Creating a Strategic Plan for Construction Contractors

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It’s winter right now, and if you’re in construction, this may be a slower time of year for you. It’s a great time to create a strategic plan for your company for the coming year. How do you do it? We’ll walk you through it.

Topics we cover in this episode include:

  • Why now is a good time to think about your strategic plan
  • Ground rules for your strategic plan
  • What should be included in your strategic plan?
  • The importance of a good budget
  • Analyze your risk
  • How to use KPIs for strategic planning
  • Note the trends in your market 
  • Get input from your key business advisors

Join the conversation on our LinkedIn page:

Wade Carpenter, CPA, CGMA |
Stephen Brown, Bonding Expert |


[00:00:00] Wade Carpenter: As we’re recording this, it’s a cold January day. And if you’re in construction, this may be a slower time of year for you. How do you create a strategic plan for your company for the coming year? Come on in, let’s talk about it.

This is the Contractor Success Forum. If you’re new here, I’m Wade Carpenter with Carpenter Company CPAs.

With me, my co host, Stephen Brown, with McDaniel Whitley bonding and insurance. Stephen, planning is a common theme around here, but today is more along the lines of thinking through where we’re heading long term. Kick us off with your thoughts on this.

[00:00:37] Stephen Brown: Strategery is what I’m thinking about, Wade. You remember, President Bush–

[00:00:42] Wade Carpenter: Yep.

[00:00:42] Stephen Brown: Will Ferrell used to imitate him using all the words that he made up. Strategery. It’s a fantastic word. Strategery. That’s what we’re talking about.

Why now is a good time to think about your strategic plan

[00:00:50] Stephen Brown: Okay, so things are slowing down maybe a little bit. I don’t know, but it’s cold.

You can’t get as much outdoor work done. You’re focused more on inside stuff that you have to do and you want to develop a strategic plan for your company. So it doesn’t have to be hard, but you’ve got to start. And you’ve got to have a game plan. So just like a blueprint for building a construction project, you lay out a blueprint of what you want your strategic plan to accomplish.

So that’s why it’d be a good idea for us to talk about what would be involved in a strategic plan. What do you need to think about? Of course, you know what you need to think about better than anyone else. But since you and I work with so many different construction companies, there’s a kind of a generic standard that all these companies need to think about.

And we preach it all the time at the Contractor Success Forum because that’s just what we do. Wade, what is your concept of a strategic plan? What does it look like? What does it entail?

[00:01:53] Wade Carpenter: You’re absolutely right. This is a great time of year to be talking about this, and a lot of times it’s the first of the year and everybody sets goals for their personal lives or losing weight or whatever it is, and a lot of times the business owners are setting goals for their company for the year.

And, maybe it’s something where they want to get their books in order or they want to get better job costing . A lot of times it’s just, we want more profit, more cash flow this year.

If you never stop to take a look around you and figure out where you’re going, a lot of times you’re going to stay on the same path for 20 years and it never really pans out for you.

And so I think this is a great episode and great thought to Hey, let’s look at what happened last year and what we’ve been doing and should we continue doing it?

[00:02:39] Stephen Brown: Okay. So there’s so many different things that could be involved with a strategic plan.

Ground rules for your strategic plan

[00:02:45] Stephen Brown: One thing that I thought instead of focusing on all the different items that should be in a strategic plan, first and foremost, set some ground rules to a strategic plan. And those ground rules are KISS, Keep It Simple, Stupid, but also, that acronym SMART.

So SMART is you’re specific. Whatever your goal and objective is, it’s specific, it’s measurable, it’s attainable, it’s realistic, and then there’s time based to it. So you say, what does that mean? I’ll just give you an example. You have a strategic plan. You say, I’m gonna reduce my debt in 2024. And that’s not SMART.

A better way to think about it is, I’m gonna reduce my debt by 50% within the next 12 months. So you see, you have a timeframe involved. It’s realistic. It’s measurable, it’s attainable and it’s specific.

[00:03:42] Wade Carpenter: I’m thinking exactly the same kind of thing. A lot of people say I did 2 million this year. I think I need to do 5 million by the end of the year. And maybe you can, but you need to have a plan to get there. And a lot of times we stick some arbitrary number, but we’re not actually targeting, hey, I want profit to be X, and how do we get profit to be X?

