The big picture: Top traits the best construction companies share
Do you ever wonder what it is that makes certain construction companies so successful? The Contractor Success Forum hosts have worked with plenty of successful contractors over the years (and a few not-so-successful ones). Today, they’re sharing the traits they consistently see shared by the top companies in the industry.
Traits we cover on this episode include:
- Steady profit and cash flow
- A strong financial leader
- A trusted financial board of directors
- Curiosity about growth and continuous improvement
- Utilization of the latest technology
- Hiring and retaining good employees
- Having a defined plan for the future
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
TRANSCRIPT
[00:00:00] Rob Williams: Welcome to the Contractor Success Forum! Today. We’re discussing understanding the big picture and the traits of the best construction companies. Because we at the Contractor Success Forum discuss how to make your companies run more profitably and successfully as construction businesses.
And we have Stephen Brown, McDaniel-Whitley bonding and insurance company. And we have Wade Carpenter with Carpenter and Company, CPAs. And I’m Rob Williams with IronGate Entrepreneurial Support Systems.
So Wade and Stephen, what is it? What are these traits that make these construction companies the best construction companies out there? Man, both you guys should know, man. You’ve all the CPA. You’ve seen all
[00:00:50] Stephen Brown: You too, Rob. I mean, you’re a construction business coach. You ought to know, too.
[00:00:55] Rob Williams: Yeah. Yeah!
Successful construction companies have steady profit and cash flow
[00:00:56] Stephen Brown: But I mean, one thing that we do here at Contractor Success Forum is talk about what elements of success that you might bring to your construction company that do things better. There’s a reason why you started a construction company, if you’re a contractor listening to us, and your job first and foremost is, you know, to complete the project, deliver a quality product. Complete the project, hopefully keep the owner happy where you’ll get more business from them.
And you remember, we talked about the government calls projects task order. We’re giving you a task and we order you to finish it. You know, it’s not as glamorously sounding, but there’s a lot of money in those task orders. But anyway, completing a project takes a lot. But also completing a project profitably takes a lot. And that’s the number one trait of the best contractors that I see day in and day out are the ones that can make a steady profit.
[00:01:59] Rob Williams: Well, talk about that. You know, and what is a steady profit, because I’ve had things where the government said I made a big profit, but I didn’t have any money. know? So sometimes I owed a lot in tax, but hold on a minute, I have no money. Was that a profit? Well, the IRS said it was a profit, but my bank account didn’t say it was.
[00:02:19] Stephen Brown: Wade, that I think that’s a softball pitch straight to you.
[00:02:22] Wade Carpenter: Well, I don’t know about that. We could spend the whole episode talking about that one.
[00:02:27] Rob Williams: Yeah. Yeah. It’s like I do remember I had a big profit, but it took me that was in when the truss manufacturing I had to buy a $240,000 saw to do that job. But so I guess I made a great big profit, but I didn’t, I had to pay for that saw, you know, I had no money left.
[00:02:45] Stephen Brown: Well, you got the saw out of it. So.
[00:02:47] Rob Williams: Yeah, I did. I did. But I, you know, I didn’t take any money home to mama.
[00:02:53] Wade Carpenter: Yeah.
[00:02:54] Stephen Brown: Yeah, but you got you a saw.
[00:02:56] Rob Williams: Yeah, that’s right.
[00:02:57] Wade Carpenter: Well, so, you know, I guess what you’re getting at is profit is not cash in the door. And, you know, we talk about all kinds of things on here to help contractors increase their cash. And I think what Stephen’s going to is consistent profitability, consistent cash flow. Those are the most successful people.
Successful construction companies have a financial leader
[00:03:16] Wade Carpenter: You know, I guess I would add to that. A successful company has a financial leader. And the leader doesn’t necessarily have to be the owner. Ideally it would be, but you need somebody in that company that can say, this is how we do it here, number one, we are going to do job costing and everybody’s going to do it the same way.
