Navigating the Realities of Contracting: Insights from the Field
Running a contracting business is a complex, ever-evolving challenge. From managing finances and teams to implementing new systems and adapting to technological change, contractors face a unique set of hurdles. In a recent Q&A episode of "Beers with Contractors," industry veterans tackled some of the most pressing questions from the field, offering candid advice, hard-earned lessons, and a few laughs along the way. This article distills their conversation into actionable insights for contractors, business owners, and anyone interested in the nuts and bolts of the construction and service industries.
Financial Management: Bookkeepers, Controllers, and CFOs
When Do You Need a Controller or CFO?
One of the most common questions for growing businesses is when to bring in higher-level financial expertise. The consensus among the panel was clear: for companies with annual revenues around $3 million, a bookkeeper is typically sufficient. A controller or fractional CFO becomes necessary only as the business scales—often not until $15–20 million in revenue.
Key Takeaways:
Bookkeepers handle day-to-day transactions and keep the books in order.Controllers step in as the business grows, focusing on financial discipline and oversight.CFOs are strategic, high-level thinkers who drive long-term financial planning and growth.
For most small to mid-sized contractors, the priority should be accurate bookkeeping and periodic consultation with a financial expert. Strategic advice is invaluable, but hiring a full-time controller or CFO too early can be a costly misstep.
The Importance of Sound Financial Advice
While bookkeepers manage the details, they rarely provide forward-looking advice. Contractors often need guidance on cash flow, inventory management, and break-even analysis. Consulting with experienced professionals—even on a part-time or project basis—can fill this gap and help owners make informed decisions.
Property Management and Scaling Operations
When to Hire a Property Manager
For contractors who invest in real estate, managing properties can quickly become overwhelming. The panelists shared that hiring a property manager typically makes sense when you reach around 12 units. At this point, the time saved and operational efficiency gained often outweigh the cost.
Considerations:
Side Hustle vs. Full-Time: If property management isn’t your main focus, outsourcing can free up valuable time.Thresholds Matter: Know your limits and plan for growth by building the right infrastructure.
Building Adjacent Verticals
As contractors expand, it often makes sense to bolt on related services—like starting a cleaning company for multiple Airbnb properties. This approach leverages existing skills and resources, turning side projects into true businesses with dedicated systems and staff.
Strategic Hiring: Avoiding Common Pitfalls
One of the worst mistakes a business owner can make is hiring without a clear understanding of the problem they’re trying to solve. Don’t add full-time employees just to offload tasks you dislike. Instead, define the role, the outcomes you expect, and how it fits into your overall strategy.
Pro Tip: If you hate bookkeeping or want someone to “just tell you how to make money,” resist the urge to hire a controller or CFO prematurely. Focus on process improvement and targeted consulting instead.
Implementing EOS: The Entrepreneurial Operating System
What Is EOS?
The Entrepreneurial Operating System (EOS), popularized by the book "Traction" by Gino Wickman, is a framework for running and scaling businesses. It emphasizes clear roles, accountability, and process-driven management.
Challenges with Owner-Managers
A common issue arises when owners also serve as department heads. This can create confusion and ego-driven conflicts, especially when a non-owner integrator (the person responsible for day-to-day operations) is expected to hold owners accountable.
Best Practices:
Roles Over Titles: EOS cares about the seat you occupy, not your ownership stake.Ego Check: Owners must be willing to be managed for the system to work.Trust and Communication: Success depends on open dialogue and mutual respect among leadership.
EOS Beyond Contracting
While EOS is widely used in business, its principles are rarely adopted in academia or other sectors. The panelists argued that more organizations could benefit from its structured approach to meetings, accountability, and process improvement.
Asset Management: What Belongs on the Balance Sheet?
Capitalizing vs. Expensing Tools and Equipment
Deciding what to list as an asset versus expensing as a small tool is a perennial debate. The general rule is to capitalize items over a certain dollar threshold (often $2,500) and with a useful life of more than a year. However, rapidly depreciating technology like laptops may not be worth tracking as assets.
