Fighting the Winter Blues

Cash flow has a way of misleading contractors. As early winter starts, most begin collecting large accounts receivables from work they scrambled to finish prior to winter hitting. Come January and February, cash is beginning to run out and you are looking at little activity and no money.

So what do you do? Your strategy can vary according to the type of business structure you have. Regardless, understanding your business strategy helps you understand your risk.

The Professional Tradesperson (LOWER RISK). This company profile includes an in-the-field working owner who is still active in the trades. In our model, the person charges a premium price, has no more than four employees, and most sales leads are repeats and referrals. Since the company is small and charges a premium, they do not need a lot of volume.

In many ways, the Professional Tradesperson is the most recession-proof type of contractor. Of course, they must charge a premium price and have an active customer list. Too many smaller tools-oriented contractors charge too little and simply cannot make up the difference by working harder.

As the market tightens, they are already working themselves to death so more output is not sustainable. Already stretched to their limits, slower times ultimately bankrupt them. However, if they were charging a premium, perform some basic costing practices, and do a little marketing, all will usually be OK.

Since the business is small, few sales leads are needed to make ends meet. Our networking group can quickly solve many of their business problems—provided the owner is willing to change. For most it means just knowing what to do. Prior to getting this person into the networking group, I try to figure out what their issues and motivations are prior to getting them to cough up the money.

The Home Alone Contractor (MEDIUM RISK). This company profile does not include an owner who still works with the tools. This company has 4 to 10 employees, an inexpensive office and a part-time admin person. Such companies usually run no more than three crews, so the owner can keep his or her fingers into all aspects of management. This company also must charge a premium, but they are developing overhead and require more volume to stay afloat.

The Home Alone Contractor’s vulnerability depends on the owner’s ability to sell, and if admin support is effective. A hot economy made it easy for many of these companies to win the job just by merely showing up. Now the market is tougher and selling leads is tougher. Repeats and referrals will not be enough. Plus, job sizes may shrink in recessionary times.

It is also important that this company have good admin support and job costing. It is not uncommon to find that these businesses have little or no admin support. The owner frequently tries to do too much of the admin. And if the office has help, it may be a family member who does not have the time or skills to do all that is required. To make matters worse, most contactors are not good at running offices. This is one of the major reasons we do not allow competitors in our networking groups. We have found that by visiting other contractors these businesses can build better admin structures.

The Owner-Driven Company (LOWER RISK). This profile requires an owner that is high-energy and sales-driven. Since the owner will spend much of his or her time selling, it is important to have a competent, full-time office manager who runs operational details. The company also needs competent foremen who do not require babysitting. While this owner’s high energy drives high sales, it can also drive a demand for a high lifestyle that’s outside the business cash needs.