And sometimes, if it’s not the owner of strength, well, yes, you can hire for it. Or you can outsource it, if you’ve got the right type of team that will hold you to the fire. But somebody that understands and knows what the healthy profitability, healthy cashflow, working capital is and can instill that in the company.
And if it’s not the owner, it may not be their wife either. I mean, you know, sometimes they’ll put their spouse in that position and maybe they can run their household, but running a construction company is different. I would say the owner needs to have some kind of basic knowledge that can be conveyed to them on a regular basis to know if they’re winning or losing.
[00:04:21] Rob Williams: Yeah. You know, it’s so funny. The most common, typical call I’ll get, you know, I say, well, why did you call me today? Is yeah, well, you know, I need more cash. We’ve got it. But Hey man, I got $2 million more of sales now, so this is going to be it. And my first thought is, okay, how are you going to pay cash flow for those sales?
So it’s funny. They think, you know, sales will fix everything. That’s what we heard growing up. Hey, more sales. It’s going to fix it. But they don’t realize most of their cash positions and the way that their cash drivers are lined up is they’re going to actually be negative cash flow to get those sales until the very end, when all the money comes through. So they think that extra 20% or 2 million, whatever that is, is going to save them. And that’s actually the train wreck coming. And you know, we on this show see that, but people don’t get it.
And I even had a conversation with an older one that was basically matured through his life cycle and he was coming back down. He’s like, oh, well, how could any of these idiots not realize that. You know, it’s like no, we’ve got a lot of smart people. I mean, it really kind of infuriated me. And I was like, well, that’s why I’m in business. The successful companies, like you’re saying you got to have somebody in the finance that gets that and understands the financial part and what your projections are going to be. And what is the thing that’s going to fix you? Or was what you think is going to fix you the thing is going to destroy you?
[00:05:52] Stephen Brown: Ooh, ouch. Yeah, that’s scary. And that’s deep, but that’s so true, isn’t it?
[00:05:59] Rob Williams: Yeah. Yeah.
[00:06:00] Stephen Brown: You know, the whole point of everything that we’ve always talked about in these podcasts, it seems to me, is we start off by saying, okay, you’re going to build a construction company. And if you don’t have a good foundation in place, you know, the building’s going to fail.
Successful construction companies have a financial board of directors
[00:06:17] Stephen Brown: If you don’t have a good foundation in place, then your construction company’s gonna fail. And what is that foundation? Well, you know, from our standpoint, it’s your financial board of directors. That’s a big part of your foundation. Employees might be another. But the financial part of your board of directors would be your accountant, construction- oriented CPA, that knows construction accountant.
It would be a construction-oriented lawyer who is really good at what they do. And it’s your bonding agent, an insurance agent and your banker. So you want the best of all those people you can find, cause you’re going to use them a lot. But most importantly, as you use them, you’re going to learn from them. One of my best customers always says everything I learned about accounting was from their accountant. Bonding and insurance, I learned from you. Banking, I learned from so-and-so. Contracts and legal aspects of the project I learned from– so, you don’t just hand things off, but you’ve gotta be curious about all the elements that go in place that make a construction company successful.
[00:07:23] Rob Williams: Yeah. And you got to have a good coach on that team, right?
Successful construction companies are curious about growth
[00:07:26] Stephen Brown: Gotta have a great coach. Well, you know, the coach is a huge part of it. You know, you were talking about sales. And what if you’re excited about sales and we talked about the big picture. The traits of the best construction company. You know, you’ve heard that expression, what if you can’t see the forest for the trees? That expression means there’s just things that you do not see. Your busy, you’re preoccupied.
I remember once I was working in this clothing store and they were coming in, they were stealing jeans. They were coming in the back door, stealing these designer jeans. You know, this was back in the seventies. I was in high school. And the jeans, I mean, the hangers were L-shaped. And they were grabbing a handful of designer jeans and running out the back door. And anyway, they called in a security expert and everything. And one of my coworkers, Frank, just goes, hey, why don’t we just turn the hangers around? Let’s just turn them around. And they weren’t able to snatch, but three or four pair of jeans instead of you know, a giant arm load of them.
