A Family Affair -The Challenge of Conducting a Family Business.

A Family Affair:

The operational challenges facing every type of family business can be rewarding and crippling at the same time; facing the normal demands of running a business with the added dynamic of family pressures often tests the best entrepreneur to the limit. This complication often makes for extra stresses that can either sink a successful venture or bond it together and make it invincible. While the challenges far outweigh the normal stresses of work, having multiple members of a team that treat a business as their own can lead to unequaled dedication and work ethic.

The Bad:

Most family businesses pass from generation to generation, however there are many different forms of family operations that do not follow the usual model. Some companies are started by the younger generation and joined later by the older generation or siblings and other family members. While there are challenges facing every type of family business, the chain of command that evolves when roles are reversed can add to the already stressed environment. Navigating role reversals in a business environment can be like navigating the Titanic around ice burgs; the roles must be constantly confirmed and adjusted to find a successful path that is both effective and acceptable for every individual involved. Failing to define roles can lead to conflicting decisions that cause confusion for both employees and customers. The solution, painfully difficult, is to have the roles clearly defined in the Articles of Incorporation and make sure that the roles correspond with company ownership and abilities. While this is one of the more difficult things to do on a personal level, it will save years of pole positioning that will undoubtedly cost time and personal relationships that cannot be recouped.

Financing a family business can be an extra added challenge that has the ability to test the patience of the most stable families. While setting out to open a new venture, guidelines must be set, there are countless numbers of situations that can require additional funding that all of the parties involved my not have access to. The handling of financial situations must be clear cut, and set forth prior to any additional funding, and a payment schedule must be agreed upon with documented guarantees to make sure that all of the parties involved understand the intent and payback plan. No mater the relationship, finances have the ability to drive a wedge in operations when the lines get blurred between business and personal relationships.

The Good:

A family operation can be stronger than any individual company for many reasons; experience, teamwork, and diversity can make a companies leadership more successful to a larger customer base. For many family operated companies, past generations have contacts and experience that the whole company can benefit from; utilizing skill-sets and contacts can lead to rapid growth of a new company. If the older generation desires a less rigorous schedule and lower stress, then having multiple generations involved can join experience and energy into a cohesive momentum that can boost overall confidence and momentum for both the employees and customers alike, letting all of the partners participate at their desired rate.

Pooling expertise and money can lead to a more rapid growth and overall success rate that far surpasses the abilities of a single owner start up. The key is to avoid the financial and emotional hurdles and race towards the end goal together with a clear plan and teamwork. While this kind of operation is not for everyone, when it is successful, it can lead to a healthy work and personal life. Another key benefit to family operations is a clear line of succession that adds stability for both employees and customers, allowing a business to obtain better hires and larger contracts.

The combination of instant business with injected energy is a recipe for success as long as the internal communications withing the business is done well and often. Communication is the single largest key to the internal success of a family business, with the power to propel success or take a company down quickly. Below are a list of questions that can either guide you to make the jump into a family business, or help get one back on track. In my experience, everything is playable but must have a stable foundation; a team must be wiling to make changes that lead to success quickly, but must stick to the foundation set at the conception of the partnership.

Questions:

Have you ever been in business with a family member before, or do you know anybody that has? Get some advice from someone with experience.
Do you have the financial means to operate a business if one or more of your family members (partners) want out? would they be willing to help even if they were not involved?
Are you prepared to give personal guarantees (financial) to your family members (partners)?
Are your family members (partners )financially stable; are you? Will you have to front most of the capital?
Are you willing to put in sweat equity to off set any other members financial contribution?
Do you operate well in a team setting, or are you more of a lone wolf? This can be structured into a business with multiple people as long as all parties are aware of the “decision making process”.
do you and/or your partners have experience in your industry? Is the experience equal?
Is this venture being considered due to current financial/personal strain? check your motives.
are you and your family members (partners) willing to put in the long hours required to successfully run a start up?
Are you willing to fail? Is there a backup plan?

