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Ten Reasons Contractors Fail - InEightinfo.ineight.com/rs/ineight/images/Day 2 - 10 Reasons...

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  • Ten Reasons Contractors Fail

    Presented by:

    Aaron Cohen Product Manager Estimating

  • ineight.com

    Construction Market Outlook

  • ineight.com

  • ineight.com

    Construction Market Outlook

    Most Companies will fail during the

    recovery, not during the recession

    All the issues that cause failure are

    Identifiable

    Predictable

    Within the Contractors Control - Avoidable

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

  • ineight.com

    Increase in Project Size

    One of the most common causes

    Typical defined by

    taking a job 2-3 times

    larger than any job the

    company has

    previously

    completed

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=YNGF1RT2ED3gzM&tbnid=KlxX4XqZvjy4GM:&ved=0CAUQjRw&url=http://www.miles-water.com/bridges-and-bridge-construction-gallery.html&ei=f2R-U7HTEI-nyATr4IGIAw&psig=AFQjCNHV0Ltv8P8CTot8tt5PY9Ka0W1bfg&ust=1400878531066263

  • ineight.com

    Increase in Project Size

    It can be done, but can it be done profitably?

    Need more resources - you don't know what you

    don't know

    Longer time to turnover job

    In beginning cash flow is good (mobilization/front

    loading) but back-end retention strangle the cash

    flow

    As jobs (volume) gets bigger, margins get smaller.

    10% withheld on a small job (15%-20% margin) has

    less of an impact than 10% withheld on a large job

    (3% - 5% margin)

    More supervision is required

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=DssQpLYyiHghJM&tbnid=mc5uAFZMEoeyBM:&ved=0CAUQjRw&url=http://grail.cs.washington.edu/projects/office/dewey/china/photos/yunnan/hutiaoxia/bridge.html&ei=k2R-U67uB8K0yASbloHYBw&psig=AFQjCNHV0Ltv8P8CTot8tt5PY9Ka0W1bfg&ust=1400878531066263

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

  • ineight.com

    Change in Geographic Area

    Companies serve a geographic area

    County, 1/2 state, 3,5, or 50 states

    Reasons for new area

    Normal growth

    Lack of work

    Special opportunity

    https://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=ucOHdKWz6JZykM&tbnid=2kyQeJ1mZCyyfM:&ved=0CAUQjRw&url=https://www.facebook.com/notes/facebook-data-science/nfl-fans-on-facebook/10151298370823859&ei=D2p-U4iyLs-MyASniIL4Aw&psig=AFQjCNFP-PFFeM5EH0F-jaPu9eVtNiyiBw&ust=1400879912745645

  • ineight.com

    Change in Geographic Area

    It can be done, but can it be done profitably?

    Little differences can be big problems

    Methods, procedures, inspections,

    regulations, labor conditions (union)

    Dewatering for utility construction

    Crewing up during hunting season

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=vNNq1V32Y0HpsM&tbnid=P8ZrBLFH1dkxXM:&ved=0CAUQjRw&url=http://www.cricbt.org/&ei=Cmd-U7eVG8K1yASp0YKoCg&psig=AFQjCNE19uXuUGf0-QY1eZKc8HjscZJHLg&ust=1400879184965797

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

  • ineight.com

    Change in Type of Construction

    Contractors are more specialized than they realize.

    Because they are good at bidding and executing a

    certain type of work, they tend to win and

    successfully execute that type of work.

    Learning curve for new types of

    work may require having a few

    loosing jobs

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=4ObP0gVlYnNJIM&tbnid=qMP6HyPz_X-NUM:&ved=0CAUQjRw&url=http://www.mancinicompanies.com/construction&ei=0Gp-U_L5Go6pyATbuIEw&psig=AFQjCNHq0pv-2sdi7cbrSRFQ1xznFoqYlQ&ust=1400880119651649

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    Change in Type of Construction

    Public Work vs. Private work

    Many companies start with public work to build

    their experience and reputation

    As they grow they get more invitations to bid on

    private jobs

    Private work tends to be higher initial price but

    allows for less change orders

    Going from public work to private -> bid too low

    and irritate the owner with Change Orders

    Going from private work to public -> Bid too high

    and can't be competitive, put too much quality in

    the work.

