As one-year closes and another year starts it’s a good time for reflection and thinking about the future.
Looking back at some of the blogs I’ve posted this year, highlights common issues which have been encountered by businesses I have been working with. The businesses are not alone with these issues, the issues occur repeatedly in other businesses. If you can relate in some way to any of the blogs, or want to sort one of these issues out so your business is easier to run or you can exit from it, then you are not alone.
The most frequent issue is “how to run the business”, This arises for a number of reasons:
1. The owner has not had business training or worked in a larger business and seen the processes in place.
2. Some business owners have grown a business, but they have lost control of it, then scaled back and now want to start again but be in control.
3. Other people have worked in a large business, but are unknowingly missing one or two pieces of the jigsaw, and cannot work out what is missing.
A blog towards the end of the year captured all the steps for building a business with the controls in place or restarting a business again. It could of course be cherry picked, to find out about any areas you think there is a weakness.
Not surprisingly understanding the numbers is the first point identified that should be understood. There were a couple of blogs about this:
The first, explained that the accounts produced at the end of year by your accountant are a very small part of the story. What also needs to occur is the production of management accounts. There is nothing special about these, you can do them yourself as they are only seen internally, but they give you an insight to what is occurring.
The second blog went into more detail about managing cash and payments as this is often an issue.
Money aside, winning work for contractors is probably the most critical skill the owner of a contracting company needs. If your price is too high, you lose the jobs and have wasted money bidding them. Too low and you are going to win the project but either, not make as much as you could, or you will lose money building it out.
The cost of doing the works can usually be calculated relatively easily and accurately but the amount of overheads and profit to add is more complex. Depending upon what you include in your works estimate, figures such as 15%, 20% or 25% might be added, as these have worked before. As a business grows the build-up of this percentage must to be understood. To work this out for when the project will take place in the future, you need to have a turnover and an overhead forecast to calculate the overhead percentage to add. Then, by analysing your wins and losses the profit to be added can be determined. The amount of profit added can be done with confidence as your win / loss analysis is benchmarked accurately against current market conditions and will enable you to win at the highest price the market will bear.
Forecasting in general was covered in this blog, which looked at changes in the wider market, forecasting overheads, income and touches on cash flow.
The second one looked at a three-step process for winning work by submitting accurate prices, which are competitive in the market.
Finally in this blog the decision on the level of profit mark-up was explored in more detail.
In a large business there are many people involved in the financial decisions and making sure the contractual risks are managed. SME business owners often don’t realise how many hats they are wearing for the critical activity. In this blog I set out the roles and titles involved as one of these types of people might be one to recruit on a fractional basis initially.
Assuming a project is secured, then establishing a baseline of information is key to making it a success. But just as the business accounts should be reviewed regularly so should the “project accounts”. The detailed process for the analysis was explained in one blog and the roles of the staff involved in this process were explained in a second blog. It’s no wonder that an SME owner struggles juggling all the hats.
And for the people involved.
Having established the processes, the aim should be to standardise their implementation. The use of IT lends itself to this. The amount of software and the options available is enormous. In response to queries about IT, a blog about selecting suitable software. In the blog there are links to some of the better videos showing how the software works, and they show how the complex tasks from the blogs above can be repeated consistently.
The information above provides a firm foundation to scale up. Scaling up requires more people and more work. People are covered in this blog:
And in these blogs, 10 steps for winning more work in new sectors and the internal communication required with the accounts staff to win the work are explained:
Given longevity is increasing, the chances are we will all be living longer. This topic and the impact for everyone was covered in one of the early blogs of 2024.
Assuming there is an expectation you will live longer, then running a business is going to continue for a few more years yet, and if that’s the case, why not make life easy and “run a well-oiled machine” as described in my new year’s blog or review a checklist of all the key processes and documents you need to run the business.
If you would like to work through a program of one or more of the processes touched on above, in the new year, please contact me for further information. Peter.Searle@ba4cs.co.uk
Have a prosperous 2025, and look out for more blogs about resolving common business issues for contractors.
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