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Profits - Strategies to Improve

Responsibility As A Motivator

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Take Your Business to the Next Level

Teamwork As A Motivator

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Time Management Matrix

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The Balance Sheet, Part 1

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The Balance Sheet, Part 3

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Training Saves Money

Value As A Motivator

Year-end Close

Five Strategies to Improve Profits

Companies can enhance financial performance by implementing planning and minimizing risk with some often-overlooked practices
Contractors have always had to deal with risk, but in these uncertain times, their exposure is greater than ever. However, many companies simply react to their growing risks rather than anticipating them through sound analysis and management.
Here are five strategies that contractors can use to improve financial performance.

Develop a Risk Strategy

Effective risk management is about playing both defense and offense. The process begins by assessing risks, including:

> Competitive risks. Competition has intensified among contractors and with full-service, mega real estate firms competing against traditional contractors.

> Pricing pressures. Clients are pressuring contractors to cut prices using reverse bid auctions that drive down prices and squeeze profits.

> Rising materials and fuel costs. Materials shortages and increased costs for fuel and construction materials will continue.

> Litigation costs. They never go down.

> Fast-changing markets. Contractors are having to adapt to rapid changes in the public and private sector markets, including power, telecom, commercial and others.

> Geopolitical risks. War, terrorism and other global events have increased risks to contractors and their clients.

> Labor shortages. Contractors face looming shortages of qualified people.

> Sarbanes-Oxley. The tightening of accounting and auditing standards has put public contractors, like public companies in general, under a microscope, requiring them to disclose deficiencies in their internal controls.

> Insurance/surety. These areas continue to tighten, with costs rising, deductibles increasing and coverage shrinking or disappearing. Sureties are pressuring private contractors to improve internal control standards and systems.
Once risks are identified, they can be quantified, prioritized and strategies can be developed to mitigate their impact.

Develop a Growth Strategy

Companies must decide whether they want to grow and how much. They need to analyze current markets to determine if they are still attractive. If existing markets are declining, companies may need to diversify, expand geographically, acquire other firms or recruit new talent.

A growth strategy also requires the resources to get more projects done. These include sound internal processes, experienced managers and a strong "bench" of new managers who can free senior managers from day-to-day operations to pursue new business.
Alternatively, a company can choose a no-growth, negative growth or selective growth strategy to reduce risk. It can focus instead on reducing costs, increasing profits and capturing market share in existing markets or making selective acquisitions in related business areas.

While a moderate or no-growth strategy may work for large companies, smaller companies that follow the same strategy must consider the risk of losing business to bigger competitors that can work on larger, more complex projects or provide a broader range of services.

Develop a Profit Strategy

How can a company meet its profit goals? Reducing costs can boost profits, but once excessive costs are eliminated the payback from cost cutting diminishes. If a company is not generating enough profits, it may have to grow or diversify to reinvest in the company, create a reserve for future opportunities or pass profits through to shareholders and investors.

If a company chooses growth as a way to increase profits, it should employ the least risky growth strategies, like generating new business from existing customers rather than trying to win new ones. Keeping current customers happy also keeps competitors at a distance.

Develop a Competitive Strategy

Competition in the construction industry is intensifying, both globally and locally. Global contractors generate billions of dollars and thus also have the capital to compete with regional and local contractors. Among U.S.-based firms, large specialty, heavy and building contractors-such as Granite, Modern Continental, J.E. Dunn and others-have developed a commanding presence in local markets.

Companies need to evaluate how their current and potential competitors are diversifying, acquiring companies and hiring people. How are competitors eroding their own market positions? How is their own company viewed by its customers? This information is best gathered from customer surveys done by an outside firm.

Based on analysis, companies may need to fine tune existing strategies or create new ones. But they also have to consider the risks, like diversifying from private to public sector work or jumping into unfamiliar markets.

A competitive strategy also looks at defense-companies have to protect their flanks from competitors who may try to steal customers or employees.

Develop an H.R. Strategy

Strong growth can help companies attract managers and workers. They can offer more jobs, job choices, career opportunities and advancement, and they are in a better position to compete for the best and brightest employees.

Does this mean a slower-growing company will lose the talent competition? Not necessarily. Some people may prefer to work for a company if it offers interesting work, more responsibility, greater autonomy, faster advancement, a supportive culture or other advantages. But smaller companies need to create work environments that meet workers' expectations.

Strategic Planning

Companies must not only have strategic plans but also a process for implementing, revising and adapting them to changing conditions. Plans should include action steps to improve operations and financial performance and capitalize on business opportunities.

Planning begins with a review of the business, its operations and finances. It should include research about trends in existing and prospective markets to identify business opportunities. But whatever planning decisions companies make, their success depends not only on business acumen and financial strength, but also on how well they manage risk.

Please contact me if you would like to learn more about instituting a comprehensive training process. Thank you.

Andy King
T: 805-771-8400
service@missiondevelopment.com