But, I mean, that’s the kind of thinking you need. You need an extra set of eyes. You need some help. You need a third party, like a great construction accountant, like a great business coach, Rob. Your bond agent is full of free advice. And maybe too much, and you might get sick of it, but nevertheless, you can tell him to shut up, you’re paying him. But I’d say that’s one of the best traits. You’re curious about growing the best business you can.
And what other parts of that foundation do you think are important? I mean, we’ve mentioned employees.
Successful construction companies are continuously improving
[00:09:04] Wade Carpenter: I know Rob kind of went back to a manufacturing background, but in Japanese culture, they have a term called Kaizen, which means continuous improvement. Now, a lot of contractors are so averse to change, but any company knows that things don’t stay the same. And you need to continuously improve them. Even if you built the best systems in the world, technology changes, people change.
And there is a point where too much change can be unhealthy for a company. But when you’re trying to improve, and you instill that in the team and say we are going to continuously drive it, and you realize that business is never really done. I don’t care, I mean, you’ve been in business 20, 30 years. The business is never done, until you’re done.
[00:09:47] Stephen Brown: That’s right.
[00:09:48] Rob Williams: If you’re not moving forward, you’re moving backwards. That’s true. The growth and constant life learners that we gotta be.
[00:09:55] Stephen Brown: So what are some examples of how you stay on the cutting edge of growing?
Successful construction companies utilize the latest technology
[00:10:00] Rob Williams: The technology, for construction. That’s just changed. I mean, I was in the middle of it. I feel like we stopped for 10 years. We had a flat growth goes. I remember back in 2000 when I had the truss manufacturing, wanting to get something that would measure in lasers that would measure the slab and the little robots that now we’re seeing 20 years later. Oh, the latest technologies, we were trying to develop that 20 years ago, and they kind of stopped.
Now if you don’t have some of those things, you just can’t do it. I mean, yeah, for me, even the manual lasers, that was our number one point, they say it was the truss manufacturing boosted us up, but in my opinion, it was just that the wall panels and the trusses pointed out how horrible our slabs were. So really the technology that got us was when we got those lasers out there to start getting those slabs right.
Without that technology, you just couldn’t do it with the tape measure. I mean, you can, but the level of perfection, you gotta keep up to compete. And now they’ve got all those ones that measure, I love watching those videos. You set this thing out there and then man, it just like scans it’s, you know, it’s this futuristic movie thing. It puts a whole 3d image of the job.
Most of the industries, the middle management is disappearing. In construction we definitely still have it but the communication is just amazingly better than it was. When I started, we didn’t even have cell phones yet. So we had to sit on the job. It was sitting on the job site all day long, but my job was trash man. The owner was the one holding the trash bag. He’s got to sit out there and wait for everybody all day long. At least I’d throw the trash away, you know, do something. But that technology and the communication and just staying up with that stuff which brings your quality up. And it brings your speed and your timing up. There’s so many different things to improve and we’re definitely in a strong technology breakthrough period.
[00:11:58] Wade Carpenter: I know Stephen was talking about examples of that. And contractors are buried in paper, and they have three copies of it. The paperless technology today has come a long way, and you’d be surprised how much time people spend looking for a certain piece of paper, certain document. There’s other things, we’re talking about improving the system, the technologies, a lot of these contractors are paying by ERP system where they can electronically process these things a lot faster. And if you’re on the old technology, you’re going to get paid slower. So those are just a couple of ideas.
[00:12:30] Rob Williams: You know, I actually met with a new client last month and he doesn’t even have a camera. He can’t do his regular Zoom meeting, but he does have meetings on the designs for the buildings and stuff. So he can do an architectural rendering and go over it on the screen, but he can’t do this. He doesn’t have a camera to have a visual meeting like this. He’s as old as I am.
