Taking your construction business to the next level

This article is from Business Owner Magazine published by the management consulting firm, Global Resources.

From Entrepreneur To CEO

By Joe Polizzotti on Oct 25, 2011

It takes a certain type of mindset to lead a construction company to success.

Most construction company owners started out working for someone else, became experts at a technical skill and then decided to go into business for themselves. Their desire for independence is rarely motivated by money. Rather they are entrepreneurs who want to steer their own ship and control their own destiny. But while an entrepreneurial mindset is necessary to get a company off the ground, it’s not enough to run a successful construction business.

The entrepreneurial mindset is one of “Yes, I can.” Entrepreneurs don’t believe they can fail and see every problem as an opportunity to be conquered. They have a vision and a powerful drive to achieve it. That’s why entrepreneurs are good at conceiving and starting businesses.

But once the business gets off the ground and starts to grow, the owner has to evolve from entrepreneur to CEO. Vision and drive are still important, but operating a successful business requires a whole new skill set. In fact, entrepreneurs don’t usually make good business managers because they would rather look for new opportunities and develop new ideas. They are bored by dayto- day management chores and don’t have the patience to develop and study operational reports.

Entrepreneurs who fail to evolve into CEOs as their companies grow tend to become “worker bees,” so stressed by putting out the day-to-day fires of the business that they forget why they went into business for themselves. They wanted to be their own boss, work less and spend more time with their family. Instead, they end up as captive slaves, working in the bowels of the ship, six or seven days per week.

Another contributing factor to this trap is that entrepreneurially minded, highly skilled business owners tend to be perfectionists. Believing they are the only ones who can do anything right, they see no need to hire a good leadership team that can share the management burden. Furthermore, with a “superman” or a “superwoman” taskmaster at the helm, employees never learn to make their own decisions because they expect to be overruled if they try. They defer to the owner for every little matter, which robs him or her of the time that should be spent focusing on the big picture.

As a result, employees don’t grow professionally and cannot contribute to make the business profitable.

To avoid this vicious cycle, here are four key steps entrepreneurs need to take to become CEOs:

  1. Change the mindset from worker-bee to CEO. Owners are, by nature, “doers” who feel worthy when they are “doing something.” The problem is they may be simply spinning their wheels.
  2. Create a business plan and stick to it. Focus on executing strategies with the big picture in mind.
  3. Hire or develop an effective leadership team. This includes defining the leadership team’s roles (including the owner’s own roles) and holding everyone accountable for results.
  4. Develop minimum standards for employees. Require key people to hold employees accountable for results, not for just putting in time. Without minimum standards, employees will set their own, which are probably not going to be in line with the owner’s standards.

With these components in place, the business will become profitable; the owner can focus on leading, rather then working and will have time to spend with family. Employees also will be more productive and engaged because they know they are part of the solution, not the problem.

Tools for Profit
Let’s look at some of these factors in more detail at an actual business: Onslow Stoneworks Inc. in Swansboro, N.C., which imports, fabricates and installs marbles and granites. For owners and President Mike Schott, working with stone and granite is a family tradition, going back to ancestors who came from Italy and owned granite quarries in northern New Jersey. Last year, revenues were just $1.5 million, down from $3 million a few years ago. “We were suffering terribly last year from lack of business,” Schott explains. “In addition to the sharp downturn in the construction industry, a number of other stone companies had branched out and opened up, and competition was fierce.”

Schott’s greatest worry was that a large percentage of the business came from a national chain and produced very low margins. He felt very uneasy about this unprofitable work and doubted whether his business skills were sufficient to sustain the company under these conditions. With the help of an outside consultant, he took the steps necessary to turn the business around.

One measure was to adopt a format to control inventory. “We set up a square footage matrix, which, for the first time, gave us a clear understanding of what waste meant to our bottom line,” Schott says. “In the past, we used to purchase raw material and use it as needed, and although we were careful to avoid waste, we never really saw the full picture.”

Another success strategy was to reformat Quickbooks to accommodate waste, cost and job tracking. “We’ve always been good at what we do professionally, but we were not as proficient when it came to finances and tracking our true costs,” Schott says. “Now we finally have the financial reporting tools a successful business needs to have.”

Using these new tools, Schott established how much square footage the company needed to produce per day, per week and per month.

“In the past, we did not price based on square footage,” he says. “Now, our financial tools help us understand where our line in the sand is as far as profitability is concerned. We know how aggressive we need to be to obtain jobs in a very competitive market and how much we need to produce to meet our projections. Knowing what our costs and margins are makes it much easier to price, track and stay on course.”

These new insights, in turn, allowed Schott to make the low-margin work for the national chain more profitable. “Knowing how much square footage we have to install per day to make a profit led us to change how we schedule jobs,” he says. “We consolidated trips—delaying some jobs and moving others up—to achieve significant reductions in travel time. We now make money even with low margins.”