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=dCAFDh-V08W8fM&tbnid=h2UdK2k-7PAegM:&ved=0CAUQjRw&url=http://kentwa.gov/publicworks/&ei=N2t-U_f-PMydyAS5j4LQCA&psig=AFQjCNEc3_U6Je3uzL3CA_0JFrjPrY4q0w&ust=1400880296692610http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=Qygg2GHD04vQuM&tbnid=EelKmZvFWx6aqM:&ved=0CAUQjRw&url=http://www.zimbio.com/pictures/PMfQmmiqSOA/New%2BHome%2BConstruction%2BRises%2BSeptember&ei=1mt-U8i5CI2gyATr7YL4Dw&psig=AFQjCNH97_ZGNwifSXXNYx1BqJwrQvTFKw&ust=1400880332949312

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

  • ineight.com

    Change in Key Personnel

    Successful construction companies 1. Get the Work (Sales & Estimating)

    2. Do the Work (Operations)

    3. Get Paid (Admin/Accounting)

    You cant just be good at

    building things, you need

    to be able to manage the

    business of construction

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=FBW9CEULdLyZqM&tbnid=ArJtmVQMbYBXpM:&ved=0CAUQjRw&url=http://nscsa.org/ServicesProducts/Programs/ConstructionSafetySupervisorCSSProgram/tabid/219/language/en-US/Default.aspx&ei=n3V-U5SnIdagyAS6l4G4Aw&psig=AFQjCNGoZ_dgdrmp4GkF41rhvR25gNya6Q&ust=1400882938807845

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

  • ineight.com

    Lack of Managerial Maturity

    Growth requires delegation of duties

    One person can only do so much, juggle

    too many balls and start youll start

    dropping them.

    Activity does not equal productivity

    The difference

    between

    leadership

    and management

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=JoBcCD7Vio7P0M&tbnid=SaS-pAZfgJtwxM:&ved=0CAUQjRw&url=http://www.andrewcollings.com/chicago-corporate-portraits-on-location/&ei=T21-U6TDEsefyATp04GACw&psig=AFQjCNFvtitH0lQmrzE2QQXRWWWfCjoRVg&ust=1400880789178055http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&docid=LUIyX0x1JhR0fM&tbnid=XisQytvIjNkY8M:&ved=0CAUQjRw&url=http://footage.shutterstock.com/clip-2909977-stock-footage-construction-foreman-stands-by-heavy-machinery-at-an-excavation-site-and-sends-a-text-message-after.html&ei=CW5-U_fEKc2nyAT084CACw&psig=AFQjCNH4SlQObpMNqj3yHki8XAcRgB6_jg&ust=1400881014124722

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

    Poor use of Accounting Systems

  • ineight.com

    Poor use of Accounting Systems

    Accounting is an afterthought "if you don't

    make any money, there wont be any to

    count"

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=rrT2QNkxwbxBeM&tbnid=z2v4BHc0TY4M1M:&ved=0CAUQjRw&url=http://www.macrobusiness.com.au/2013/04/property-council-60000-construction-jobs-lost/&ei=uG9-U8OHKYWsyASB3IKIDw&psig=AFQjCNFmF8130AtzlSa5WxKSmBLeB0iaow&ust=1400881325991030http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=EtKIXuAvuN_DfM&tbnid=4AQDNoq9jHXk-M:&ved=0CAUQjRw&url=http://www.sketch-plus.com/resources/pmBook/12_Cost_Control_Monitoring_and_Accounting-02.html&ei=5W5-U43DAs2OyATvk4LICg&psig=AFQjCNEpR9RwEK9Wr5T-OwgU40cW2DRs9w&ust=1400881222084375

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    Poor use of Accounting Systems

    There is a misconception that accounting

    is too confusing

    Gets delegated to a bookkeeper

    The biggest accounting/reporting issue

    facing contractors is that its NOT Timely.