Hopefully this short article will help with providing some important questions and lessons gained from experience. Please feel free to add any input or questions in the comment section, and go out there and be successful at what you do. Plan hard, work harder, and have fun along the way. A well structured family business can be very satisfying and allow for flexibility unequaled in any other business type.

March 7, 2019 0

Planning The Perfect Project – A Work in Progress

“A goal without a plan is just a wish.” ― Antoine de Saint-Exupéry, writer and pioneering aviator

If you are like the majority of business owners and project managers working in construction, you might put projects together conceptually on bid day, but not take the detailed effort to plan them after contracts are received. Planning can easily be the largest post bid factor to higher profits in the lifespan of a project. For most estimators, the bid process is a scientific process of multiple hypothesis based on a set of lines and specifications mixed with past experiences. In the wold of estimating, everything is in theory and based on past projects, but nothing is “concrete”. In most cases, a project starts as an invitation and then moves to drawn details and plans that amount to lines on paper or a computer screen. Taking plans and putting them into reality is a delicate process of infinite variables that nobody has complete control of; this fact is what leads many good leaders to abandon detailed plans and rely on instinct and quick reactions to drive a project. This very same instinct can lead down a trail of costly mistakes and avoidable rework if it is not executed correctly.

While bidding is taking your best guess based on past experience, and putting a realistic number to a plan, project planning is much more involved. This process is commonly overlooked because the daily inertia of other ongoing projects keeps focus on the NOW and not the FUTURE. One of the most difficult transitions for a contractor is moving from bid to reality; it is hard to take the plans from an estimators desk (and mind) and transport them into the actions of field installers. Even when managers stay on task and work with installers on a daily basis, projects can still suffer from poor plan execution if the plan is not put into place before the project begins.

A Good Resource for Project Planning

Sometimes preaching to the choir is my calling; As a manager and owner, I have suffered the shortcomings of poor planing, more times than not. It takes one well planned and executed project to highlight all of the shortcomings that exist in other projects, and one very poorly planed project to send the team racing back to the dry erase board to fix upcoming projects. Through my experience, below is a few steps that can guide a team through the process; it is a simple guide that needs to be fine tuned per project and scope, but can serve as a starting point for a successful project.

1. Start with the Bid Process but do not waste valuable time:
- Look at every relevant specification and detail to your scope of work (don’t assume you know what the customer wants)
- Start early enough to ask questions – Make sure you get the answers.
- If in doubt – clarify your scope on your estimate.
- Pull from past experience and make adjustments (know your limitations and price them into the project – whatever can go wrong, probably will times 2)
2. Save your work and notes (not documenting today will leave you scrambling tomorrow)
- Keep all handwritten notes and scan them to a data file.
- Keep any photographs of the site in a data file.
- Keep any important detailed drawings/plans and save them to a data file.
3. Look over the Contract (if you are lucky enough to be the winning bidder)
- Is there a reason you were the low bidder? Qualify your bid before executing contracts)
- Check you raw material prices – suppliers may have raised prices after you bid the project.
- Check your work – make sure your bid was based on the most recent plans and addendum’s. Don’t get caught giving free work for something you can clarify before entering into a contract.
- Deal with reputable Contractors – let experience guide you into contracts with people that you can trust.
4. Schedule:
- Place the project on a schedule as soon as you can (it can be moved)
- Be flexible but firm – Schedule 25% extra time for a job and make sure you have the manpower to accomplish the published schedule. Under promise on your schedule and Over deliver.
5. PLAN:
- Meet with your teem at the time of contracting and set up a time to go over details before project begins.
- Don’t waste time – Planning to early is nearly as bad as not planning if either the wrong people are in the meeting, or to much time goes by before the project – “timing is everything”.
- Set out some goals for ordering materials, special tools and select preferred applicators for a project.
- Have everything you need available before a project begins (keep in mind that you will never really have EVERYTHING)
- Agree with your team, that the plan is a living thing – be open to its evolution.
6. Execution:
- Always schedule a pre-construction meeting or site visit at least week before begging a project.
- Share your plan with the project superintendent and project manager before beginning – put in in writing.
- Start by assuming that the plan is a good one and get to work
- Be prepared to modify your plan – the better the plan the less you will have to change; changes to your plan, if done correctly, should result in a change order.
7. Finish Strong:
- Pre-punch all of your work and have any site supervisor inspect it before you leave – re-mobilizing is costly.
- Many projects hold retainage until projects reach substantial completion; secure your final payment by getting any punch list items signed off on.
- Do your paperwork – Bill the project and turn in all paperwork so that there are no hurdles holding up your final payment.