Now, Schott has peace of mind knowing that the business is profitable. “A business owner gets up in the morning for the thrill and the excitement of making money,” he says. “As a side benefit, we love what we do. The idea is to combine both to make a living.”

“In order to do that, you must be 100 percent certain what the hard costs are, and you have to have the tools to evaluate how efficient you are so you’re not relying on gut reaction, but on black and white reports,” Schott continues. “If you don’t know what your true costs are to produce your product, how could you expect to stay alive when margins are so tight these days?”

Although entrepreneurs don’t usually start a business with the sole objective of making money, the only reason for being in business is to make money. Doing so requires more than an entrepreneurial mindset. It requires an organizational structure headed by a leadership team whose roles, responsibilities and accountabilities are clearly defined, and a system that allows the company to run without the hands-on, worker-bee involvement of an owner who has to make all the decisions and is the only one who can do anything right. The owner’s job description is to ensure enough business is being generated and then manage people to perform quality, on-time work so the company can make a profit.

The four principles of running a business are: Get the job done on time or sooner, within budget or less, without rework or overtime AND with control over material costs. Those four factors guarantee success. When one or more are absent, there cannot be a consistent profit, and the firm will wither away and eventually go out of business.

How Healthcare Reform Will Affect Small Businesses

This article is from Business Owner Magazine and can be found at http://www.americanbusinessmag.com/2011/10/how-healthcare-reform-will-affect-small-businesses/  Business Owner Magazine is published by the small business consulting firm, Global Resources of Buffalo Grove IL

By JoAnn Laing

As aspects of the Patient Protection and Affordable Care Act (PPACA) gradually kick in, the application, management and makeup of healthcare benefits, offerings and costs will change for many small businesses.

Small business owners may be faced with:

  • Coverage requirements prohibiting insurers from denying coverage or using price discrimination to target those with preexisting conditions; and
  • The establishment of government sponsoredhealth plans.

Despite administration assertions to the contrary, there will also be additional costs and administrative oversight that even the smallest company will need to deal with. In surveys conducted by Information Strategies, Inc. (ISI), looming healthcare benefit changes are increasingly occupying small business leaders’ attention at the present time.

At a minimum, requirements such as mandated wellness programs, minimum coverage levels and employee participation are forcing small firms to address often painful healthcare benefit decisions.

Nationally, three-quarters of businesses with 10 to 24 workers offer benefits. About half of those with three to nine employees provide health plans. By comparison, 99 percent of firms with more than 100 employees offer benefits. It is estimated that there are more than 1.2 million firms that come under the new rules primarily affecting employers with 50 or more employees.

The new IRS rules allow businesses to use one of three methods to determine the number of full-time workers: counting bodies, weeks worked or hours worked – whichever is easier and more beneficial. In addition, the IRS stated it would permit businesses to claim the credit this year even if they do not currently meet a requirement under the law to provide the same level of coverage to every worker.

The first decision small firms will have to face is whether to continue providing such coverage or pay a yearly penalty per employee. This choice was one under consideration by one out of every four small businesses surveyed by ISI in the first quarter of 2011.

The penalty for failing to provide coverage is a nondeductible $2,000 per employee, per year excise tax assessed monthly ($166.67 per month) for each month the employer failed to provide coverage. For purposes of computing the penalty, the assessment of the excise tax begins after a 30-employee threshold is passed.

For those who plan to continue offering coverage, private insurers suggest that premiums will rise for small employer groups. The experience of small business owners in California does not contradict this expectation. There, small group premiums have gone up significantly despite the efforts of the state insurance commissioner to hold the line.

Employers will also face an increase in payroll taxes. Under current law, most wages are subject to a 1.45-percent Medicare payroll tax. The PPACA adds 0.9 percent surtax to wages in excess of $200,000 for single filers and $250,000 for joint filers.

To balance this trend, as many as four million small businesses might be eligible for federal tax credits to help cover the cost of health insurance for their workers. Small businesses were sent government postcards alerting them to the availability of the credit—which covers up to 35 percent of their healthcare costs—in hopes that more would choose to offer the coverage. The IRS also issued a series of rules clarifying eligibility for the credit, which is available to businesses with fewer than 25 employees and paying an average salary of less than $50,000 a year. The value of the credit phases out as the number of workers and their salaries rise, with the full 35 percent credit available only to businesses with fewer than 10 full-time workers paying an average salary of less than $25,000 (see next page for details on how this program works).

Healthcare reform has some additional helpful provisions for small business owners. Often, small business owners provide differing plans for themselves and senior management. These highly compensated employees have plans that significantly exceed the value of benefits offered to non-highly compensated employees. If they fail to meet IRS standards, the plan may lose its tax-qualified status. Administering “non-discriminatory” tests are likely to be highly complex, complicated even further by the fact that the actual comparisons may not be available until the end of the tax year.