Guidelines:
Expected Lifespan: Only capitalize items that will provide value over multiple years.Ease of Tracking: If it’s too cumbersome to track, consider expensing.Depreciation Schedules: Equipment that can be moved between vehicles or locations should have its own depreciation schedule.
Real-World Example
If you have a $20,000 drill rig bolted to a truck, it should be tracked separately from the vehicle. If the equipment can be unbolted and reused, it maintains its own asset value and depreciation.
Proposals and Estimates: How Much Detail Is Enough?
To Break Down or Not to Break Down
Should you provide detailed breakdowns of labor and materials in your proposals? The panel’s advice was unequivocal: keep it simple. Most customers are interested in solving a problem, not dissecting your profit and loss statement.
Why Simplicity Works:
Avoid Confusion: Customers often don’t understand indirect overhead or business expenses.Protect Your Process: Detailed breakdowns invite unnecessary questions and negotiations.Focus on Solutions: Present a clear description of the work, exclusions, and a single price.
Internal Record-Keeping
While customer-facing proposals should be straightforward, internal job costing must be detailed. Track expenses, change orders, and inventory shrinkage meticulously to maintain profitability and identify problem areas.
Compensation Models: Hourly, Salary, and Piece Rate
The History and Pitfalls of Piece Rate
Piece rate pay—compensating workers based on output rather than hours—originated in the industrial revolution. While it can incentivize productivity, it comes with significant compliance risks. Employers must still track hours and overtime to comply with labor laws.
Pros:
High Performers Thrive: Motivated employees can earn more by working efficiently.Cost Control: Employers can better predict labor costs.
Cons:
Compliance Complexity: Failing to track hours can lead to legal trouble.Not One-Size-Fits-All: Some jobs are too variable or creative for piece rate to work.
Blended and Performance-Based Pay
A blended approach—combining hourly, salary, and performance incentives—often yields the best results. Aligning pay with outcomes rewards efficiency and quality, benefiting both employees and the business.
Customer Perspective: Ultimately, clients pay for results, not time. Contractors should price jobs based on the value delivered, not the hours worked.
Financing Options for Sales Teams
Understanding Customer Needs
Offering financing is essential, especially for high-ticket projects. Most customers, particularly Gen X and Boomers, may not have the cash on hand for large purchases. Installment plans—especially longer-term options—can make services accessible without sacrificing profitability.
Tips:
Match Terms to Customer Demographics: Understand your market’s financial realities.Avoid Zero-Interest Traps: Extended zero-interest plans may not be as beneficial as they seem.
Marketing and Branding: The Value of Van Wraps
Investing in high-quality vehicle wraps is a one-time expense that can generate leads for years. Don’t skimp on materials or installation—cheaper options often require costly rework. Consistent, professional branding builds recognition and trust in your local market.
The Rise of AI in Contracting
AI and Inside Sales
Artificial intelligence is poised to revolutionize inside sales for contractors. While regulations currently limit AI-driven cold outreach, AI can already handle appointment booking, follow-ups, and objection handling for opted-in customers.
What to Expect:
Task Automation: AI will take over repetitive, low-value tasks, freeing up human salespeople for high-value interactions.Compliance Matters: Ensure customers opt in to AI communications to stay within legal boundaries.Competitive Advantage: Early adopters of AI-driven sales processes will gain efficiency and scale faster.
Lessons in Adaptation and Growth
The contracting industry is changing rapidly. Success depends on a willingness to adapt, invest in systems, and seek out expert advice. Whether it’s implementing EOS, refining your compensation model, or leveraging AI, the key is to focus on outcomes, efficiency, and continuous improvement.
Final Thoughts:
Stay Curious: Keep learning from peers, consultants, and industry leaders.Prioritize Process: Systems and processes are the backbone of scalable, profitable businesses.Embrace Change: From technology to compensation, be ready to evolve.
As the "Beers with Contractors" crew reminds us, running a contracting business is as much about people and process as it is about tools and materials. With the right mindset and strategies, contractors can build businesses that stand the test of time—and maybe even have a little fun along the way. Cheers to your success!
