Why Contracting Businesses Fail

There are many reasons why a business ultimately fails. However, most failures are a result of one or more of the following:

You Started Your Business for the Wrong Reasons

Most owners started their businesses for all of the wrong reasons. Common (wrong) reasons are to make more money, call their own shots, be their own boss, and reduce stress. Many do not recognize the need to develop skill sets beyond what made them good technicians. More money is made with a pen that with a screwdriver.

Poor Health

You must be in good shape to run a business. Proper diet and exercise is essential and underrated. You need to be physically and emotionally ready to handle the stress and push through the setbacks that are inevitable.

Poor Accounting

Accounting is the basis of business decisions and many contractors hire the wrong person for the job.

You need accurate financial statements on your desk by the 15th day of each month. In addition, you need daily updates on all key performance indicators (KPI’s) and financial ratios.

Without a proper bookkeeping and accounting system, you are flying blind. Don’t think that your outside tax accountant is watching your businesses finances. That is the job of the company’s CFO (Chief Financial Officer). That is one of the many hats the owner typically wears until a replacement is found.

Lack of a Cash Cushion (inadequate operating capital)

Mistakes can be expensive. They are a part of the business world and you need to be able to write checks to cover them. Can you afford the loss of an important customer or critical employee? How about the arrival of a new competitor or a lawsuit? These things can all stress the finances of a company.

Lack of Business and Financial Planning

It is critical for all businesses to have a business plan and a detailed budget. Many small contractors fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.

Poor Marketing and Sales

Most contractors do a poor job of branding, marketing, and selling. It is important to understand how to brand your services and market them to the correct audience. Done properly, branding and marketing produces sales opportunities. To successfully turn those opportunities into sales, you must be a trained and skilled salesperson.

Dysfunctional Management

Lack of focus, vision, planning, standards and everything else that goes into good management. Throw in fighting partners or unhappy relatives, and you have a disaster waiting to happen.

The Lack of a Succession Plan

Nepotism, power struggles, significant players being replaced by people who are in over their heads — all reasons many family businesses do not make it to the next generation.

Owners Don’t Understand the Numbers

You must be able to read your financial statements like you read a schematic diagram or a set of refrigerant gauges. Imagine a service technicians that does not understand the basics of pressure and temperature, voltage and amperage, dry bulb and wet bulb. How can they proper diagnose and troubleshoot problems? Trying to run a business without understanding the numbers is dangerous. Don’t rely on others to do it for you. Owners must understand their financial reports.

Remember the Four Basic Keys to Success

We‘ve talked about why companies fail, but we do not want to simply survive, we want to prosper. We want to improve the lives of our family, employees, and ourselves.

While there are many skills required to operating a contracting business successfully, you must have at least the following:

1. Financial management and analysis. Knowing your true breakeven point and pricing for profit.
2. Marketing and REAL salesmanship.
3. Recruiting and coaching.
4. Organizational design and planning.

*Be a business person – not a technician who owns a business.

Your comments are welcomed and appreciated.