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What is the difference between succeeding and failing in business? The first clue to the answer is to understand the definition of an entrepreneur. According to Merriam-Webster, an entrepreneur is one who “organizes, manages and assumes the risks of a business or enterprise.”
Regardless of whether you started your contracting business from scratch, bought an existing contracting business or are intending to go into your own contracting business, the moment you decide to enter this business arena, you become an entrepreneur.
Your decision to become an entrepreneur immediately gave you the responsibility of those three requirements of an entrepreneur: organizing, managing and assuming risks.
Assuming that you didn’t enter the contracting business arena with the intention of failing, your goal must be to succeed.
The primary requirements of entrepreneurship are the organization and proper management of your business. Organize your business in an intelligent manner that includes the correct use of the fundamentals of mathematics and the consideration of common sense.
1. Create a sound business game plan.
2. Develop a budget that identifies and calculates all the expenses you will incur to implement your sound business game plan.
3. Consider the amount of capital and sweat equity you have to finance your enterprise.
4. Research whether there is a need for your type of service in the area you intend to serve.
When considering the need for your service in any location you wish to serve, check out the amount of competition. After all, there are only so many consumers in any given area. And, as more purveyors of the same service enter the area, fewer consumers are available to be served. The pieces of the pie get smaller.
You must understand that profit is the money left after all legitimate expenses are paid. That includes the salaries of all personnel involved in the business, such as the owner (you) and family members who contribute their time to the business.
Be aware of the fact that success requires you to maximize your profits. Maximizing profits allows you to make your business financially strong so you can address the problems you will undoubtedly incur as a business owner.
Also, all the revenue brought into your business does not belong to you; only the profit is yours. Even that amount has the obligation of taxes on the profit to be paid according to law. Then there is the potential of money needed to get you through those aforementioned problems you encounter.
The tale of two taverns
As a business consultant, coach and author, I have to constantly come up with ways to get information to you, the contractor/entrepreneur, regarding the business of being in business.
Recently, I watched two local taverns close, both of which I patronized. These losing situations for those businesses gave me pause to contemplate the reasons businesses succeed or fail.
In my opinion, one of the taverns, fairly new, closed because the owner did not take into consideration the need for what he offered or the location where he was offering his services.
He created an atmosphere that was too much of a niche market to attract enough consumers to his establishment.
The owner admitted to me that the area he opened the business in was downtrodden. He went on to tell me that the area was in decline.
Well, it was in decline before he opened.
That’s a poor game plan and poor organization. He did not do his due diligence before jumping into the circumstances he gave to himself.
The other tavern was a long-established business that had changed owners over the years. It used to be a thriving business. However, poor management led to its decline, and the COVID-19 pandemic shutdown finished off the business. Although the latest owner tried coming back from the pandemic, his efforts were too little, too late.
These two examples are not unique. Businesses fail all the time. And every time, it’s due to a lack of a sound business game plan, organization, proper management and the proper addressing of impending risks that all businesses encounter.
A plumbing contractor I knew set up his business only to replace faucets.
Sorry! That’s poor planning.
He’s not around anymore.
Even the major fast-food establishments have realized the menus offered had to be expanded to include many different items other than just hamburgers and fries.
No one goes it alone
It is your duty to be on top of your game and your game plan at all times. The difference between business success and failure is the way in which owners plan, organize, manage and monitor their businesses, as well as how they handle the risks they face.
Sometimes that means you have to search for solutions to those problems that you will most definitely encounter.
Don’t be blinded by ego. When you need help, seek help.
I recently had the pleasure of helping a one-truck plumbing service contractor who was having difficulty making money in his business how to properly identify and calculate his true operational business cost.
The first day after going through my Solutionar on pricing, the contractor implemented the theories and methods I showed him to identify and calculate his true operational business cost numbers. He did this during the webinar.
The contractor told me his eyes were opened when he discovered that the estimated cost of business he was using to arrive at his selling prices was much lower than the reality of his true operational business cost.
With his newly discovered business cost information, blended with how to choose his profit margin and develop a properly profitable selling price, the contractor brought up his price to $1,385 for tasks he would have only charged $850 for the day before the Solutionar. He was pleasantly happy with the results.
That increase of $535 is a 63-percent increase in revenue over his previous selling prices for the same tasks.
His material cost was $158.
It means that before the webinar, he would have had only $692 leftover for his business expenses ($850-$158).
However, since he changed his modus operandi, he had $1,227 ($1,385-$158) left after material costs to apply to his expenses.
In this instance, the contractor decided his game plan would give him 21 days off for vacation, personal time and holidays.
That means he would have 238 workdays per year to bring revenue into his business.
If all things are constant, at his old prices, he would have the potential to bring in $202,300 a year to his business (238 days x $850). And $158 in material costs per day would cost him $37,604 ($158 x 238 days), leaving him with only $164,694 for all other expenses.
However, at $1,385 per day, he could bring in $329,630 ($1385 x 238 days). After the material cost of $37,604 is deducted, he could have $292,026 for all other expenses.
The difference would be $127,330 per year or 63 percent of the $202,300.
Change, when appropriate and correctly calculated and implemented, can be rewarding.
Develop a pricing guide
The contractor went on to tell me that none of the consumers were shocked at his prices, although one only paid his diagnostic fee and did not proceed with the work.
However, not all shoppers make purchases.
Some think about it first; others shop around. That’s their prerogative. And he ran into that situation with his old prices, too.
With his old prices, he lost money on every job he performed. With his newly found organization, management and pricing protocols, he has an opportunity to be profitable.
When results are dismal, it’s time to make changes. After all, it’s said that the definition of insanity is doing the same thing over and over and expecting different results.
This entrepreneurial contractor is in the midst of reorganizing his business protocols so he can properly manage his enterprise.
As of this writing, I am awaiting some numbers he is looking into so I can customize a price guide for him. This will allow him to quote his prices based on his true operational business costs, average travel time and chosen profit margin.
Having a price guide will allow him to quote prices quickly and confidently rather than wasting time trying to develop prices for every task, every time.
When time isn’t wasted and techs are confident, more jobs can be sold, increasing the potential for maximizing profits.
And if the contractor should decide to add another tech and truck, price guides ensure consistency by having the same company prices for any task, regardless of whether he or his tech is at his client’s location quoting prices.
Continuity builds confidence in the mind of consumers.
Therefore, the difference in whether you succeed or fail in your contracting business depends upon how you organize and manage your business and its protocols while you face the risks you take by being in business and solving the problems you encounter.
If you fail, blame the person you see in the mirror. If you succeed, pat yourself on the back. However, don’t get too full of yourself. Being in business requires that you constantly take care of business.