Working in the construction industry I naturally deal with a wide range of contractors both large and small.
But what I have been amazed to discover over the years is that the majority of contractors that go under are often completely surprised that they had failed.
And more upsettingly…
They also rarely know why they had failed.
So, why do so many trade and construction companies fail without anyone realising they were about to go under?
Place Your Bets
Trade and construction contracting is unlike any other business.
The product is sold for a future fixed price before anyone really knows exactly what it will cost to build.
And if you think about it, this is quite a novel way to do business.
The reality is, contractors are placing a bet that they will get paid a sufficient pre-arranged amount after incurring costs they can only tally up after the job is complete.
In other words, contractors are gamblers.
Every time they win a bid and sign a contract, they are betting that they can make a profit on the transaction.
“Know When to Hold ’em – Know When to Fold ’em”
Just like the song says, the first rule of the gambler is “You’ve got to know when to hold ’em and know when to fold ’em”.
As gamblers this is the most important skill contractors can develop.
But how can we know when to bid a job or when to stand pat?
How can we accurately estimate the costs we will incur in a hyper-inflation environment months or even years into the future?
How can we place an informed bet rather than play a hunch?
These are the questions you must be asking.
Because only suckers play hunches.
Gamblers rely on data to back and inform their risks.
“The secret to survivin’ is knowin’ what to throw away… Knowin’ what to keep.”
Be The Bookie
The gambler is never a consistent winner.
But you know who is?
The bookie.
The guy who sets the odds, then books the bets.
He never plays a hunch or takes a flyer, but carefully measures risk through intricate algorithms developed through relevant data extracted from the sport’s history.
Bookies rarely lose money.
If contractors acted more like bookies and less like gamblers, we would save ourselves a lot of losses.
Every bid submitted and contract signed should only be executed based off a detailed understanding of your own numbers and risk profile.
If you’re unsure on your financial position or how to be pricing your jobs and projects you’re gambling away your business, and your income.
Instead, you need to have financial experts review your numbers, assess your bottom-line risk of winning or losing, and back your decisions with facts.
A Disorderly Market
For anyone reading this article, chances are you’ve never experienced a more disorderly market.
We are not experiencing a typical volatile construction marketplace caused by periodic economic stresses and strains.
This post-pandemic market is rife with unexpected nightmarish economic traumas that render orderly business practices almost impossible.
Two and a half years of a viral pandemic forcing businesses to stand down, hammering our labour force, interrupting the supply of materials, and rampant pricing inflation across the entire world, has been followed by the Russian invasion of Ukraine causing interrupted energy supply and fuel prices to skyrocket, adding insult to injury.
The Gambler
Without the keen eye of your odds makers (accountants, estimators, and advisors) assessing your chances of success (setting the line for every new proposal), you will almost certainly make bad bets based on wishes and hunches as you hesitantly move forward in this disorderly market.
It’s time to be the bookie.
It’s time to rely on your financial professionals to analyse risk before you make any moves.
This is a mine field.
And one false step can upend your entire organisation.
If you won’t listen to me, how about listening to Kenny Rogers…
You got to know when to hold ’em
Know when to fold ’em
Know when to walk away
And know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealing’s done.
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Article contributor: Dr Thomas C Schleifer
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