[00:12:52] Stephen Brown: You better go get him a laptop and show him what to do.
[00:12:56] Rob Williams: But he still was forced to keep up with the communication in terms of these AutoCAD drawings and stuff. And it’s kind of funny for me to think that even this guy that, I mean, actually he’s not that resistant, but he’s fairly resistant. Doesn’t have a camera. But he’s still going over drawings online with people on the job sites.
[00:13:14] Stephen Brown: Hey guys, if the three of us can have a podcast. Anybody can learn about tech.
[00:13:19] Wade Carpenter: Yes.
[00:13:20] Rob Williams: We give anybody hope here at the Contractor Success Forum.
[00:13:24] Stephen Brown: I’ll say this, we may be old, but we’ve been around it a long time. And you know, Wade, you were developing software programs just to help your construction accountants so you could get your job done when the products didn’t even exist. That’s something that’s everything to your business, is being able to work remotely with your contractors and get good information from them and put those systems in place.
[00:13:46] Wade Carpenter: Absolutely. And I was going to say the same thing. I think COVID has probably taught more contractors how to use things like Zoom than ever before. You know, and it’s really sad because a lot of people in construction, the ones that are running it are our age, you know that and we’re all, not necessarily that tech savvy, but.
[00:14:05] Rob Williams: You’d be surprised. Most of the meetings I get, the construction guys, even when they’re young, they’re 30, they’re not sitting in a desk a lot of times, you know? So we were actually on the phone, or they will try to Zoom from their phone and their phone connection’s not good enough. So we have a lot of telephone meetings. It’s not age really. I’m actually finding more 30 year olds that can’t have a Zoom meeting than I am the 60 year olds, because at least the 60 year olds are typically at a desk now, you know. It’s these young guys that I’m having an issue with. But yeah, so we got the finance and we got the the technology.
A successful construction company hires and keeps good employees
[00:14:40] Rob Williams: And man, I just want to make sure we hit employees before we get too far. During this time, that is probably the number one problem, or opportunity, of a good construction company. Who is keeping their employees right now?
[00:14:52] Stephen Brown: Not a good construction company, the best construction company.
[00:14:55] Rob Williams: The best!
[00:14:56] Stephen Brown: There’s a lot of good construction companies that don’t make a lot of profit and they don’t change with the times.
[00:15:03] Rob Williams: I tell you, there was a one example of a company a few weeks ago that I saw, and they got a waiting list for employees. They’re doing a great job. They’re doing some things differently and they can get as many contracts as they can bid on and get, or cashflow, I don’t, they’re not my client. I’m not sure what their cashflow is, but they don’t have an employee problem.
[00:15:22] Stephen Brown: They’re paying them and they’re providing benefits and they’re providing long-term goals for them, to be a part of the thing. And they’re challenging them.
We talked about, when you’re an expert at the same job and you do it over and over again, how do you keep your employees challenged and interested? You hear that too, but those are the traits that I see the best contractors doing for their employees.
[00:15:43] Rob Williams: You know, and we used to say our company is only as good as our subcontractors were. And we subcontracted out most everything. We were our employees and our subcontractors. It’s not about us. It’s about them. And that’s what makes you the best.
[00:15:58] Wade Carpenter: Stephen. What else did you have on your list?
Successful construction companies have a plan for the future
[00:16:00] Stephen Brown: Well, a plan to eventually sell your company. We talked about why that was important. Right. We had a great podcast on it. We’ve had attorneys come on, talking about ESOP plans. Planning for the future. Building for the future allows you to put all the elements in place to be a great contractor, because your company’s not worth anything if you don’t put those elements in place, right?
[00:16:25] Rob Williams: Yeah. What are those traits? We were just talking about consistent profitability. These conversations, I just had one recently with one of our companies that we’re talking to, if you’re going to sell your company, they’re wanting to get more and more revenue, but it’s like, man, you got to have profitability. Most of the buyers are looking for profitability and consistent profitability and cashflow.
