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

Is OSHA Driving Construction Costs Up?

This article is meant to spark a constructive conversation about the construction safety industry and its affect on construction costs, without ignoring the important safety concerns essential to the construction process. Construction can be a very dangerous endeavor for many trades and the need for regulations and oversight is necessary for job site safety. Even though OSHA is spending more money every year and making more regulations, the overall death toll on construction sites rose from 2011 to 2015. construction-leads-industries-worker-deaths

As a whole, OSHA is a necessary governing body that needs to be in place to protect workers from unsafe practices. They were formed in 1971, but they did not have a major presence on commercial job sites until much more recently. With a rise in knowledge, comes a new perspective on safety and regulations. Since its inception, OSHA has put some very important safety regulations into law and protected many people from dangerous practices. OSHA Timeline While it is important to separate a regulating body from the business it regulates, many of their regulations are not only costly to enforce, but very costly for contractors to comply with. While cost should not be spared for human life, a closer look at the direct costs of each regulation needs to be explored.

In Football, for example, new concussion protocol and new rules have attempted to minimize head injuries in the sport. While high school and college players are not “employees”, their professional counterparts are. With the new knowledge associated with head injuries, kids (and their parents) are turning to different sports with less risk involved. Gifted kids, and those that love the sport, are still playing football in spite of the risk because of the dream of playing professional sports and the pay that comes along with that rare opportunity. The parallel between football and construction is this; there are risks with every career, and more with some than others. Each individual accepts those risks when they join the workforce. It is not possible to have zero risk in any profession, and compensations are based on each jobs risk. This is as true for construction and football as it is for business risk in white collar jobs. The more you risk, the higher possibility for gain and/or failure.

But Why the Lunacy?

Some very important regulations are necessary to keep workers safe, but due to the robotic efficiencies of the 21st century, common sense has been thrown out the window. The MSDS sheets and now SDS sheets are necessary and very helpful, but do not really tell the “whole” story. Many products that we let our kids play with at home require construction workers to wear respirators to handle. Materials are marked with warnings that resemble cigarette cartons. While education is the answer, there needs to be common sense used in creating warnings and regulations. General Contractors are intimidated by OSHA and want to avoid fines, so they make small sub contractors jump through hoops that create chaos and loss in profits. Major General Contractors have created safety positions for job sites and created an adversarial environment where cooperation should be in place. Many safety directors are adversarial, rather than helpful creating a hamper on productivity.

EXAMPLE:

“On a job several years ago, I received a call from the “safety director” (I will leave out GC names and job locations) stating that our crews had been ask to leave the job site because they did not have fit tests for their respirators. I informed him that my men did not need respirators for the work they were doing and the MSDS sheets did not require them; also, they were wearing dust masks, not respirators. He informed me (not so nicely) that my men were wearing respirators (2-strap dust masks with the N-95 stamps are considered respirators) and they could not come back without a fit test. I asked him if I went and purchased cheep low quality dust masks could we continue? He said, Yes. I complained that he was telling me to put my men at greater risk with low quality equipment rather than letting them continue and he said…that’s just the way it is. Later on the same job he made us take a ladder safety class and test even though we had no ladders and were working on the floor.”

My example is extreme, but not that unusual; it shows how regulations that don’t take common sense into consideration can put people at risk and cost time and money. Even though many of the safety directors (even the one in the example above) try to help, they are required to meet exact written perimeters that do not allow for any interpretation. The industry as a whole needs to continue to push safety, but in a more user friendly way. Trade yelling for education; in place of getting kicked off a job, make crews watch relevant training videos in the job site trailer. Creativity has been killed with the advent of rules and regulations run by people who are far away from the actual job site. It is time to think outside the box and create a work environment that seeks to help those who want to comply. It is much less expensive to have a 1/2 day orientation before beginning work, than it is loosing days of work from non-compliance; and less invasive to punish workers with more education rather than sending them home.

The Money:

Safety has become a money making industry but has caused small contractors to loose profits. Many job sites are requiring OSHA 30 trained workers on site for any size company. Some jobs want every person to have an OSHA 10 and first aid. While some contractors are large and need these people on staff for every job, it is a very costly endeavor for small contractors with high employee turnover and seasonal workers. Sub contractors are pressured into low bids on competitive jobs and then required to meet standards that are designed for much larger companies. Many companies bid projects and then discover that they will have to spend hundreds or even thousands per employee to meet tightening requirements for projects. General Contractors and Owners do not know how costly this can be to their bottom line on each project. The industry and its competitive nature is driving prices, but eventually the costs will make it to the overall bottom line on each and every job.

As a whole, OSHA and the new safety regulations are very needed and they serve an important purpose in commercial and industrial construction, but there needs to be a middle qualification and financial help for smaller companies who want to comply, but have found themselves in the dangerous middle ground between profitable work and compliance. When new costly regulation are put into place, low interest loans need to be available to help companies with the costs of compliance. In place of catching workers doing wrong and imposing high fines, why can’t OSHA use its funds for discounted education programs implemented at a reasonable rate for companies to enroll in prior to mobilizing for a job. Why can they not develop in-house training programs for small contractors to implement and manage themselves? I think there are many solutions to this complicated problem that could both save taxpayer money, and protect small business profits. If safety qualifications continue to expand at this rate, the cost of construction will continue to rise and the money that should go to the workers will be forced into compliance. This will be one more program designed to protect the same people that it is harming.

Any thoughts? please post them in the comments section!

March 2, 2018 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

Death of Creative Thinking?

