Common Elements of Contractor Failure
March 20, 2003
In the book, "A Contractor’s Survival Guide," by Thomas Schleifer, the author concludes that after ten years of examining distressed and failing construction firms, a finite number of causes are repeated as the reason for profit loss or failure.
These 10 common elements include:
1. An increase in project size from that normally handled.
2. Doing work in an unfamiliar geographic location.
3. Taking on new types of work or moving between the public and private sectors.
4. Losing key personnel in one of three primary areas of operation--estimating and sales (obtaining the work), construction operations (doing the work), and administration and accounting (managing the business).
5. Lack of managerial maturity in expanding operations--the qualities of a manager to start a business are not necessarily the same qualities required to manage growth of the business.
6. Use of poor accounting systems which yield inadequate information for decision making.
7. Failure to evaluate project profitability.
8. Lack of equipment cost control.
9. Poor billing and collection procedures which yield a negative cash flow.
10. Transition to computerized accounting from a manual one causing contractors to lose control of their recordkeeping altogether.
If you can identify any of these causes for business failure in your company, take steps regain control and head off future problems. If you need help overcoming these issues, look to PHCC and your fellow association members. Many of them have overcome these problems and will be willing to with you how they did it.
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