While the seven items above all appear to be common sense, my team misses many of them on every project due to project blur (the process of overlapping projects that keep a person from giving 100% attention to one thing at a time). It is important to let a team process one project at a time, and move onto the next project once finished. In our industry, it is nearly impossible to dedicate time to one project at a time; a team must set limits on meetings and close out one subject before beginning the next. Try to plan ahead so that when a project is in front of you, there are no time consuming details keeping you from focusing your attention on the next bid. Like almost everything in life, the process is cyclical and must be kept up with at all times; looking back just slows you down.

“Every minute you spend in planning saves 10 minutes in execution; this gives you a 1,000 percent return on energy!” ― Brian Tracy, author and motivational speaker

February 26, 2019 0

Understanding the Construction “Payment Gap”

it is hard for many people in non-construction based businesses to understand the challenges that most subcontractors face in financing their businesses. Where most of business is conducted on a point of sale or 30 day term basis, that is not the case for most commercial and industrial construction businesses.

Subcontractors are the companies hired by a General Contractor to complete each specialized area of work on a construction project. While there are contracts that protect both parties in this arrangement, a subcontractor is usually responsible for providing both materials and labor to perform their scope of work and that adds an extra layer of challenges when it comes to financing a project. Most construction projects can take months and even years to to complete while many subcontractors are only on a project for weeks or days which can lead to their profits being tied up for an extended time period. Most contracts today required the General Contractor to hold a “retainage” until the entire project is accepted and complete. In many cases this money is not received for a year or more after the original billing; this can mean that a subcontractors profits can be held for over a year.

I have outlined the payment process in other blog posts, but the “payment Gap” that seeks to destroy subcontractors is the most difficult obstacle to overcome. This obstacle starts with a monthly billing period and extended payment terms based on owner approved payment applications and then progresses to retainages held and warranty periods. As explained in some of my other blog posts, the billing and payment process is quite confusing and difficult to master, but the most difficult thing is the “gap” between the receivables on a project and the payables. ( billing -resinadviser ) . While some suppliers will allow for extended payment terms and joint check agreements, most suppliers put their contractors on 30 day terms. When a subcontractor bills according to contact documents, payment on projects can take 45-90 days in the best case scenarios. This difference in receivables and payables is what I call the “Payment Gap”.

This gap is not exclusive to the subcontractor, contractor relationship; the gap exists between resin manufactures and their suppliers as well. Many material suppliers are held hostage to raw material suppliers who change their prices based on market price and demand rather than long term contracts. They are also plagued with shortages and inconsistencies that have to be dealt with before the product is shipped to its destination.

In Short, there are many hurdles that have to be jumped over before a resinous project can be installed, and even more before it is paid. It is very difficult for a company to overcome the “payment gap” and achieve financial stability. Success is measured by getting 90 days ahead of your money and staying that way even when there are inconsistencies in schedules and billed work.

Moral: If you are a contractor, do not get over extended and always communicate your payment concerns with both your General Contractor and your Supplier. It is better for everyone involved to be aware of the payment terms. Always stay 90 days ahead, and watch billings to project what payments will look line down the line. Plan ahead so that you can manage any surprises. Ultimately, there should be more advocacy for 30 day payment terms for subcontract work (especially materials and direct labor) with protections for the owner and General Contractor; most projects are bank funded and the funds are readily available before the project begins. By working together, this problem can be ultimately solved.

