Is Your Company Lean and Mean?

By Charles Vander Kooi

F at and sassy contractors are contractors who have become overconfident in their approach to business. They came into the business during "the good times" and have been able to obtain work at fantastically high prices.

This has allowed them to build up a dinosaur of a company to perform the work, and still make a profit. They have a load of people on overhead to take care of every little thing that comes up. They have glutted themselves with highly paid management people and are charging customers for their inefficiencies.

Lean and mean contractors, on the other hand, refuse to allow any fat on their management bones. Every employee must be productive, cost effective and must bring in, or help someone else to bring in, money to the company.

Before hiring additional people, the existing staff must accomplish what needs to be done until that becomes impossible or unreasonable. Any new hiring is done reluctantly, and only after careful consideration about whether such a hiring will keep the company lean and mean.

Attitude Adjustment

With each year that passes, the landscape/hardscape industry continues to mature and competition continues to get tougher. This happens in every industry. Companies find that if they're not lean and mean, a competitor who is will come in and knock them out, or at least knock their margins down to unacceptable levels.

We are being forced into a very important rethinking of our approach to business. I believe in this concept so strongly that one of the first things my consultants do when they go into a company is to look for the fat and then make suggestions as to how that company can become more lean and mean. That kind of management style puts more money to the bottom line and will protect that company from becoming a casualty during an economic downturn.

Symptoms of a Fat Company

Is your company fat where it doesn't need to be? Following are some common excesses I see:

Too many people are working in the office of the company. It is over-administered. More things are being done than a company can afford to do.

People are paid more than their job is worth. Notice I did not say more than they are worth, but more than their job is worth. That is an important distinction. Contractors often decide how much to pay someone, not based on what their job is worth to the company, but rather, on this person's need-in their estimation. This problem intensifies after a person is with you for awhile and you develop a relationship with them and get to know their family.

I hate to give national averages, but we have found the following to be a good rule of thumb: In construction, all overhead salaries should not exceed 8% to 15% of gross sales. The 8% is for companies doing bigger jobs mostly bid off of someone else's drawings. Overhead salaries can get as high as 12% if you design and sell your work, and/or your work is mostly smaller jobs.

Owners often view their business as a good place to write off things for tax purposes. There are tax advantages to owning a business, but that does not matter when the expenditures are unnecessary.

If you don't really need something or someone, it doesn't matter if it is tax deductible. Look out! You may be in danger of becoming fat and sassy. If an expense cannot be justified as a good business decision on its own merit, don't buy it.

I would much rather pay taxes on money that I need for expansion, or as a safety valve between me and bankruptcy, than to waste it on something or someone that I don't need-just to keep from paying taxes.

Assessing your Company

Evaluating whether your company is fat and sassy can be very difficult because these conditions are caused, for the most part, by your attitudes. The first step is to understand 3 things:

1. Because attitudes are often affected by our environment and feelings, you need to do whatever it takes to evaluate how those factors are affecting your decisions as you manage your company.
2. You need to constantly review your company and how you are running it, to make sure that as time has gone by you have not allowed it to become fat and sassy without realizing it.
3. You should not rely solely on your personal assessment. I doubt if many of you reading this article would consider your company to be fat and sassy. Yet, a good many of them are!

Every company needs somebody to be looking in from the outside. This will help you see things you don't realize. I would suggest that you get a good business consultant, or at least a mentor who can advise you from an objective point-of-view.

Here is a checklist of points for you to consider:

• Could I hire someone to do my job for less money than I pay myself?
• Could I hire people for less money than I am paying my people? Are there more qualified people in the labor pool of my area who are readily available?
• Does the company actually need everything done in the time that it is currently being done? Do we even need all those things done? Do I need all of the reports that I think I do? Are there more inexpensive ways of getting these things done?
• What expenses are producing income, and which ones could I really do without? How can I, without looking like a cheapskate, encourage others to watch every expense?

The owner or manager of a construction company is constantly juggling several balls in the air at one time. The balls are good estimating strategy, good field performance, good administration, and vigilance in watching where every dollar goes.

Part of the juggling act is to know when to allow certain expenditures and hiring, and when not to allow them. You must know how to constantly keep everyone's attitude in tune with expenses and profit. You must know how to sell, without being overbearing, the attitude that says, "We as a business must remain lean and mean or we will be drowned in our own fat."

Remember this: No one else in your company will even begin to consider these things unless you communicate them to your people. Even then, they will not think about them, unless you communicate them in a healthy and motivating way.