At the end of the year, most business owners will take a moment to reflect on how the year went and how they want the new year to improve. But when thinking about this, it’s essential to be intentional because what you’re really thinking about are processes and habits that shape your business.
So, as you think about your new year business planning, ask yourself: what new habits do I want to incorporate into my business to ensure growth and success? What do you want to focus on but keep pushing off?
Filling the slow season with random jobs or projects can be tempting, but this is a valuable opportunity to review, reflect, and plan for the future. It’s a time to get out of your own way and identify any destructive habits or practices that may have hindered your business in the past year.
A well-run business is realized by small steps, but that is no small thing to achieve. To help you make 2024 your most profitable year yet, we’ve compiled a list of five areas to focus on to create a path toward a more profitable and prosperous new year.
1. Review and reflect
For most contractors, the new year will be at the peak of their slow season. This isn’t a time to panic or start taking less-than-ideal jobs. Instead, use it as a time to look inward. What were your successes, what jobs didn’t go to plan, and where could you have done better?
In order to move forward with the new year, you must take a moment to look back. So before you lay down a plan for the new year, it’s crucial to get a lay of the land on where you currently stand.
To do this, ask yourself the following questions broken out into five categories. If you struggle to answer any of these, that’s okay. If anything, that’s a good thing; it means you’re starting to think about things you’ve been neglecting.
- Are you actively pursuing new business opportunities or only relying on incoming calls?
- Are you networking with others in your trade? Are you interacting with trade associations, trade shows, or industry meetups?
- Have you reviewed your project distribution among different niches/job types and customers? Do you know the percentages and margins for each type of job you do?
- Have you identified your top-performing job types or customers?
- Do you prioritize chasing projects or building long-term relationships with customers?
- Are you winning the number of bids you want to, or do you struggle to build a healthy backlog?
- Is your job execution consistent, or have you developed bad habits? i.e., disorganized documents, missed deadlines, multiple items of rework, communication breakdowns, disputes, etc.
- Do you have a standardized and strategic approach to your work, or are you just checking off boxes?
- Are you successful in collecting receivables, or have things become disorganized?
- Are you utilizing resources such as equipment and materials effectively, or do your job sites look disorganized?
- Have you noticed a decrease in margins without understanding the cause?
- Have you noticed any trends in operational inefficiencies (i.e., labor cost overruns, excess idle time, high number of change orders, poor allocation of resources)?
- Are jobs consistently on budget?
- Who are your most profitable and least profitable jobs?
- Which clients/jobs do we need to re-price?
- Who are the most productive people, employees, teams, or job types?
- How often are we within our target profit margins?
- Are you making money without knowing where and how you make your money?
- Do you know if you’re actually making a profit on each and every job?
- Do you prioritize career development for your employees? If not, what’s holding you back?
- How satisfied are your employees?
- If you’re a single owner/operator, would you benefit from hiring an additional employee or multiple employees? Do you have a plan in place to scale your workforce?
- Do you solely attribute turnover to compensation?
- Have you actively planned for succession and addressed any personnel gaps?
- If there was an economic crisis, how would you prioritize your employees?
- How do you plan on developing your team without the pressures of a busy workload?
- When did you last implement a new strategy or approach within your business?
- How do you foster a culture of experimentation and innovation within your team, even in times of success?
- Have you invested resources in fostering innovation within your organization?
2. Have something to aim for (set financial goals)
The beginning of the year is the perfect time to start evaluating or setting entirely new financial goals. These goals can be as big or small as you want them to be—the important thing is that you’re setting them.
However, the challenge is not setting goals that are too ambitious; the challenge often comes with not setting the bar high enough. It can be all too easy to focus solely on current projects, but without a long-term plan, you’ll look up one day and have no idea where your business is actually heading.
Before you start any goal setting, you must make finances a top priority for your business. You’re always concerned with bringing in money, but prioritizing finances means going beyond just thinking about money in vs. money out. It means diving into profit margins, sales goals, bid-hit ratios, and much more.
For help with this, seek help from financial experts. Construction accounting is unique, so it’s essential to choose an advisor with experience in the construction industry who can give you the appropriate guidance.
Below are a few things to keep in mind before creating new year financial goals:
- Identify industry standards: Each trade within the construction industry will have different financial standards. In order to effectively set goals you must understand the standards within your trade and use those to set realistic goals. For instance, if your goal is to increase revenue by $1 million in the next fiscal year, you must consider factors like margin and pricing within your industry, as well as the limited number of feasible projects for your business. Speak to other contractors in your field to get an idea of the average rates and costs in your area and use this information to set realistic goals.