February 14, 2018 0

An Ounce of Prevention…

The lack of planning in the construction industry amazes me; with all of the meetings and scheduling software used, people still don’t talk to each another to solve problems before they occur. This industry is plagued with a reactionary cycle of dealing with issues one emergency at a time. I have done internal research and discovered that working with the same General Contractors on the same type of job is much more profitable than working with new teams on different types of projects. I have used this information to help promote a better profit model for the future. The problem with our industry, is that we are drawn out of our comfort zone to chase work to feed the “machine”. It is necessary to build up a backlog, and that sometimes leads contractors into uncharted territory. While it is not always controllable, working on jobs that are consistent and predictable can add to productivity; when consistency is not possible, planning ahead is necessary.

Don’t fall pray to the usual pitfalls! It is easy to get stuck in the rut of business as usual during the inertia of a busy schedule; however, when you have to retool and move to a different job, you must look at it with a fresh perspective. In our industry, one of the common issues on many of our jobs is the floor slope; as a flooring contractor, we do not bid sloping a floor into the price of a job because it is the responsibility of the concrete contractor. Unfortunately, the slope usually does not get checked until we arrive on the job-site. I am amazed at how many concrete contractors are not held accountable for slopes that are clearly marked on project plans. Flooring contractors usually get the undeserved privilege of breaking the bad news about how much it will cost to correct the problem to the General Contractor. Why is a floor with a drain not inspected for slopes? Because the construction industry is still operating on a reactionary production model rather than a preventative model. This is just one example of how communication and planning can save a projects budget one solved problem at a time.

There is hope. Many projects today are being planned with “pull planning” meetings, where subcontractors get together and work out the details of there scopes by using sticky notes on a white board. This process sounds archaic, but the process works well and helps subcontractors react to possible conflicts before they happen. In projects that utilize this type of communication, many pitfalls are avoided. If the concrete contractor and the flooring contractor talk about the floor drains and slopes prior to construction, the costly slope repairs can be avoided. Unfortunately, subcontractors are not always in control of the schedule and get trapped installing their products at the wrong time, or get their products damaged by other workers due to poor planning. There is a solution…

Pull Planning

What Can You do?

You can plan ahead, when everybody else does not: Even thought the companies around you don’t plan ahead, you can stand out to your customers by showing up when you are expected and planning pre-construction site visits to make sure that you have all of the details covered before you begin a job – even if (especially if) they do not ask for you to visit the site prior to beginning.
Keep a list – if you cannot remember it in your head: No matter what your trade, you have some important things that need to be completed before you arrive on a job. If you are not the type of person that can remember it all, keep a list. Do you need permanent lights? Do you need HVAC running? What are your power requirements? What does your trade require? If you make sure the job is ready, you will save yourself money and the General Contractor wasted time.
Don’t compromise: When it comes to providing a superior service for a reasonable price, you cannot compromise on your requirements. Many contractors find themselves in trouble when they are convinced to start a project to early, or perform work that was outside of the original scope without proper approval. Even the best Superintendent will sometimes get their backs up against a wall and approve something that is unauthorized to get a project moving or finished on time. Don’t fall victim to compromising on something that is going to negatively effect your finished product or bottom line.
Hold your ground: When it comes to change orders and pre-project planning, hold your ground. You are the pro at what you do; do not let a General Contractor or another sub convince you that they know your products or service better than you do.
Ask for a meeting: This is different from #1; beyond utilizing per-construction site visits, ask to meet with other sub contractors that might have an impact on your work. If you are not working on a job with “pull planning”, do your own planning. Ultimately, you are responsible for your finished product.

Moral: “an ounce of prevention is worth a pound of cure” In the resinous flooring industry, like many other trades in construction, we are faced with enough problems internally; we do not need to let outside influences compromise our work quality. If you give into the pressure of a rushed schedule or a poorly planned project, your final product will be compromised. Be uncompromising and deliver consistent quality, and all of your customers will appreciate it when the project is closed out. In the end you are only as good as your finished product.