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=ua0BCbXvo_SvvM&tbnid=SrozCWKYsEuqYM:&ved=0CAUQjRw&url=http://www.akreulfinancial.com/about.html&ei=b3F-U9ieGsKPyAT9voHIDA&psig=AFQjCNFI9krLxEknF00rlILFgXEggl6B4g&ust=1400881864898689

  • ineight.com

    Poor use of Accounting Systems

    Most contractors are growing and that

    makes identifying loosing jobs difficult

    A shrinking bank balance can be a good

    indicator of growth

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=WXaC3nYBSH7k1M&tbnid=PuTyHHx5ka0gLM:&ved=0CAUQjRw&url=http://www.constructionweekonline.com/article-22922-cece-calls-for-tower-crane-training-harmonisation/&ei=k3B-U5CUKteeyATMxYLQCQ&psig=AFQjCNEUA4cE_pEX7uWSgwQT53xqeDds6w&ust=1400881669148457http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=KVwGcAPr-f_UOM&tbnid=lBZMxF-R8vZ0tM:&ved=0CAUQjRw&url=http://www.dreamstime.com/royalty-free-stock-photos-growth-icon-image24696878&ei=SHB-U83aDoqxyASD9YD4Aw&psig=AFQjCNF33Cfl6dIBgceJaDzjZ5VJFWrT7w&ust=1400881577832403

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

    Poor use of Accounting Systems

    Failure to Evaluate Project

    Profitability

  • ineight.com

    Failure to Evaluate Project Profitability

    PM is responsible for profit margins through his estimated costs to

    complete

    Only once the job is finished can reasons the job is loosing money no

    longer be hidden

    Trick is to identify it throughout the

    process

    Accountants need to be specialized

    in construction

    Percent of Completion

    revenue recognition

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=8x4mYvkcJMYJpM&tbnid=wm5hwSghfO72YM:&ved=0CAUQjRw&url=http://www.canavans-qs.com/home/services/construction-cost-accounting/&ei=9XF-U4HFKcSnyATxoIGQDg&psig=AFQjCNEeBHsr9nsWzGHeRgfa_Wi8oK_sXQ&ust=1400882020569568

  • ineight.com

    Failure to Evaluate Project Profitability

    Projects typically span fiscal periods

    Most accountants can verify the accuracy of the books for manufacturing

    (widgets) as long as everything contributing to a unit occurs in a single

    period

    Raw material purchased

    Manufacturing

    Inventoried

    Shipped

    Sold

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

    Poor use of Accounting Systems

    Failure to Evaluate Project

    Profitability

    Lack of Equipment Cost Control

  • ineight.com

    Lack of Equipment Cost Control

    Ownership vs Operating

    costs and utilization

    Undercharging

    equipment to be

    cost competitive

    https://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=PnN8GrplhcR8yM&tbnid=MSkYL6ruCemLAM:&ved=0CAUQjRw&url=https://www.aisha.co.jp/used_heavy_equipment.htm&ei=OHJ-U_LMMI22yASQkIHYAg&psig=AFQjCNEJHfKxUxM6R6fRLljKAITnveWhxw&ust=1400882079470518

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

    Poor use of Accounting Systems

    Failure to Evaluate Project

    Profitability

    Lack of Equipment Cost Control

    Poor Billing Procedures

  • ineight.com

    Poor Billing Procedures

    Cash Flow challenges are

    a big risk for contractors,

    poor billing/collections

    make it worse

    Late payment is the norm

    in construction

    https://www.google.com/imgres?imgurl&imgrefurl=http://www.cashinusa.com/collectionsforsmallbusiness/&h=0&w=0&tbnid=cwFz4EmcqAfgeM&zoom=1&tbnh=190&tbnw=265&docid=BTgK5Y04c5PwdM&hl=en&tbm=isch&ei=5nN-U67tMdWiyATSnYGoBw