- Choose a pricing model: Decide if your business will prioritize premium pricing or economy pricing. This will determine the balance between higher prices and lower sales volume needed for profitability.
- How many goals should you have?: Aim for a long-term goal that encompasses what you want your business and life to be in five years. Then, set annual goals that will work towards that vision. These can include specific revenue and profit goals.
- Who should be involved?: Transparency and open communication among your team can alleviate any weight on your shoulders as a business owner. By involving employees in goal setting and creating incentives for achieving them, you can drive motivation and encourage everyone to work towards a common goal.
3. Process improvement
Part of your end-of-year review should include a look at your internal processes:
- How efficient are you at your most common jobs?
- Are your labor costs exceeding your estimates?
- Are you finishing jobs on time?
Most jobs are a symphony of smaller processes that all have to work together. Your bidding process will flow into your change order process, which will flow into your punch list process.
Any weak spot in one of these processes can be enough to throw off a job or hold you back from hitting your output goals. Take this slow season to evaluate each and every one of your internal processes.
Evaluate each of the processes below. Is each one standardized and easy for you or your team to execute on each job?:
- Estimating process
- Bidding process
- Change order process
- Job costing process
- Project scheduling
- Pricing strategy
- Document management
4. Implement new technology
Time is perhaps your most precious commodity. Yet many contractors burden themselves with the same old, familiar but time-consuming methods of managing their processes and documents. It’s comfortable, yes, but at what cost?
Take a moment to envision a life where your business doesn’t consume you, where you have the freedom to pursue your passions and goals outside of the daily grind of your trade. It’s not unrealistic. It’s possible if you put in place the right tools that can save you time so you can get out of the office and enjoy life or focus on the big picture, not the day-to-day. It’s time to embrace the efficiency of modern tools.
Knowify is the main reason we’ve grown so much in the last few years. As the owner of the company–it easily saves me 20-40 hours a week vs what I was doing on paper before.
Owner, UK Electric
While we’ve talked a lot about what to do during your slow season, you can’t neglect looking ahead into your busy season. Once your busy season hits, you want to make sure that you’ve prepared and lifted as much pressure off your administrative system as possible. The last thing you need after a busy day on the job site is a long night in the office sifting through paperwork.
For this reason, you should take advantage of your slow season by implementing new technology that is designed to simplify your workflow once things pick up later in the year. What you’re trying to do here is free up precious resources through technology so you can focus on producing–which should always be an annual business goal.
You might think that you don’t have the time to implement new technology, but if you run the numbers on how much time you’re actually spending digging up documents or managing RFIs over email or fax, you’ll find that it’s your own lack of tools that are at the root of your lost time.
You must treat your time as a business owner as a finite resource. You need to get out of your own way and start achieving the output that you want by implementing tools and systems that work for you. This starts with embracing change. New technologies will mean a new way of processing invoices, creating bids, scheduling crews, or communicating with clients.
This change in processes shouldn’t be avoided, it should be sought. While your trade is timeless–there will always be a need for the people who keep our infrastructure up and running–the business practices that keep your trade afloat are in constant change. Don’t get left behind.
To help contractors achieve financial growth through technology, we recommend four categories to focus on: project management, accounting and bookkeeping, payroll, and data security.
Check out our construction software buyers guide which provides digital tools and resources to improve financial management. Don’t wait until it’s too late: embrace technology now to thrive in the future.
5. Focus on growing profit margins
Heading into the new year, take a look at how profit margins turned out for some of your most common jobs. By the way, do you have a target profit margin for each job? If not, set this as one of your financial goals for the new year.
To calculate your gross profit margin, use this formula:
Gross profit margin = Gross profit / Total revenue
Why spend so much time focusing on profit margin? Because this metric, more than any other, will indicate the financial health of your business. Hitting a consistent gross profit margin–or better yet, growing your profit margin throughout the year–is a surefire way to secure long-term financial stability for your business. A gross profit margin of 40% or higher is considered a competitive advantage, while the average for construction companies is around 20%. Work with an accountant to arrive at a profit margin that is ambitious yet achievable for your business.
Maximizing efficiency, controlling costs, and streamlining processes are key to increasing profit margins. Keep track of this number for every job throughout the next year to achieve a better financial future for your business.
Build your business with confidence
Our robust and user-friendly construction management software is specifically designed for contractors to help streamline processes, improve efficiency, and maximize profit margins. With features like project management, and a one of kind integration with QuickBooks for accounting and bookkeeping, Knowify has everything you need to take your business to the next level. Don’t wait until it’s too late.
Take the first step towards a more profitable and successful future by scheduling a demo with a Knowify expert today!