October 31, 2017 0

It is an unfortunate fact that construction contractors, especially subcontractors do not get paid in a way that is conducive for the growth of their businesses. Both residential and commercial contractors have unique challenges that most other types of businesses don’t have to deal with. Contractors have many complex issues that they must worry with like, customer satisfaction, vendor payments, personnel issues, and rent to name a few. The complexity of problems that arise on the simplest of projects is impossible to imagine unless you have experienced them first hand. With the complexity of problems they face, getting paid is the most important, and often the most difficult.

Residential Construction has very specific challenges tied directly to a homeowner’s opinion and satisfaction; while lien laws can serve as protection for contractors, they do not speed up the rate of payment if there are conflicts. Most subcontractors that do good work will get paid either weekly or bi-monthly to keep cash flow moving, and while this is a much better rate than the average commercial contractor, money is held from one project to entice contractors to the next project. There is very little regulation protecting subcontractors from general contractors. Payment can also be tied to customer satisfaction; if a homeowner doesn’t like the work, no matter how good or complete it is, the payment is often held for long periods of time. In many ways, residential constitution is like the wild west of construction. It is very hard to get predictable and fast paying customers because of how volatile the housing market is. One wrong move and a Home Builder can get stuck with unmovable inventory and no money to pay subcontractors. If a good relationship is formed between the contractor and the subcontractor, residential construction has the potential to pay much faster than commercial projects, however the rates for work are often lower.

Commercial Contractors have a whole different set of problems to deal with. Most of my experience is with commercial construction (not all), so I have a more comprehensive description of the problems that plague commercial contractors, especially subcontractors. To understand the billing and payment challenge I need to go through the billing – payment process for most contracts. When a job is complete, a subcontractor is required to bill a project on a specific date (usually on the 15th, 20th, or 25th). A contractor can bill through the end of the month (projected) but if the estimate is not accurate, the entire pay application can be denied and the billing can be pushed to the next month. Once a pay application is received (and let’s assume that all the “i’s” are dotted and the “t’s” are crossed), then the General Contractor turns in their pay applications to the owner. When the owner pays, and that is usually 60 days, the General Contractor has 10 days to pay the subcontractor. If you do the math on this time table, most subcontractors can expect to get paid anywhere from 45-90 days from the beginning of their work on a project. Retainage is the money that is held until the job is 100% complete by all contractors involved; this is money that can take up to a year to collect on most jobs and it is usually between 5% and 10% of the total contract. In many cases, the retainage makes up a subcontractor’s profit.

Most of us make a paycheck weekly or biweekly; as you can see, this is not the case for most contractors. They must find a way to function 90 days ahead of their money. Payroll is commonly weekly and suppliers hold firm at 30-day payment terms in most cases. Larger subcontractors find themselves heavy on receivables with suppliers breathing down their necks for payment, while smaller subcontractors struggle to meet payroll pressure weekly as they wait to get paid. It is common for profits to be held up for up to a year on some projects.

The Question: Is this problem fixable? Is there a way to promote good work and speed up funding for responsible contractors and still protect owners from the pitfalls of poor workmanship and warranty issues?

There is no short answer to the question, but the prospect of success is not impossible. When good partnerships form between Contractors and Subcontractors much of the red tape can be avoided. Major contracts have hurdles that still must be leaped, but a good working relationship can keep costly mistakes from holding payments up in both residential and commercial construction. With a relationship based on trust and experience, good contractors make construction finance problems almost bearable, but to build a quality company in the current environment, a contractor must be patient and responsible. In short, relationships rule the day and partnering with the right contractor and subcontractor can make a huge difference even when their bids may not be the lowest.

Moral: No matter what business you are in, don’t think that contractors have it made; it takes hard work, patients and a little luck to be successful in Residential or Commercial construction. We are a rough around the edges, rag-tag group of hard working people trying to navigate our trade. All contractors are not created equal and low bidders are not always the lest expensive way to go. If you are a contractor, look for good relationships and do quality work for a reasonable price; if you are a customer, do your homework and don’t always choose the low bidder.

October 4, 2017 1

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