[00:16:46] Wade Carpenter: Well, I was surprised two or three years ago I was teaching a contractor class about valuations of construction, and a guy stood up and said, you know, this is all for naught because everything is in my head and you know, I don’t have anybody to leave this to, so my company is not worth anything. Well, that’s exactly the point.
[00:17:08] Rob Williams: Yeah.
[00:17:09] Wade Carpenter: Even if that is not your goal with your company, if you build your company as if you were going to sell it, you build it very differently. You’re going to build systems that are consistent. I mean, people do things the exact same way and they could duplicate it. The owner can go on a vacation, they can take a healthy salary. They’ve got money set aside for taxes. They’ve got healthy profit for taking the risk to be in business But, you know, those things that we do to systematize a business are the number one things you would do to increase the value of a business, especially a construction business, because a lot of construction is not repeat business.
Build it as if you were going to sell it. Even if you’re planning on passing it down or passing it to your employees or whatever the plan is.
[00:17:59] Rob Williams: Yeah, because what happens a lot of times is if you build it as if you’re going to sell it, then when it comes time to sell it, well, how would I sell this? I don’t even have to be here. I can sit on the beach and I’m going to get 20 years of income. Not four years. If I sell it, I’m like, yeah, I have a four or five times multiplier, but why do I need to sell it?
[00:18:19] Wade Carpenter: That’s exactly the point. I mean, you know, a lot of contractors can’t take a vacation because the business won’t be there when they get back.
[00:18:25] Rob Williams: You know, one of the other points that was very successful, because I have another company that I worked with that you know, the owners died. And he did have good systems in place, but unfortunately four of them died.
Luckily one of the continuity plans lived. They had systems and people. I don’t know that they really defined their systems well enough for three or four people to be gone. But it’s very interesting getting those systems and can they operate? So not only can you leave for a month and the company run. Each one of your employees should be able to take a three week vacation.
I know some of these companies, that’s been a trend lately. Make the employees, make them go away for two weeks. Not two days. I was not good at that. I was very reliant on people being there. And when some of our leaders were gone from the factory and the AutoCAD, it’s oh my God, you’re gone for two days? Oh my God. I hope we survive for, you hope nothing happens these two days.
The point is you build these, guys, make them leave for a week to find out what’s really happening in sometimes some big eye opening things will happen. I had one good friend who’s a client again now, but they had a company, and they were paying this guy a fortune to operate a system. So he had developed this whole system. Well, he never would leave. So finally, when they leave, they found out, well, his system didn’t actually work. He was in there at night manually doing these things to correct the things in the system for other people, when they thought he was troubleshooting and improving the software. The software wasn’t really working.
[00:20:00] Stephen Brown: And not to be negative. They say two weeks is when you find out if an employee has been stealing from you.
[00:20:06] Wade Carpenter: Well, that’s where I was going to go with it too. As an old auditor.
[00:20:10] Stephen Brown: But that’s so negative. I mean, think about the stress that your employees are under. They’re your best employees. They got to take a vacation. They might not even want to, but you gotta make them. You gotta be the leader. And that two weeks as a game changer, not only for de-stressing them, but making sure that their job is something that others can do when they’re away. So like you said, Wade, you know, building your business to sell profitably. It’s not about selling the business profitably. It’s about having the right systems in place. So that’s a key part of the foundation. Employees, systems, financial board of directors, having an accounting system that provides you accurate information, and people trained to organize and prepare that information for you.
A business coach can help you see the forest through the trees. A bonding agent that is paranoid that you may go out of business and they’ll lose a customer.
[00:21:05] Rob Williams: you know, what’s really striking me. The one thing we did not say is this owner really has to be a fine craftsman.
[00:21:14] Stephen Brown: Well, we talked about the project, but it’s a craftsman in every detail, isn’t it?
