John Kenney, CPRC, CEO, Cotney Consulting Group
Last month, in part one, we covered three of the five recurring and industry-wide risk elements to potential profit or failure for a roofing contractor. These included increased project size, unfamiliarity with new geographic locations and new and unfamiliar types of installations and services. In part two, we will focus on the effects of key personal changes and a lack of organizational maturity. We will close with a few items on evaluating contract profitability.
There are three primary functional areas of a roofing company and each must be competently managed and supervised to be successful. The primary areas are:
■ Construction operations (do the work).
■ Estimating and sales (get the work).
■ Administration and accounting (managing the business).
A top-level manager in every successful roofing business is responsible for each area. In many cases, one person is responsible for all of them or two may share the responsibilities. If your company is making a profit, it is because of the efforts of these individuals. If one of them leaves, there is by definition no track record of profitability for the new organizational team. This is a simple reality in business and even more so in the roofing industry.
Some may say, “My company makes money because of the great team of estimators and project managers we have assembled.” While this can be a contributing factor, successful companies do not entrust responsibility for primary functional areas of their companies to middle management.
The corporate structure is separate and distinct from your field organization. The top management team of a roofing company is tiny compared to other industries because the labor side of the business is field managed. Some contractors even subcontract a large portion of their labor. The quality of field management relies mainly on the quality of the key person or persons responsible for roofing operations. If a key person in charge of roofing operations in your organization leaves, your company is changed and at risk until their replacement proves that they can do the job profitably. Always keep in mind that operations provide your company’s entire cash flow.
On the estimating and sales side, one or more key persons will be responsible for your company’s pricing strategy. These managers
will usually take on a direct role in the preparations of bids and will determine the final price. The takeoff and estimating team is a great asset to the company; still, the top managers put them together and are responsible for the success or failure of capturing the work. If one of these people leaves your company, the organization no longer has a proven team to get new work.
Often, administration and accounting are overlooked and undervalued by contractors. With some contractors, it is difficult to determine the top manager in administration and accounting because this function is not recognized as a primary area essential to a company’s success. It is often delegated to middle managers.
When a small size contractor runs the entire business, including such details as signing checks, they are engaged in accounting operations by paying bills and having continuous knowledge of bank balances. If loans are required, they are the ones who explain
it to the banker. The contractor continuously communicates with relatively few people on their work in progress. As a result, poor paperwork and administration business impact is reduced. As the company grows and the staff increases, administrative and accounting duties can bring on additional stress. If a principal in a contracting firm is not responsible for this crucial primary function or does not have a capable manager in place, the business is improperly managed. In that case, the company has a severe problem and will not be successful.
Whether this area is appropriately managed by one of the principals or delegated to a senior manager, it is at risk if the person responsible for the company’s administration and accounting profitability leaves. The accounting staff, under new management, has no
track record for monitoring the company’s progress with accurate fiscal information.
To summarize changes in key personnel, one cause of failure is an inadequate replacement of the person or persons responsible for one of the three primary functional areas of the roofing company. Typically, the changes in key personnel that contribute to or cause problems, occur while the business is profitable.
The term “managerial maturity” is used in this article to mean that roofing contractors’ managerial abilities must mature as their businesses do. They must change from doing everything themselves to building an organization that can do everything as well or even
better than they did. Contractors unable or unwilling to change their organizations must either reduce their growth and level off or face the risk of outgrowing the business capabilities. Attempting to do $50 million worth of business with a $5 million organization structure
is fatal. This element of failure may be the most widespread of all. It is often in conjunction with one or more of the above elements. It may be the contributing cause of all the other errors.
At some point in the growth of every contracting company, the organization must change from the founder’s hands-on approach on all business operational functions to becoming a more sophisticated business structure. Further delegation of authority is needed, more complex systems and procedures will be required and additional experienced people are necessary to handle them.
It would be nice if these changes evolved slowly over the growth period because they would be less drastic and more painless for the contractor to digest. But that isn’t how it works; the contractor can’t hire half of a person or install half of a new system. For proper delegation to succeed, owners must give up command and control. Many owners have great difficulty with that.
Knowing when and how to make organizational changes becomes an aspect of running a growing business and tests the entrepreneurial skills of the contractor. The organizational changes necessitated by growth take precedence over ones needed during prosperous times to ensure continued success. The key to success in management is not to eliminate all problems but to focus on the current ones of the organization’s lifecycle so it can grow and mature to deal with the issues at the next stage.
I will close out with a few items on evaluating contract profitability. When discussing contract profitability, I am not referring to reviewing your contract to avoid any loopholes that may lead to less profit; I am referencing working without information. There is one thing
worse than losing money on a roofing project; it is losing money and not knowing it. Cost control is fundamental to managing your roofing business for a profit and is your primary function as an owner or top manager. All contractors who fail to profit do so because they didn’t make money in the field on their projects. The reality of our industry is that more than half of the failing contractors don’t know they are losing money until it is too late to do anything about it. Not evaluating contract profitability by project, month and activity is one of the most severe and avoidable causes of collapse and bankruptcy. Next month we will cover this vital subject and review the
information and systems you need for success.
John Kenney, CPRC has over 45 years of experience in the roofing industry. He started his career by working as a roofing apprentice at a family business in the Northeast and worked his way up to operating multiple Top 100 Roofing Contractors. As CEO, John is intimately familiar with all aspects of roofing production, estimating and operations. During his tenure in the industry, John ran business units associated with delivering excellent workmanship and unparalleled customer service while ensuring his company’s strong net profits before joining Cotney Consulting Group. If you would like any further information on this or another subject, you can contact John at
jkenney@cotneyconsulting.com.
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