Here are some items that represent MAJOR dangers to your business.
Putting All Your Eggs in One Basket
One thing that you’ve got to be aware of is something my Dad always warned about (even though we ended up falling into the same trap), which is putting all of your eggs in one basket. That was our downfall. We got in with one developer who had a lot of property and a lot of work. We quit bidding other work because he had enough work for us to do without bringing on any other jobs. We were running several crews and we were steadily buying equipment because we never had enough to do everything that we had going on.
In the downturn of the economy, the developer shut down. When he shut down, we shut down with him. We had all of our eggs in one basket. That was the only man we were working for, and we had no one else at that point.
In a down economy, there was not any work to be found. We were really struggling to find avenues to work in. For one thing, we had not had a job that we had to bond in six years’ time, so we lost our bonding capacity. Municipal work was the only thing that was going that we had a shot at. But we couldn’t do any of it because we weren’t able to bond anything.
Even if things are really good right now, with a single customer who is sending you loads of work, you should really try to diversify and always be looking for other customers to do work for.
2007 and 2008 were our most profitable years. Then around 2009 – 2010, it was like someone cut a switch off. We never saw it coming. One day we had plenty of work and the next day we were sitting on our butts with nothing to do.
You can’t predict the market and what it’s going to do, so you need to have other avenues. You need to be working for different clients, at least two or three or however many you possibly can. You don’t want to be stuck in one hen house with nowhere to go.
Slow Pay Customers
Slow pay customers are another potential danger. If a customer is slow to pay, there’s some reason that’s causing that and most of the time it is because he’s not managing his business like he should. You don’t want to end up in a lawsuit if you can avoid it. It’s going to cost you money. The best thing to do is try to pick up other work and cut your ties with that client because there’s a pretty good chance it’s not going to change. If you’ve done two or three jobs for him and it’s always a hassle to get paid, it’s pretty much going to continue that way.
Again, it comes down to diversifying so that you’re not too reliant on one or just a very small number of customers.
There is also a risk in hiring bad personnel. The people you put in play on your crews, as the old saying goes, can make you or break you. If they’re company people and they want to work and work for you, they’re going to do a good job for you.
You need to make sure that the people you hire are qualified. If you need an operator, don’t go out and hire a brick mason because then he’s got to learn how to run a machine. Or say it’s a pipe layer that you need to hire. A brick mason isn’t going to know a thing about laying pipe. You need to make sure that the people you hire are qualified for the work you’ve got them doing.
You’ve got to make sure that you have adequate manpower to do the job you bid in the amount of time budgeted. You must meet your deadlines. You’ve got X number of days or X amount of time to do this project and if you don’t have enough manpower or have enough equipment, you’re hurting yourself. You’re costing yourself money. Again, you’re also costing the developer or the owner money. You’ve got to stop it quick. You’re bleeding and you’ve got to stop that bleeding before you bleed out.
You risk ruining the relationship that got you the job. If you don’t have the resources to do a project, then the person who hired you is going to get a bad taste in his mouth. If you really want to work for this particular person again, it’s going to be more difficult. His thinking may be along the lines of, “Well, I hired Jeff Spencer to come in here and do this project and he pushed me 30 days late or he pushed me 60 days late and I don’t think I want to take that risk with him again.” If you don’t have the manpower, you’ve got to find somewhere to get it and get it quick because every day that you prolong a job, that’s time and money wasted.
There is also risk in buying equipment. If it’s a job that’s going to be long term, say 1 to 2 years, or it’s a big project, you might be safe to make that initial purchase. But if you don’t see your company growing or keeping that work load, or you’re not sure if you will be able to pick up another job to move that equipment to when that job’s done, I would recommend renting.
If there’s a question in mind, most all of your equipment companies will do a lease purchase. That’s the way I set most of mine up. I’d lease it with an option to buy. Most of them will work a deal with you. You lease for 9 months and at 9 months you either turn it in or buy it. Most of them will let you take 90% to 100% of what you paid on that lease towards a down payment on a machine.
That’s a way to cover yourself because you can lease the equipment to cover the work you have and if it looks like this is going to turn into more of a long-term relationship, then you can go ahead and buy it. Or if the job ends and you don’t need it any more, you can just turn it back in.
Another good thing about a lease conversion is that when you roll that over and finance it, your payment usually goes down somewhere from 15% to 25% to purchase versus what it was costing you to rent.