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Contractors face self-inflicted problems everyday giving credence to the saying — “We have met the enemy, and the enemy is us.” The following list identifies the most common problems and offers solutions.
1. Not knowing the real cost of operation.
Obviously, learning how to identify and calculate all costs of labor and overhead will address this deficiency. By adding up all your legitimate business expenses and dividing the amount by your maximum annual available revenue producing hours, you will have the most important factor needed to arrive at profitable selling prices.
2. Not knowing the proper profit margin to apply to the real cost of operation.
Picking a profit margin is often viewed as simple. It's not! Choosing the correct profit margin requires some thought. You must consider the risks you take such as unapplied labor.
3. Not knowing how to develop a properly profitable selling price.
Developing proper profitable selling prices requires knowing your real cost and choosing a proper profit margin. Your hourly tech cost, based on all available tech hours, needs a 30% profit margin just to break even if you only sell 70% of your available tech hours.
4. Not knowing your value to society.
Each of us delivers value to society. You must understand your value to society. Doctors certainly understand theirs. They try to serve the public as best possible and preserve the quality of our lives. They know their costs and charge fees which allow them to enjoy life. Unlike contractors, they don't make house calls.
Contractors are doctors of buildings. They too help preserve the quality of our lives. They must make house calls for the apparent reason. Buildings can’t come to the contractor.
As a contractor who strives to deliver top quality service to consumers, you must be proud of the value you deliver to society. You must be aware of the risks you take delivering that value. You must educate those who have misconceptions about your importance to their quality of life.
5. Pricing services based on volume as used by manufacturers in mass production.
Businesses which provide services and/or products on a one-to-one ratio with the consumer should not be confused with businesses that manufacture production line products. In construction and service industries, one technician hour can only produce one technician hour of production, even when you have repetitious work where all the buildings are the same. Therefore, all proportionate costs must be attributed to that technician hour. This differs from production line products where one employee hour may produce many units.
This problem is removed by addressing each job on its own individual characteristics.
6. Not knowing how to address consumer questions and remarks in an intelligent manner.
There’s an old saying, “If you don't say anything, no one will know how smart or dumb you are. If you open your mouth they’ll know for sure!”
By learning to put your brain in gear before opening your mouth, you won’t have to put your foot in your mouth. Furthermore, if you want to be able to charge fees which will allow you to enjoy life like the doctors and lawyers, you must speak like a doctor or lawyer.
7. Hiring the wrong people.
There are times when you will have more work than you can handle. There will be times when you are twiddling your thumbs. The first thing you must address is whether you really need help. Working a little overtime might take care of the current workload.
8. Not managing the business in an orderly and efficient manner.
Being organized makes work easier and gets it done faster. This holds true when you are doing technical work or fulfilling administrative duties. You should document and track transactions, make forms which will help make your administrative workload easier, track statistics to make wise decisions and avoid the “consumers from hell.”
9. Making decisions based on emotion rather than statistics.
When you make decisions with no data, you will make the wrong decisions. By gathering statistics, your decisions can be made based on fact rather than emotional fiction.
10. Allowing the four enemies of business — stupidity, ego, fear and anxiety to cloud logical thinking processes.
Webster defines intelligence as the “ability to perceive logical relationships and use one’s knowledge to solve problems and respond appropriately to novel situations.” It is a prerequisite to becoming a contractor. A logical mind, and, knowledge of technical fundamentals, mathematics and basic sciences are indispensable. In all these areas, you must prove yourself capable. In many instances, to be called a master of your trade/profession, you must pass a test which establishes the fact that you have reached a certain minimum level of competency, and in order to reach this level you must have intelligence. Having intelligence and using it are not the same thing.
Webster defines ignorance as “a state of not knowing, a lack of education.” A person who never had an opportunity to learn something about a subject is unaware of the subject. Ignorance, therefore, is nothing to be ashamed of. The smartest people in the world don’t know everything. Therefore, they are ignorant about the things they do not know.
Their intelligence tells them that if they want to be able to address a subject of which they know nothing, they must first learn about the subject. Intelligent people know that the more they learn, the more expert they become about the subject matter. That's why they are seen as intelligent.
When intelligent people know nothing about an area in which they need service, they call upon a master of that field. If they didn’t know what they were doing and tried to address their own needs, they would be turning their ignorance into stupidity.
Have you ever driven to a place you've never been to and wandered aimlessly? As it became obvious that you were lost, did you refuse to ask someone for directions or turn on your GPS? At that point, has your ego ever told you that if you don't know the directions, no else does, and, you know more about directions than a GPS? If so, your pride wasn’t allowing you to seek help. That's egotism getting in the way of logic.
Business people don’t allow emotion to hinder them from reaching their destination. If you’re going to be in business, control your ego rather than having it control you and the way your business operates.
The effects of fear can be compared to a person in a swimsuit walking around a pool and testing the water with his big toe. While some people are splashing around enjoying themselves, others are having poolside conversations. But, the poor fearful soul just keeps testing the water. Fear stops him from jumping in.
He reminds me of so many contractors who want to raise their prices and charge for their estimates. They know that’s what they want to do; and, must do to succeed. Fear stops them. Don’t let fear stop you from reaching your goals.
Anxiety is a partner of fear. It is dread, apprehension, nagging worry. There is a difference between worrying and being concerned. A concerned business person addresses issues vital to his/her business in a positive, proactive manner which will help his/her business succeed. A business person who constantly worries about things which will probably never occur is a person who has no time to do that which will make the business prosper.
For instance, you may find yourself worrying about whether or not the price you quoted to a customer will cover your costs, include a profit and be acceptable to the customer. The truth is that to cover costs and earn a profit, you must know your costs, add a profit, and have the customer pay for both.
If the customer doesn’t want to allow you to cover your costs and make a profit, you don’t need that customer. A consumer who wants you to pay for that which they consume isn’t worth worrying about, nor, having as a client.
Being negative promotes negativity. Being positive solves problems, removes obstacles, and, leads to success. Don’t let these enemies of business keep you from succeeding.
11. Running the business in an improper manner which decimates the individual business and the industry as a whole.
Solution: There’s only one way to remove this problem. Act like a “business person” rather than “just a person in business.”