For most businesses, growth is a good strategy. You need to keep growing in order to ensure that you don’t become obsolete. On the other hand, explosive growth can be difficult to manage, particularly if you don’t have a ton of business experience. With these tips, you will know if your business growth pattern is starting to shift out of control.
You Can’t Say No to New Work
In the early years of your contracting business, you may not have to say no to new work opportunities. In fact, at some point you may be delighted to get them. But on the other hand, some businesses are so successful and in demand at the beginning but they are quickly inundated. This can be a problem. After all, saying yes to every job opportunity can leave you burned out and may even pressure you to make shortcuts on the jobs you have. It isn’t a good long-term strategy, because it can leave you without a reliable, satisfied client base.
Your Backlog Is Longer than Your Client List
For most people in construction, a little bit of a backlog can be a good thing. You don’t want to be finishing projects so quickly that you have days without work before the next one. On the other hand, too much of a backlog can make it difficult for you to focus on a more gradual rate of growth. The right backlog depends on the field that you’re in. If you’re regularly taking projects that will last weeks or months, it’s common to have a backlog that could last you several months. But if most of your work takes a week or less, you don’t want to be booked out so far that people conclude you are simply unavailable. There’s a good balance between booking out past the end of the calendar and being ready to do the work tomorrow.
You’re Hiring People Faster than Paying Them
Having so much work on your plate that you need to hire employees to help is a great problem to have. You just have to make sure that your workload can sustain the expenses. In many small businesses, payroll is the biggest single expense. For every person that you hire, you need to be reasonably certain that you have future work sufficient to continue their services. And this isn’t just about protecting your relationship with employees who may be difficult to find. Logic and laws dictate that if you hire people to do work, you have to pay them for it. Sometimes, if you hire too many people too quickly, you may run out of work and money faster than you expected.
Your Expenses Are Doubling
When your clients are coming out of the woodwork, it’s tempting to look at all these projects and think only of the future profits. But you also have to consider how this can increase your expenses. For example, trying to run twice as many projects in the same amount of time may require you to rent or purchase more equipment, or order more supplies. The value of the projects may significantly exceed the expenses, but you’ll need to keep a close eye on it. When your total costs to run the business are much higher than they were a few months ago, it may not take much to send your cash flow spiraling.
Your Cash Flow Isn’t Improving
The last sign that your business is growing out of pace is your cash flow. Cash flow is the liquid assets you have to keep your business running:
- Pay yourself and employees
- Pay bills
- Order materials from suppliers
- Outsource administrative tasks, like taxes
- In theory, if you average about 70% expenses on each project you do, that leaves at least 30% for cash flow and possible profits. But this depends on the projects that are most in-demand. If you go through a period where you were doing more work with a lower margin, you might watch your cash flow evaporate.
Once you start your contracting business, you want it to grow at a steady rate. For more information about beginning your career path in construction, visit CSLS today!