Trying to identify the exact number of contracting companies that fail is difficult to estimate; knowing the reasons why they fail is even more difficult to understand. The industry standard is that nearly half of all contracting businesses fail to operate more than five years, which is the average failure rate for most small businesses. However, once the five-year anniversary is reached, the potential for continued success is much higher.
Failures are usually brought about due to several factors. The most prevalent reasons for business failures include:
Rapid growth that cannot be supported by available resources. Businesses tend to expand too quickly and are often not prepared to keep up with increased demand. This means a lower work quality due to inexperienced or unskilled workers being hired quickly to satisfy work demand. Therefore, they are doing skilled work with little or no training. Companies that grow too fast also have to deal with equipment shortages, where several work crewmembers to have to share one piece of equipment, causing productivity and efficiency to dramatically suffer. This means the ability to make money diminishes as well.
Winston churchill rightly said – He who fails to plan is planning to fail
Financial issues are another major reason for business failure. Some of these financial issues include mismanagement of budget, miscalculated financial estimations, not properly controlling costs, inconsistent cash flow, and terrible project management produce nightmares for many new businesses. Contractors cannot just depend on their creativity and technical skills to succeed in the demanding environment of contracting – they need to have a mind for business.
Poor leadership and lack of control from upper management and project managers always lead to failure. When highly-skilled employees depart from the company, they are often replaced with poorly trained individuals who are incapable of doing the work. When the economy is in a prosperous cycle, the availability of skilled laborers diminishes, making it harder for newer businesses to compete.
With contracting, there are other factors to deal with beyond the control of the owner. These include economic recessions, high inflation, shortage of resources, or a client that cannot be satisfied. These factors can disrupt the productivity of business even when a contracting business is experiencing good times.
Environment Where Success Is The Goal
Conversely, successful contractors share similar characteristics that help them excel. Although success cannot be defined by a single formula, good contractors have a combination of the following traits which allow for an environment where success is the goal that is expected to be produced:
- Excellent training provided for new employees
- Maintaining good relationships with subcontractors
- Wages and benefits that are competitive, accompanied with exceptional incentives
- Minimal employee turnover
- Strict management of financial resources and cash flow
- Cost controls
- Forecasted job estimations
- Appreciates customers, employees, and subcontractors
- Great communication with customers, employees and subcontractors
- Active presence in project management
- Effective debt management
- Owners and managers having the foresight to identify potential problems before they get out of control
- A comprehensive and realistic business plan
- Keeping an eye on industry changes regarding new rules and regulations to abide by and the latest in tools and technology
- Proper handling of client complaints
Having the ability to understand the actions that infuriate clients the most about contractors and their work is a highly useful skill. Horrible quality of work is the most frequent complaint that clients express. Clients expect to be provided with skilled professionals when they hire contracting companies. Therefore, if the work performed is below their satisfaction, trouble will be right around the corner.
Contractors’ work often require them to be inside a client’s home, disrupting the normal flow of family life. With such circumstances, clients become easily frustrated if the scheduled work does not start on time as promised, or takes more time to complete than originally stated. Contractors can help ease the tension for everyone involved in the process if they implement an efficient scheduling system and train their employees to be aware of the client’s feelings and space.
The ultimate frustration for a client is when a contractor increases the budgeted price of the project all of a sudden after beginning the project. To prevent this problem from occurring, contractors must forecast project cost accurately so that all needed materials are already budgeted for. If changes are necessary, the client should be told in writing – agreeing to both the physical changes as well as changes in the project cost. It is a must to never change the budget without informing the client in advance that the cost will be higher than previously stated.
Clients consider their homes their personal sanctuaries. Therefore, they experience extreme anger when contractors do not clean up the job site while working on the project and after their work is finished. Not cleaning up the mess made daily gives the client an impression that the contractor does not respect their work nor their home. First impression is a very important factor when evaluating someone before you work with them, but the final impression a contractor leaves when they finish their work will be the dominating factor that forms their lasting impression.
How To Handle Client Complaints
It is rare to have contract jobs that are 100 percent free of issues. There are times when a problem, such as delays due to weather, is not the fault of the contractor. But as a professional, all complaints must be respected and handled carefully. The rule of thumb to follow when handling complaints is to have the mindset that the customer is always right (which is not necessarily always true).
Having the ability to resolve problems must be a requirement for a contracting company. Clients highly value a contractor who makes the real effort to resolve a dispute or misunderstanding. The following practices will help resolve complaints:
- Being respectful and listening carefully to the client’s issues
- Not arguing with the client
- Being accountable for your actions
- Not dragging problems out
- Remember that client relationships are highly important
- Being reasonable even if you are not the cause of the problem
- Documenting the progression and resolution of the complaint
The primary goal is to resolve issues quickly, satisfying both parties involved. Contractors who have faith in their quality of work, even when they are not the cause of problems, are the recipients of huge rewards over the term of their career. Word of mouth is a real business builder or killer. Reputations are dependent on happy clients, producing additional profits from their recommendations of your business to others. But a contractor is not required to comply with the client’s demands about every little issue. Only when the cost of resolving an issue is worthwhile to your long-term benefit that it is beneficial to spend the time or money to appease the client.
A business of exceptional operation can be severely damaged by unreliable suppliers and subcontractors. An effective operation can face serious setbacks if the resources needed to satisfy a project are not available to do the work. The same rule applies when working with subcontractors: They have to be reliable and complete their designated work on time and within the stated budget.
Avoiding problems with suppliers and subcontractors can be accomplished by having an excellent communication system in place. It is best for new business owners to personally meet with their suppliers’ representatives to develop a professional relationship. Having a relationship with your salesperson allows you to bypass problems and avoid delays in starting your projects.Even if your own workforce does high quality work, your image will take a hit if the materials or subcontractors you use are of low quality. The research of suppliers in your area is mandatory. Network with other contractors to gain beneficial insight when gathering information about suppliers.
Even if your own workforce does high-quality work, your image will take a hit if the materials or subcontractors you use are of low quality. The research of suppliers in your area is mandatory. Network with other contractors to gain beneficial insight when gathering information about suppliers. Even as competitors, you can both benefit by ordering in greater quantity, which will be a bigger order for the supplier and may also result in better rates from the supplier as a means of saying thank you for the referral.
Even as competitors, you can both benefit by ordering in greater quantity, which will be a bigger order for the supplier and may also result in better rates from the supplier as a means of saying thank you for the referral.
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There are many benefits that come with hiring a specialist to satisfy a specific portion of a project, but caution should be employed. If the subcontractor is not of high quality, their problems will provide you with no benefits. If there is a need to hire several subcontractors, the general contractor will need to have the ability to manage the work of these several workers. The general contractor who hires the subcontractors must be completely aware of the responsibilities assigned to each sub and how each adds to the entire construction project.
It is highly important to hire a subcontractor who is known to have a history of being reliable and meeting schedules established for the project. Timing is a crucial factor to producing a successful project, so subcontractors are required to complete their work in a timely manner. Seeing as the best subcontractors are in high demand, a general contractor cannot lose the services of one subcontractor because of the bad work ethic of another. Subcontractors are required to meet the quality standards of the project set by the client, architect and general contractor.
If you are thinking about getting into the contracting business, the information that has been provided here will help you better navigate the landscape. It is a tough and competitive industry, but with the right knowledge and implementation of the best practices, you can build a successful business.