Contractor Issues and Best Practices to Not Only Survive, But to Thrive in the New Normal

Economists use the term “new normal” when describing what the recession has done to our economy. One segment of our economy which has been profoundly affected by this recession is the construction industry. To help our firm better understand what our construction clients are experiencing, we recently conducted a survey of over 300 contractors, banks, bonding companies, and others dealing with this unique faction of our economy. As promised, below you will find the results of the survey as well as ideas, best practices, and techniques members of the construction industry are using to not only survive, but thrive.

The results are broken down into five main categories with the main issues bulleted.
 
1.    Lack of Work & How Margins Work.
·         True cost of low cost is yet to be known – poor quality has a long term consequence.
·         Winning bids are coming in below costs. Some are accepting work just to “keep the guys working.” Some are bidding work at “break-even” on the job side, but leaving nothing to cover overhead.
·         Many general contractors are bidding on the same project. There is more competition from out of town contractors or small start-up shops. Contractors that used to be “niche specific” are now bidding on jobs outside their areas of expertise.
 
2.    Subcontractors.
·         Financial condition of subcontractors is a huge concern.
·         Prequalifying subcontractors is not taking place.
·         Subs don't know which general contractors they can trust to work with and get paid timely.
 
3.    Cash Flow.
·         Banks’ lending constraints are restrictive.
·         Pay when paid. Contractors don’t pay suppliers until they get paid for work they perform. They don’t have lines of credit to bridge the gap. Suppliers want paid in increasingly shorter amounts of time.
 
4.    Economy and Politics.
·         Government regulations including Health Care Bill and Card Check.
·         Higher taxes.
·         Falling real estate values.
·         State and local government budgets.
·         25C tax credits expired.
 
5.    Cost of Doing Business.
·         Bonding difficulties.
·         Cost of healthcare and benefits.
·         Shortage of skilled craftsmen.
·         Misplaced loyalties.
 
Following are some of the ideas and Best Practices that were suggested to not only survive but to thrive.
 
1.    Stop comparing current situation with the past. Have to understand that the economy will not go back to low unemployment and fast growth – the “new normal.”
2.    Protect your margins. Avoid taking on bad business under the mistaken impression that any business is better than none. Cannot pursue new business that can’t begin to cover costs. If a new client can’t produce a positive cash flow, don’t accept as client.
3.    Reduce costs and focus on LEAN and efficient.
4.    Go Green. Construction is moving in the direction of being environmentally friendly. Position yourself to be a Green company and a Green Solution Provider.
5.    Focus on niches.
6.    Public sector money is the fat wallet.
7.    Educate buyers on value added. Price is important, but even more important is to serve customers at a very high level.
8.    Have risk transfer agreements in place. This includes surety bonds, subcontractor default agreements…
9.    Aggressively pursue talent. The recession has forced many firms to release talented individuals or talented individuals are unhappy working for their current employer. If you don’t pursue these individuals, your competitors will.
10.Marketing is everything. Smart firms continue with a strong marketing effort even in difficult times.
11.Social Media. Embrace social media. Facebook has 500 million users. Twitter has 75 million users.
12.Solidify future business through mergers and acquisitions. First, firms should consider mergers or acquisitions in order to reposition themselves for the vast amount of new, post-recession business to come. Many firms will be unable to survive the long term effects of the recession, but a number of stronger, more dynamic firms will rise from the down economy.
 
We presented these results at our construction seminar this past Thursday and a summary of this event is posted on the Contractors Center Point blog. I encourage you to read the summary.  Also, please contact me if you would like to discuss any of the points further or if you desire a copy of the hand out material from this event.

This blog

by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

More from this blog

Bloggers crew

Steve Knowles has spent 25 years in business and practice in the UK, but he also worked in the states and the years haven't dulled his way of seeing an alternative view to everyone else, and every day is a new adventure.

48712

Joel M. Ungar, CPA is a lifelong resident of the Detroit area and a graduate of The University of Michigan. He is a principal with Silberstein Ungar, PLLC, a Top 15 auditor of SEC public reporting companies.

