Why smart contractors think like CEOs, not just workers
Expert craftsmanship alone won’t keep a new contracting business alive; most fail within a few years because of poor management, not poor work. Commercial contractors who think like CEOs, watching cash flow closely and treating equipment as an investment rather than an expense, are the ones who last.
Look around in any American city, and you’ll see plenty of construction underway. There’s always demand, but that doesn’t mean it’s easy to start a new construction business. According to the Commerce Institute, around 53.90% of new construction companies survive the first five years of operation.
The trouble is that people fall into the trap of thinking it’s all about good craftsmanship. Sadly, being an expert craftsman isn’t the only thing that matters. You could do perfect work, but without effective management, it’s unlikely your company will survive the first few years.
The CEO Mindset for Contractors
When you think like a CEO, you’re not just working as a contractor; you’re also working on the business itself. That means stepping back from your day-to-day responsibilities and seeing the bigger picture.
For example, think about what kinds of projects you want to take on. Will those projects produce reliable cash flow, or are they likely to leave you short while you wait for invoices to clear?
Ensure Cash Flow
Cash flow is essential because commercial contractors have to do a lot of spending on materials and tools. Unfortunately, clients don’t always pay on time, and one of the biggest risks to your contracting company is falling into negative cash flow despite having an abundance of work.
Sometimes it’s necessary to take on short-term loans to deal with late payments, but these loans incur interest, which harms profit margins. A CEO approach involves thinking of ways to address these problems. For example, using digital invoices is a potential solution.
There’s an initial investment in setting up the app, but once you’ve done it, your late payment problems could be a thing of the past.
Long-Term Strategy for Commercial Contractors
To adopt a CEO mindset, you need to change your view on tools and materials. CEOs think in terms of return on assets, and equipment is where that thinking pays off fastest. Before any purchase, run it through a CEO’s checklist.
First, will this asset earn more than it costs to own?
Does owning beat renting over a full season of use? A crew that hauls its own machines with a single axle drop deck trailer instead of renting transport for every move can recover the purchase price within a season, then keep saving for years afterward.
Also, what are the true carrying costs, including maintenance, insurance, and storage?
Run Your Contracting Business From the Top Down
As you can see, successful contracting requires an effective leader who can look outside the box and examine the mechanics of the business with the mindset of a CEO rather than a contractor. By adopting a long-term strategy, commercial contractors can minimize financial disruptions, maximize returns on successfully completed projects, and steadily boost contracting business performance.
If you’re interested in learning more about news, events, and other topics relating to business, see our article archives.
