It’s pretty well known that the failure rate of all small businesses in America is very high, clocking in at around 66% of all small businesses failing within 10 years. But for contracting companies, the results are much worse. In fact, studies show that approximately 66% of contracting companies will fail within five years, which is double the failure rate of the average small business.
Here are some common reasons cited for the failure of these companies.
Number one, lack of vision. In the book, the E-Myth Michael Gerber explains how most small businesses start out when an owner or owners have an entrepreneurial seizure where they get frustrated with their employer and decide that they could do just as good a job as them, but make all the money.
Unfortunately, there’s no vision of where the company’s going, why it’s going there, or a plan of how they’ll get there. This leaves the owner to just work hard and hope that things will get better someday. In most cases, someday never comes.
Number two, financial illiteracy. Most contractors don’t start their business because they’re excellent accountants.
They’re tradespeople who like to fix stuff, not to crunch numbers, unfortunately, this is one of the primary things that wipes contractors out. Not knowing your numbers leads to taking on projects that are un profit. Not knowing how to plan properly leads to spending money that they don’t have because of low profit jobs.
All of this can lead to bankruptcy.
Number three, hiring the wrong people. Every person you hire can turn out to be an investment or an expense. Profitable roofing companies make a profitable return on each team member that they invest in. Unsuccessful companies hire people who cost them. Couple the wrong people with loose financial controls, and you have a recipe for fraud and theft, which also runs higher in contracting companies than most other small businesses.
Number four, failure to innovate. Having the wrong people’s bad enough, but you add those people to inefficient systems and processes, it’s very difficult to make them productive. This lack of productivity is. If jobs aren’t priced and sold properly in the first place, it’s impossible to achieve healthy profits.
Number five, weak management. Effective management is the ability to get people to accomplish the results that they are responsible for. Because many contractors hire the wrong people in the first place and have weak systems and processes. Contractors end up micromanaging their team since the job can’t get done properly without constant super.
The owner has no time to work on systems and processes overseeing the financials and all the other stuff that they’re supposed to be doing. Good managers can grow teams of people that achieve their objectives without constant oversight, so they have time to grow the other parts of the business.
Number six, poor marketing, lack of vision, profitability and management processes make spending money on marketing a risky and costly experiment for most contractors.
They lack vision in what the actual message is to the marketplace. And if they don’t have command of their finances, they don’t really know how much they should be spending or what they should get in return for the investment if they’re not strong managers and they’re also not tracking the results so they can adjust and fix things that might not be working properly.
So most contractors spend little to no money on market. Which leaves them vulnerable to when an economic downturn does happen, because there may not be enough of that word of mouth business that they’re so dependent on to sustain them. And all of this can lead to financial devastation.
Number seven weak sales process.
When you spend money on marketing and it doesn’t turn into sales, it can cause a death spiral of profit. . The issue is that if you start spending money on marketing, your prices have to come up, and if you wanna scale, you’ll also need to hire sales people who need to get paid. This also increases pricing, at least if you wanna be profitable.
Many contractors don’t account for all this and end up getting an unpleasant surprise when they look at their bank balance. If this happens at the same time as any of the other profit sucking issues mentioned above, it can be a company. After hearing the seven reasons, did you notice what wasn’t on the list?
What you did not hear was that the materials or the service contractors provided caused their downfall. It is very rare that roofers go out of business because of their roofs leaking. But when you go onto forums, what most of the topics revolve around are the quality of materials or how something was poorly installed, which a lot of times was probably done by a homeowner or handyman.
if this is overwhelming, don’t feel bad. Many of our best clients felt the same way when we first met. Then they’re shocked at the transformations that happen in their business when they start implementing our proven processes. If you’re frustrated and ready to take your business to the next level, click the link on this page to schedule a call.
Our short discovery is designed to understand what issues you’re facing and if our processes would. It only takes 30 minutes and the call is free. So schedule now.