82013

Allan Boress, CPA, with over 25 years as a practitioner and consultant to the accounting profession. Mr. Boress is the author of 12 published books in 6 different languages, including a best-seller, The "I-Hate-Selling" Book.

53887

Larry Perry, CPA, CPA Firm Support Services, LLC, is the author of accounting and auditing manuals, author and presenter of live staff training seminars, and author of webcast and self-study CPE programs. He blogs about small audits, reviews, and compilations.

97432
Sandra Wiley, COO and Shareholder, is ranked by Accounting Today as one of the 100 Most Influential People in Accounting as a result of her prominent role as an industry expert on HR and training as well as influence as a management and planning consultant. She is also a founding member of The CPA Consultant's Alliance. Sandra is a certified Kolbe™ trainer who advises firms on building balanced teams, managing employee conflict and hiring staff.
24576

Maria Calabrese, CIR, Human Resources manager for Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC in Cranford, New Jersey, Maria's topics revolve around the world of: Mentoring, Performance management, and The "Y Generation," a.k.a. "The whY generation".

61280

William Brighenti is a CPA, Certified QuickBooks ProAdvisor, and Certified [Business] Valuation Analyst, operating an accounting, tax, and QuickBooks consulting firm in Hartford, Connecticut, Accountants CPA Hartford.

87119

Ken Garen, CPA, is the co-founder and President of Universal Business Computing Company (www.ubcc.com), a software development firm of high-volume, high-productivity accounting and payroll technology.

28506

Eva Rosenberg, MBA, EA, is the publisher of TaxMama.com, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

70047

Amy Vetter, CPA, CITP is the CPA Programs Leader for Intacct Corporation responsible for leading the CPA/BPO Partners nationally.

38227
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
110189
Scott H. Cytron, ABC, is president of Cytron and Company, known for helping companies and organizations improve their bottom line through a hybrid of strategic public relations, communications, marketing programs and top-notch client service. An accredited consultant, Scott works with companies, organizations and individuals in professional services (accounting, finance, medical, legal, engineering), high-tech and B2B/B2C product/service sales.
29999

Rita Keller is a nationally known CPA firm management consultant, speaker, author, mentor and blogger. She has over 30 years hands-on experience in CPA firm management, marketing, technology and administrative operations.

58261
Stacy Kildal is the mom of two fantastic kids, an Advanced Certified QuickBooks ProAdvisor, Certified Enterprise Solutions ProAdvisor, Sleeter Group Certified Consultant, a nationally recognized member of the Intuit Trainer and Writer Network, and co-host of RadioFree QuickBooks.
32006
Michael Alter's blog specializes in providing practical advice to those who seek greater profitability and practice management tactics that enhance deeper client relationships.
36634

Sally Glick, CMO, Principal, Marketer of the Year in 2003 and AAM Hall of Famer in 2007, leads a lively discussion of the constantly expanding roles of marketing and the professional marketers that drive this initiative in accounting firms of all sizes.

109058

The IMA Young Professionals Blog features the insights of IMA’s Young Professionals Committee. Committee members share advice and experiences on careers, continuing education, work/life balance, and other issues affecting young accounting and finance professionals.

37893

FEI Financial Reporting Blog provides highlights from SEC, PCAOB, FASB, IASB, and other regulatory news, including reporting under Sarbanes-Oxley Sect 404. It is written by Edith Orenstein, Director of Technical Policy Analysis at FEI.

120232

Sue Anderson has 30 years of experience in continuing education for accountants. Currently she is the program director for online CPE provider CPE Link.

67440

Jim Fahey is COO of Apple Growth Partners, a regional CPA firm in Ohio. His focus is on the effective and efficient use of technology within the firm by all team members.

43693
Caleb Newquist is the Editor-in-Chief of Sift Media US, overseeing content for both AccountingWEB and Going Concern.
71427

Leita Hart-Fanta, CPA, CGFM, and CGAP is the author of "The Yellow Book Interpreted" and owner of Yellowbook-CPE.com a website devoted to training for governmental auditors.

98406

AccountingWEB is more than just a U.S. team of journalists and financial and technology experts - we have an international side, too! Members of our British team who publish AccountingWEB.co.uk share their ideas, insights, and perspectives from across the pond.

58970