6 minute read
How to start out right in business
New Zealand is a country of entrepreneurs and the building industry is no exception. It’s a right-of-passage for many young builders to learn your trade skills working for an established building company, become qualified, then strike out on your own. To begin with that might be as a self-employed contractor but, at some stage, you seek to find your own jobs directly with clients and start to build a team.
The problem is, as I have mentioned on several occasions before, learning how to be a good builder does not prepare or train you to be a good business owner. Many business skills are learnt through trial and error, listening to podcasts or watching YouTube videos. While all these are potentially good sources of information, the process can be slow – and confusing.
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So, where should you start in your business management learning, and what are the priorities? While there are literally dozens of business-related plates you need to keep spinning, I have selected a few that will help you get your business started on the road to success.
Why should someone hire you?
To be successful in any business you need to solve someone’s problem or help them achieve their dream. Sometimes both. It’s important that you understand this is what you are in business for. The building part is just the vehicle that you use for the client’s journey. Having a deeper understanding of how your client thinks and feels will help you develop a compelling reason why they should pick you, over all the other builders out there. By the way, it’s not ‘quality’. Everyone claims that one.
Know your numbers
You don’t need to become an accountant but there are a range of dials on your business dashboard that you need to become familiar with, to gain some objective feedback on how things are going. Firstly, establish what the real overheads in your business are. From there, establish what gross margin percentage you need to achieve from your jobs in order to cover your overheads, pay yourself a reasonable owner salary and leave some true net profit.
This gross margin figure is critical to help you drive your job pricing and give you the confidence to walk away from jobs that won’t make you money. During the build, you can monitor how you are progressing and whether you are ahead of target or behind.
Profit is one side of money. You will also need to monitor your cash flow and check you have enough to cover your outgoings and your tax bills. Monitoring cash flow leads me on to…
Have sufficient working capital
Most small businesses are started with insufficient working capital, which can make things tight come ‘20th of the month’ bill payments time. Working capital is the amount of cash and near-cash (accounts receivable) you hold, minus your current liabilities (accounts payable). Ideally a 2:1 ratio will make things
more comfortable for you. So cash needs to be respected and not spent on shiny objects or taken out of the business too quickly via the owners’ drawings.
Have a plan
You don’t start building a house unless you have detailed plans, so why should building a business be any different. A written plan will give you guidance on where you want to take your business, what the milestones are likely to be, and what the next projects needed to reach those milestones will be. The great thing about a business plan is that it doesn’t need to be 20+ pages long. A couple of pages, covering the big picture stuff and the closer-in actions that need to be implemented, is all you need.
Look after your clients
Good communication processes are critical to maximise client satisfaction and encourage repeat or referral business. That doesn’t mean you need to be available 24/7, but you need to establish a communication system that strikes the right balance – keeping the client informed and happy, yet realistic in their
expectations. Don’t assume that everyone knows what a variation means, for example. You may need to educate your clients on how the build process will go and what you will do when problems arise. Start the relationship strong with good communications and finish the job strongly too.
Protect yourself
The building process by its very nature is complicated and sometimes risky. It can quickly develop into a situation where a seemingly good project goes pear-shaped and puts you at financial and legal risk. It pays not to assume that everything will go smoothly. Don’t just ‘hope for the best’. You need to protect yourself and your family by considering the following:
• Develop a robust health & safety system that is followed by all
• Arrange suitable insurance for income and liability
• Create the right business structure – at least a limited liability company format
• Separate your private assets into a family trust
• Watch your mental health and take time out when needed
• Have good legal advice available. (Luckily in Geoff Hardy*, you do.)
I could keep going and write a book, but I have to stop somewhere. I hope these ideas help those of you newer to ‘business’, and are a reminder to those who have been around a bit longer to keep making improvements.
For more help, contact me at andy@tradescoach.co.nz or visit my website, www.tradescoach.co.nz. I will also be presenting further on this topic at this year’s NZCB Conference and Expo in Hamilton. I hope to see you there.
* Geoff Hardy, a partner at Martelli McKegg Lawyers, is a Construction Law expert and provides a New Zealand Certified Builders (NZCB) free helpline. His contact details can be found on the NZCB members’ only Toolshed website: www.nzcb.nz/members/free-helplines.
Andy Burrows, Director of The Trades Coach and NZCB National Partner. I encourage you to take advantage of a free business strategy review session to see how we can improve your business performance. Call Andy today on 027 688 6721 or email andy@tradescoach.co.nz.
