essential Business Knowledge for every Contractor

ESSENTIAL BUSINESS KNOWLEDGE

FOR EVERY CONTRACTOR

SMALL enTeRPRISeS PLAY A CRITICAL ROLe In THe AuSTRALIAn eCOnOMY AnD MAKe An IMPORTAnT COnTRIBuTIOn TO LOCAL COMMunITIeS. nOWHeRe IS THIS MORe eVIDenT THAn In THe eLeCTROTeCHnOLOGY InDuSTRY, WHeRe THe MAJORITY OF eLeCTRICAL COnTRACTORS ARe SMALL, FAMILY-OWneD BuSIneSSeS.

Running a successful business requires more than good technical knowledge and abilities. Business management skills are equally important, particularly as your business grows and your role shifts from being on the tools to overseeing the work. The people who do well in electrical contracting are those that think as business managers and contractors, rather than as electricians. With this in mind, we’ve compiled some of the essential business management skills needed for businesses to thrive and prosper.

INDIVIDUAL BUSINESSES MAY BE SMALL, BUT COLLECTIVELY THEY HAVE A BIG IMPACT

These statistics highlight small business’s role in Australia:  The small business sector is large, vibrant and diverse covering many different types of business activities.  Small businesses (employing less than 20 people) account for 97.4% of all businesses, with medium size businesses (20 – 199 people) representing 2.4%. Large businesses account for only 0.2% of all Australian businesses.  Small business employs 41% of the business workforce, making it Australia’s biggest employer.  By sector, small business employment is largest in the construction sector.  Small business makes up 84% of all innovating businesses in Australia. The data shows innovative small businesses outperform non-innovative ones on all key metrics, including productivity and profitability.  As at December 2019, small business employed 61% of Australia’s apprentices and trainees.  Over 19% of small business owners are over 60 years of age, demonstrating the importance of this age group to small business and the economy more broadly.  Less than 8% of small business owners are under 30 years of age.  Women represent 35.4% of small business owners/managers.  Many businesses have demonstrated resilience and adaptability in response to the COVID-19 crisis.  40% of businesses surveyed by the ABS in June 2020 indicated that they had changed the way they provided products or services, with 20% indicating that they intended to retain these changes over the long-term.

Based on The Australian Small Business and Family Enterprise Ombudsman data from ‘Small Business Counts December 2020’

Business Planning

A business plan outlines your strategies to develop and grow your business. It enables you to define your goals and identify the actions required to achieve them. By providing a clear sense of direction, business plans help with decisionmaking and employing people who will support your business goals. They also help you to communicate with others about your activities, present the business professionally and provide context for your marketing approaches and messages. When developing a business plan, consider the following:  Your vision for the business. Why did you start it? What work do you want to do? What do you want to achieve?  What resources you need to have in place.  Training needs – both technical and/or business management.  Your business strengths and areas you need to improve on.  How big you want your business to be and in what timeframe.  The sort of culture you want within your business and the types of people you need to develop it. Write your plan down and review it regularly to keep your business on track. Harvard Business Review has noted that people with a formal plan are 16% more likely to achieve a viable business.

Make marketing and sales work for you

Business growth rarely happens by chance. It requires a proactive approach to identifying the sectors you want to work in, the types of projects you’d like to take on, potential clients and

the best way to connect with them. Importantly, you need to be clear about what you offer and what makes you stand out from the crowd.

Like business planning, developing a marketing and sales strategy helps identify your goals and the necessary activities to reach them. It doesn’t need to be an elaborate document, but it does need to outline your thinking and intentions. Ideally it will be linked to, and support, your business plan.

To make the most of your marketing and sales activities:  Develop a sales budget for at least a twelve-month period.  Review the profit margins for your chosen sector in the industry. Can the sector meet your minimum chargeout rates? Can it deliver the work you need to meet your sales budget?

Some sectors have very tight margins that do not allow a reasonable return on investment for contractors.  understand how your business fits into your chosen sector. Who else is working in it? What do they offer? What makes them successful?  Get feedback from clients and act on it wherever possible and appropriate.  Learn why your clients buy from you and what you could offer to attract more clients.  Look at how you can sell more to your most profitable clients.  Identify which products and services are most cost-effective and consider how you can promote these more.  Select the right marketing platforms for your target market.  ensure you have a strong digital presence.

Actively manage your finances

Finances are always a key topic for discussion as they underpin every business. Having effective processes in place ensures you charge the right amount, get paid for the work you do, support your own livelihood and the livelihood of your team.