  • ineight.com

    Poor Billing Procedures

    Bigger jobs pay slower

    Retainage is wrong but is a way

    of life for the contractor

    Growing companies become too

    busy to chase money

    Cash flow is the life blood of a

    business and

    without it, small problems

    become magnified

    http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=qloWcHLUbfCiDM&tbnid=8N2xLloGi3WRgM:&ved=0CAUQjRw&url=http://www.bized.co.uk/learn/business/accounting/cashflow/simulation/positive.htm&ei=73R-U9H_HsmPyASTnoC4Bw&psig=AFQjCNExpOlX3POQGp14QJHdo2BTrnnIxQ&ust=1400882764441639

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

    Poor use of Accounting Systems

    Failure to Evaluate Project

    Profitability

    Lack of Equipment Cost Control

    Poor Billing Procedures

    Problems with Computerized

    Accounting Systems

  • ineight.com

    Problems with Computerized Accounting Systems

    When installing or upgrading,

    should run duplicate systems

    until the new one has proven

    effective

    Often the new, young people

    are running the systems who

    know more about computers

    than about construction

  • ineight.com

    Ten Reasons Contractors Fail

    Increase in Project Size

    New Geographic Area

    New Type of Construction

    Change in Key Personnel

    Lack of Managerial

    Maturity

    Poor use of Accounting Systems

    Failure to Evaluate Project

    Profitability

    Lack of Equipment Cost Control

    Poor Billing Procedures

    Problems with Computerized

    Accounting Systems

  • ineight.com

    Construction Market Outlook

    Most Companies will fail during the

    recovery, not during the recession

    All the issues that cause failure are

    Identifiable

    Predictable

    Within the Contractors Control - Avoidable

  • ineight.com

    Thomas C. Schleifer, Ph.D. Tom Schleifer joined the construction industry at age 16 and brings more than 45 years of contracting and consulting experience to his

    presentation. He has Bachelor of Science and Masters of Science degrees in construction management from East Carolina University, and

    a Ph.D., also in construction management, from Heriot-Watt University, Edinburgh, Scotland. Dr. Schleifers experience includes serving

    as foreman, field superintendent, project manager, and vice president of a construction company which he owned with his brother. From

    1976 to 1986 he was the Founder and President of the largest international consultancy firm serving the contract surety industry. During

    this period, he assisted in the resolution or salvage of hundreds of distressed or failed construction firms and projects.

    This combination of practical, hands-on experience as a contractor and assisting financially distressed companies has given Dr. Schleifer a

    unique perspective on the causes of business failure and how to avoid them. He wrote the book Construction Contractors Survival Guide

    which has been acclaimed by thousands of contractors and used as a text in numerous university graduate and undergraduate courses and

    for many years published Schleifers Construction Forecast newsletter. Dr. Schleifer, sometimes referred to as a turn around expert

    because of the number of companies that he has rescued from financial distress, advises contractors on organization, structure, and

    strategic planning while he also writes, lectures, and teaches.

    The importance of education in the construction industry is one of Tom Schleifers favorite themes. He is a former chairman of the

    continuing education committee of the Associated General Contractors of America and has lectured extensively at universities, professional

    and trade associations, and authored numerous articles and publications on construction and business management. Dr. Schleifer has

    been listed in Whos Who in Finance and Industry , Whos Who in America and Whos Who in the World. He was the first Eminent

    Scholar of the Del E. Webb School of Construction, Arizona State University in 1993 and currently serves part time as Visiting Eminent

    Scholar

    Books by Dr. Schleifer include: Construction Contractors Survival Guide, John Wiley and Sons; Glossary of Suretyship and Related Terms,

    CMA Press; Schleifers Construction Profit Series, video and audio tapes; Schleifers Construction Forcast newsletter.

    http://www.wiley.com/WileyCDA/WileyTitle/productCd-0471513245.html

  • ineight.com

    Thank You!

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