Beginning this year, a simple cafeteria plan will be offered to help those employing 100 or fewer. This uniform plan will avoid the non-discrimination rules. To satisfy safe harbor (compliance) rules, the employer must meet both contribution and participation requirements. By following the safe harbor, an employer may safely retain certain discriminatory benefits for their highly compensated employees.

To meet the contributory safe harbor, the employer must contribute to the plan, on behalf of each employee (regardless of an employee’s actual contribution), an amount that is at least:

  1. Two percent of an employee’s compensation, or
  2. The lesser of six percent of an employee’s compensation or twice the amount of salary reduction contributions of each employee.

In recent years, many smaller firms have been turning to consumer-directed healthcare offerings, including health reimbursement accounts (HRAs), health savings accounts (HSAs) and flexible spending accounts (FSAs). For distribution purposes, PPACA has changed the definition of a “qualified medical expense.” These tax devices will only apply to the reimbursement of the costs of insulin and prescription drugs in taxable years starting after December 31, 2010. The additional tax on impermissible distributions from an HSA or Archer MSA (the predecessor to the HSA) will increase from 10 percent to 20 percent.

There will also be limits imposed on the amount that an employee can elect to contribute to a flexible spending arrangement under an employer sponsored cafeteria plan. Prior to the PPACA, there was no limit. After 2010, the annual limit is $2,500 subject to future indexing.

These plans have been providing smaller firms with significant reduction in premiums and should be further explored if a preferred provider plan is now in effect. For insurers, the small business market presents a big opportunity. As noted earlier, nationally, three-quarters of businesses with 10 to 24 workers offer benefits. About half of those with three to nine employees provide health plans. By comparison, 99 percent of firms with more than 200 employees offer benefits.

Insurers, on the other hand, face the difficult requirement of spending at least $.80 cents of every premium dollar on healthcare services. Insurers have also reduced broker commissions, meaning professional help for smaller employees may not be as prevalent as in prior years. Small business owners should shop for the best rates and start earlier in the plan year.

What has yet to be determined is the role exchanges will play in the healthcare benefits experience for small businesses. If Massachusetts is a harbinger, then many firms will opt to provide incentives for employees to seek individual coverage through these programs and do away with healthcare offerings. The administration is trying to address these concerns before most provisions begin in 2014.

According to attorney Ben A. Neibur, “Administering and monitoring compliance will, unfortunately, absorb both public and private dollars adding to the associated expenses of what, already, is the world’s most expensive health care system.”

The IRS stated the value of the small business tax credit would not be reduced by State healthcare tax credits, which exist in as many as 20 states, according to a list compiled by the National Conference of State Legislatures. Businesses will also be permitted to apply the credit to vision, dental and other such coverage, so long as they pay at least 50 percent of their workers’ premiums.

An important selling point has been a tax credit that the nation’s new healthcare law provides to companies with fewer than 25 employees and moderate-to-low pay scales to help offset the cost of providing benefits. The tax credit is one of the first few provisions to kick in—much of the law rolls out over the next few years.

“We certainly did not expect to see this in this economy,” said Gary Claxton, who oversees an annual survey of employer health.

By 2014, employers who have more than 50 employees must offer health insurance benefits or pay penalties ($2,000 per employee). The 50-employee threshold may discourage growing enterprises from adding full time employees.

Companies with 25 or fewer employees who meet certain wage requirements will also be able to get credits toward health insurance purchases. Businesses that pay more than 50 percent of employees’ health benefits, have fewer than 26 employees and pay average annual wages of less than $50,000 can claim a tax credit of up to 35 percent of the cost from the 2010 tax year through the 2013 tax year. The credit will go up to 50 percent in 2014 and can be used for two consecutive years after that. The open question is: What happens in 2017? Will small businesses bear the full cost?

Global Resources to Sponsor Monday (8/29/11) Webinar

Management consulting firm Global Resources is sponsoring The Fremont Group’s webinar on Monday 8/29.  Attendees can listen to author Dirk Dieters (also the Executive Director of The Fremont Group) speak on leadership.  The webinar is titled, “Leadership Starts With You” and examines the role of leadership in small businesses.  You can attend by sending a email to admin@tfginfo.org before 9 a.m. on Monday 8/29 and you will be provided with the sign in codes.  The webinar starts at 11 am MDT and lasts approximately 45 minutes.  This webinar is in the fall webinar series of The Fremont Group.

Business Owner magazine retains Fremont Executive Director

Dirk Dieters, the founder and Executive Director of The Fremont Group has been retained by Business Owner magazine as a contributing author of business articles.  Dieters, author of “Minding My Own Business” (available on this site or Amazon.com) is nationally renown for his work with small business owners.  Business Owner magazine is published quarterly by GPS, GR, CBS or STA—major firms in the small business management consulting field.