
• Poor use of Accounting Systems
• Failure to Evaluate Project
Profitability
ineight.com
Failure to Evaluate Project Profitability
• PM is responsible for profit margins through his estimated costs to
complete
• Only once the job is finished can reasons the job is loosing money no
longer be hidden
• Trick is to identify it throughout the
process
• Accountants need to be specialized
in construction
• Percent of Completion
revenue recognition
ineight.com
Failure to Evaluate Project Profitability
Projects typically span fiscal periods
Most accountants can verify the accuracy of the books for manufacturing
(widgets) as long as everything contributing to a unit occurs in a single
period
• Raw material purchased
• Manufacturing
• Inventoried
• Shipped
• Sold
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
• Poor use of Accounting Systems
• Failure to Evaluate Project
Profitability
• Lack of Equipment Cost Control
ineight.com
Lack of Equipment Cost Control
• Ownership vs Operating
costs and utilization
• Undercharging
equipment to be
cost competitive
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
• Poor use of Accounting Systems
• Failure to Evaluate Project
Profitability
• Lack of Equipment Cost Control
• Poor Billing Procedures
ineight.com
Poor Billing Procedures
• Cash Flow challenges are
a big risk for contractors,
poor billing/collections
make it worse
• Late payment is the norm
in construction
ineight.com
Poor Billing Procedures
• Bigger jobs pay slower
• Retainage is wrong but is a way
of life for the contractor
• Growing companies become too
busy to chase money
• Cash flow is the life blood of a
business and
without it, small problems
become magnified
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
• Poor use of Accounting Systems
• Failure to Evaluate Project
Profitability
• Lack of Equipment Cost Control
• Poor Billing Procedures
• Problems with Computerized
Accounting Systems
ineight.com
Problems with Computerized Accounting Systems
• When installing or upgrading,
should run duplicate systems
until the new one has proven
effective
• Often the new, young people
are running the systems who
know more about computers
than about construction
ineight.com
Ten Reasons Contractors Fail
• Increase in Project Size
• New Geographic Area
• New Type of Construction
• Change in Key Personnel
• Lack of Managerial
Maturity
• Poor use of Accounting Systems
• Failure to Evaluate Project
Profitability
• Lack of Equipment Cost Control
• Poor Billing Procedures
• Problems with Computerized
Accounting Systems
ineight.com
Construction Market Outlook
• Most Companies will fail during the
recovery, not during the recession
• All the issues that cause failure are
• Identifiable
• Predictable
• Within the Contractors Control - Avoidable
ineight.com
Thomas C. Schleifer, Ph.D. Tom Schleifer joined the construction industry at age 16 and brings more than 45 years of contracting and consulting experience to his
presentation. He has Bachelor of Science and Masters of Science degrees in construction management from East Carolina University, and
a Ph.D., also in construction management, from Heriot-Watt University, Edinburgh, Scotland. Dr. Schleifer’s experience includes serving
as foreman, field superintendent, project manager, and vice president of a construction company which he owned with his brother. From
1976 to 1986 he was the Founder and President of the largest international consultancy firm serving the contract surety industry. During
this period, he assisted in the resolution or salvage of hundreds of distressed or failed construction firms and projects.
This combination of practical, hands-on experience as a contractor and assisting financially distressed companies has given Dr. Schleifer a
unique perspective on the causes of business failure and how to avoid them. He wrote the book Construction Contractors’ Survival Guide
which has been acclaimed by thousands of contractors and used as a text in numerous university graduate and undergraduate courses and
for many years published Schleifer’s Construction Forecast newsletter. Dr. Schleifer, sometimes referred to as a “turn around” expert
because of the number of companies that he has rescued from financial distress, advises contractors on organization, structure, and
strategic planning while he also writes, lectures, and teaches.
The importance of education in the construction industry is one of Tom Schleifer’s favorite themes. He is a former chairman of the
continuing education committee of the Associated General Contractors of America and has lectured extensively at universities, professional
and trade associations, and authored numerous articles and publications on construction and business management. Dr. Schleifer has
been listed in “Who’s Who in Finance and Industry” , “Who’s Who in America and “Who’s Who in the World.” He was the first Eminent
Scholar of the Del E. Webb School of Construction, Arizona State University in 1993 and currently serves part time as Visiting Eminent
Scholar
Books by Dr. Schleifer include: Construction Contractors’ Survival Guide, John Wiley and Sons; Glossary of Suretyship and Related Terms,
CMA Press; Schleifer’s Construction Profit Series, video and audio tapes; Schleifer’s Construction Forcast newsletter.