[00:21:19] Rob Williams: Yeah, you get all these people. So where are we with that? Because I think growing up and I still, I think I still carry this with me of, you know, I don’t know how to frame something or I didn’t learn how to do something. I still carry that with me. So, you know, is it important for us to know how to physically build it? I know some of these builders don’t know how to do that.
[00:21:40] Stephen Brown: My dad made furniture and I inherited all of his tools. I’m fascinated trying to learn how to use them. I would observe him, but he was such a perfectionist. It was hard to get a hands-on training there.
[00:21:52] Rob Williams: Yeah, when I look at myself, I feel like I need those to be a good craftsman, but when I’m looking at these other companies, I don’t even think about that. I just don’t think about that as the owner. Needing to know how to have all these skills. I don’t know why I put that on myself.
So I think a lot of these builders and contractors are going to be out there beating themselves up to be great company, well maybe I should have gone back to school to learn how to make these cuts better. And I thought about going to a furniture building, literally did. I was just going to hire this guy to teach me how to build furniture, because I thought it would make me a better builder.
And you know, when I’m looking at these companies that just never comes up.
[00:22:29] Wade Carpenter: I think back you know, I inherited the name Carpenter.
[00:22:32] Rob Williams: Yeah.
[00:22:33] Wade Carpenter: Somebody two weeks ago, believe it or not, called us up and wanted me to install a wall in their she shed. True
[00:22:41] Stephen Brown: Did you do it?
[00:22:42] Wade Carpenter: No. And as a carpenter in name only, you do not want me touching your construction projects.
[00:22:49] Stephen Brown: Your ancestors were probably carpenters, and that’s how you got into construction accounting.
[00:22:54] Rob Williams: Yeah. And it IronGate, we do not build iron gates, but we do build great profitability. So.
I had to do that, I had to put that in the bottom of our–
[00:23:05] Stephen Brown: Well, you’re going to have people want,
[00:23:07] Rob Williams: –for iron gate quotes.
[00:23:08] Stephen Brown: You’re gonna want people calling you for ornamental metal projects with that name. Well, you know, that’s a really good point, Rob. Because are you a Tom Silva or Norm from This Old House? You know, those guys are rock stars as far as the public we’re concerned. There’s a lot of craftsmen that do exactly what they do over and over again. But you got to care and you got to know.
[00:23:32] Rob Williams: Yeah. We had a carpenter builder that built custom houses and he was in our hunting camp and he pretty much built our hunting camp by hand. And was my dad out there? My dad was the biggest builder in the state, but he didn’t build any of it with his hands. I don’t even think he went to the work weekends. But I kind of idolized the way he could do all this stuff. Big, strong, tough guy. But as a business person, he did not have a successful business. So he was a great tradesman carpenter, but he never focused on the business characteristic.
[00:24:05] Stephen Brown: Great point, Rob. He needed some coaching.
[00:24:09] Wade Carpenter: Yeah. And they need a financial leader, as I said, you know, even if that’s not the owner and that’s not their strength.
[00:24:14] Rob Williams: Yeah. Well, this has been a great, great, great, great topic. Go back and listen to this. Look at our Contractor Success Forum page on LinkedIn. You can ask you some good questions on this because this is, we could have just gone on and on about this. So please put some comments on contractor Success Forum on LinkedIn, go to ContractorSuccessForum.com and find all these links. If you want to ask you some questions, if you’ve got some topics that you’d love to see some, you could make that suggestion and you get some free tune from these three unbelievably old people right here.
[00:24:52] Wade Carpenter: Okay.
[00:24:52] Rob Williams: On the Contractor Success Forum. So turn in to the next Contractor Success Forum. And thank you guys for listening today. We are Wade Carpenter, Carpenter and Company, CPAs and Stephen Brown with McDaniel-Whitley bonding and insurance agency. And I am Rob Williams with IronGate Entrepreneurial Support Systems.
Thanks and see you on the next show.