To successfully manage your finances:  Keep your business funds separate from your personal funds.  Calculate your minimum hourly charge-out rate.  Check your estimating and quoting processes to ensure each job provides for an adequate profit.  Present your quote professionally and make it easy for clients to see what you’re offering and why they should choose you. Poorly formulated offers are a major source of misunderstanding, resulting in disputes and the loss of further work and referrals.  Organise the delivery of materials as required for each project.

Where possible, ask suppliers to deliver materials as needed, using a ‘just in time’ method.  Monitor costs, including materials, overheads and net profit.  Make progress claims as the job progresses. The primary rule for minimising financial risk is to claim as much as possible, as often as possible. each claim should include all costs associated with that part of the work (labour, materials, overheads and net profit).  Track and claim variations as the job progresses. Any variations occurring in the work should be included in the progress claim, and paid for as soon as possible.  Where possible, it is good practice to discuss the value of the claim (including any variations) with the client prior to submitting it. This minimises the chance of dispute.  Some clients (particularly large organisations) pay only on a statement, which is supported by an invoice. Check how your client operates, as failure to provide the statement may result in the claim(s) not being processed.  Monitor profitability by comparing actual costs to estimated costs as the job progresses. This is an essential process for business management.

Set up systems for success

Business systems are made up of standard steps carried out in a certain order to achieve a particular result. They are the building blocks for any business that wants to grow. Having good systems removes business headaches, improves productivity and expands your capacity to take on new business. Systems free up time, support employees in their roles and improve cash flow through timely invoicing and effective cost management. From the client’s perspective, systems ensure consistent service delivery that meets their expectations and minimises mistakes and rework.

Ideally, systems should be established early so that you’re well-positioned as the business grows. The following suggestions will help you get started:  Aim to complete all tasks with the highest possible quality the first time round.  Write your systems down – don’t leave anything to memory. Written systems ensure everyone is clear about what is expected, what they need to do, when they need to do it and what the outcome should be. It also provides an opportunity to step back and look at systems objectively.  Make the most of your time and your team’s time. Review your systems to reduce downtime, unnecessary actions, double handling and hold-ups.  Ask employees to follow your processes consistently, rather than do things their own way. This ensures the same tasks are being done in the same way each time, producing consistent results and quality.  encourage employees to be innovative and share their ideas for change.

If they can see a better way of working, be open to their feedback and make continual improvements that will benefit everyone.  Attend site meetings and liaise with your client throughout each project.

Discussions with the client, and other contractors on site, can help you identify ways to improve your systems and service delivery.  Consider how technology can support your business management and streamline your operations. Suitable software packages reduce administration time, decrease omissions and mistakes and help with financial management.

Find employees who fit your business

electrical contracting businesses are built around people. A business is only as good as its employees and the services they deliver for your clients. In busy times, it can be tempting to hire quickly, but it’s important not to rush the process. Making sure you have the right fit might take a little longer, but the investment will pay off in the end. Hiring the right people helps to:  ensure your clients have more favourable experiences with your business;  Develop a productive and motivated workforce;  Increase your capacity to grow your business and take on new projects;  Create more time for you to work on your business; and  Reduce employee turnover. Tips for selecting employees with the right fit for your business:  Think about the type of workplace you want to build. What qualities and characteristics do you value in your existing employees or other people that you’ve worked with?  Be clear about your expectations and what you can offer.  Find out what your applicant’s job aspirations are. Do their goals fit with what you can offer?  Consider hiring for work ethic rather than skills. Skills can be taught, but attitude and ethic are harder to instil.  Take the time to check your applicant’s references to get a sense of the person, the work they’ve done and how they interact with others.  Give them a trial period so you can see how they fit within your team and operate on the job.  Consider hiring apprentices. Training an apprentice is a great way to expand your labour force and contribute to the industry’s future. For businesses with an uncertain workflow, or those who don’t want the administrative burden, group training is an excellent option for hiring apprentices.

Growing your business

Working for yourself can be a rewarding experience. The direct reward for effort is an essential part of why most contractors choose to run their own business; however, there are many challenges that need to be managed. By developing strong management skills, you can reduce the risks and maximise the benefits of being in business for yourself.

Contact your local neCA Branch to discuss opportunities for Business Management training in your state.

Acknowledgement: Much of the content from this article has been extracted from Ken Postill’s ‘Guide to Electrical Contracting’, which will soon be available to members on the NECA Foundation website: www.necafoundation.com.au