To run a business or team of any type, you have to master the art of creative thinking. In the flooring business like many other businesses, we are often faced with problems that are so far past the realm of obvious thinking that the usual thought processes take you nowhere. Calculated organized thinking is necessary for daily survival, however there is a shrinking availability of people who have a truly unique thinking process. Many of us have grown up in a drive through society of speed eating, speed dating and scheduled workouts. Gone are the days of retreating into the backyard to a hidden world of pirates and maidens. To navigate business problems today, you cannot relay on problem solving by the book. You have to look outside the cover and discover a new way of thinking; a way of thinking that cannot be achieved without clearing your head and relaxing. We are at a place in time, where “relaxing” is not relaxing. Between rushing to a dinner date, driving kids to a soccer game and logging into Netflix, when does anybody today have a chance to relax. The inability to declutter our brains and unplug has a direct impact on our daily lives and on our children’s creativity and problem solving.

According to an article written for Fast Company Magazine, ” U.S. creativity is dropping: the average Torrance score of U.S. children had been rising steadily until 1990. But for the past 20 years it has been in decline.” ( death-creativity-death-innovation ) There is a connection between technological advances in problem solving and the dropping of creativity in our society. If you look at the computer history timeline published by computerhistory.org ( timeline/computers/ ), 1989 was the year that the microprocessor was released by Intel and the Palm Pilot was released in 1996. As computers have become smarter, our youth have become more dependent on them, letting the computers (phones) do the thinking for them. In 1993, I had the option to take hand drafting or CAD class while I was enrolled for an Environmental Design Degree from Texas A&M University; I opted for the hand drafting and missed out on the future of design but gained a wealth of hands on problem solving experience. Most of the graduates today will never lean the art of working through a problem with a pencil and eraser. When a designer uses copy and paste to create designs, many organic ideas are circumvented. While efficiency cannot be ignored, the art of creative problem solving needs to be preserved. From the invention of the microprocessor, that allowed for less expensive smaller technology to exist on every desk, to modern day handheld computers, there has been a loss of processing difficult problems in new and inventive ways. Solutions have become less human, and more predictable; much more efficient but less interesting and beautiful.

I had a very influential college dean who would take his freshman design class through breathing exercises while we sprawled out over the top of our drafting tables staring at the florescent lights above. He would tell us that we were at our most creative when we were relaxed and our minds were free of outside chatter. We all liked the extra time we had at the beginning of class, but I don’t think we appreciated the simple lesson that he was teaching us. Problem solving is tough work, and if you are thinking about who is going to take the dog to the vet this week, it makes it harder to figure out the logistics of completing whatever complicated task your job is throwing at you. Distractions can derail the creative mind in most cases, however many children today diagnosed with ADD or ADHD find that they can function better with background clutter. Weather this is a result of their surroundings, or a function of brain activity is an argument for the scientists, but their ability to hyper focus can still be achieved more efficiently in an unstressed relaxed state of mind.

SOCIAL MEDIA IS A HUGE TIME THIEF! I have witnessed first hand a loss of productivity directly related to social media. Most of the people working in our office are nearing middle age, and are not as influenced by their “social media image” as younger people, but as the younger generation enter the workforce, there has to be more attention given to reduce the distractions caused by the constant use of social media. Filling your brain with scrolling colorful images does nothing to boost personal creativity and problem solving. Moving forward, businesses are going to have to be proactive in including media in a way that is not only promotional for their business but also restrictive in personal promotion for their employees. This is a challenge that creative thinkers can use to benefit employees if channeled in a responsible way. Businesses are also going to have to strive to hold on to creative ways of problem solving without loosing relevance in the ever charging climate that we are living in.

Moral: I always try to end with a positive note or message, this one is easy: Work very hard and relax completely to recharge. Never let your teem or yourself get so berried that you cannot see a way out. Part of the fun in what we do everyday is finding creative ways to solve problems. If you take the time to relax your mind and take in some beautiful scenery now and then, you will find that you can solve any complex problem one piece at a time.

Interesting take on Creative designing.

October 23, 2017 0

A Slave to Social Media

This is a short post about social media and how companies today are enslaved by its power to open doors and shut them equally as fast. In construction we act like we are cutting edge when we are truly a decade behind in the technology department. I would guess that most construction companies still have fax machines in their offices and use them regularly, we do.

Light Reading on the Subject

This post is more for conversation than information; how are you using social media to promote your company? Here are a few thoughts to get the conversation started. You need to pay attention to how you look online to your customers.

Use it or lose it: If you don’t grab your company name or an account that has a clever title in it, then someone else in your industry will. If you do not positively promote your company or service, then you will look out of touch to your customers.
Company identity is important: If you do not take the time to show who you are online, a customer will move on to someone who does. You have to strive to connect to a customer in a few clever words or interesting pictures because the upcoming generation of consumers do not communicate directly by phone (in the traditional way), they look you up and get a feel for who you are before they decide who to engage. If you don’t stand out, they will move on.
Left Unchecked, It can Destroy you: If you bury your head in the sand and don’t look out for your social image, you are likely to find some negative comments or worse. It is not unusual to find someone else using your name that may not have the same quality of work or reputation as you do.
Not for me: If you have decided that you want to market your services to the commercial industry and not to individuals, you still cannot ignore social media. Remember that individuals run the companies that you work for and relationship building is much different now than it was just a few years ago. Even purchasers at large companies look you up online if they don’t already know who you are, and you never know who is out there looking for your service.
Do it Quickly: I will end this sort post on that – “do it quickly”. Most people don’t have the time to read something they aren’t interested in or have some preconceived need for. Make your point, make it stand out, and move on.

If you have any advice or stories to share about promoting construction companies on social media, please comment; if you have the time, read my other posts about the construction industry and resinous products. If you need consulting work surrounding any resinous products for any reason or you any ideas about future post subjects, please feel free to contact me.

HAVE A GREAT WEEK!!

October 10, 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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