[00:04:04] Stephen Brown: And you are so busy as a contractor running projects, drumming up business. You think, I don’t have time for strategic planning, but I don’t have time not to strategic plan. Because you and I both know that the contractors that don’t take the time to plan strategically for their business, like you said, they end up getting lost.

It’s like taking a hike in unfamiliar woods without a compass. You wander. You go down the same path for 20 years. That was a great analogy.

Contractors that are not strategic in their planning, make the exact same comment you said. I want to do 5 million next year. And we’re like no. You want to make 5 million next year.

We’ve been screaming about Profit First and sales and profit being the key measuring device. It’s the thing that runs through every one of our podcasts, Wade, but a contractor that just says that it’s just so off base that it’s just almost painful for us to hear.

Isn’t it?

[00:05:01] Wade Carpenter: I did a webinar last week and started using this analogy about, like, how full do we want our chili pot. And we try to put so much in there and we just need more revenue. And more revenue causes more problems if you don’t plan for it.

Me and you go back to the days of 1975 and Jaws and, “we’re going to need a bigger boat.” And everybody thinks hey, we’re going to need a bigger boat.

And that’s always the–

[00:05:25] Stephen Brown: Yeah.

[00:05:26] Wade Carpenter: That’s always the answer.

It’s we just need a bigger boat. And sometimes it’s not the right answer.

A lot of my contractors that make very little money, they work all day and night, and their people will take home more than they do. And they have all the work they can do. But they’re doing the exact wrong type of work.

They’re doing work that’s not profitable. And they have so much work, it’s let’s just do more and more of it, and just stopping to say, hey, should we take this work? Yeah, it’s revenue, but is it making us profit? That’s my point.

[00:05:58] Stephen Brown: Their logic is, if you work hard enough, good things will come. I’m building this company. I’m doing this for my family. But, if you’re not taking profit to support yourself and your family, you’re not being strategic. And you’re not doing what you need to do.

It’s okay. Just take a break. It’s alright. Wherever you are in the construction process of your business, constructing your business to be successful, you can always just stop and take a breath and say, maybe I ought to change this. Maybe I ought to do this.

And also, maybe getting someone else in there to be an extra set of eyes and ears. If you don’t have a board of directors, that might be part of your strategic plan.

Put together a board of directors. They don’t have to be contractors. They just have to be business people. And they can help you see the forest through the trees. That’s one idea.

Another thing is to listen to this podcast, maybe take some notes, feel free to reach out to us with comments and we’ll give you our thoughts on the elements of what needs to be in your strategic plan.

What should be included in your strategic plan?

[00:07:02] Stephen Brown: But some examples of those things that need to be in your strategic plan, the fundamentals. Keep it simple. Be smart. Okay. That’s the foundation of your planning. What items should be in that plan?

Organizational structure. Who have I got doing what? What do I need next year that I don’t have? Who’s really good at doing this and not so good about doing this? Who do I need to hire in the next year? Are my employees happy? What can I do to improve that? So the whole realm of just organizational structure is huge.

There’s so many moving parts to that. But you just got to start. So you just simply write down organizational structure. If that’s important to you right then.

All right, your turn, lay one out.

[00:07:46] Wade Carpenter: Obviously , a lot of my focus goes to hey, are we making profit and cash flow.

[00:07:50] Stephen Brown: Okay.

[00:07:51] Wade Carpenter: We think about hey, let’s take that big job because it’s a lot of revenue, but a lot of times those bigger jobs are smaller gross profit. And if you are going to grow to that next level, can you afford to cash flow it? You may not understand that.

Also the webinar I was talking about last week, we talked about pricing. And are we actually pricing properly? Do we understand the inputs that go into it? The overhead and what margin we’re actually making on it? And even if you do understand what those factors are, so many contractors do not actually figure out the markup properly.

They’re saying, hey, my overhead is 10 percent and my profit is 10%. So to get there, we just need to add 10 plus 10 onto our cost. And it does not work. And I don’t have time to go into the math right now, you should understand the difference between markup versus margin.

The importance of a good budget

[00:08:44] Stephen Brown: Okay. So financial planning. It encompasses so much, just like organizational structure. Do you have a simple budget? Oh my gosh, I’m sorry I said that, Wade. It’s a painful word to hear, but it’s just simply I got X amount of assets and X amount of liabilities and I subtract the two.

X amount of income, X amount of expense. That’s the most simplistic form, but this year I have a CFO that’s actually doing a pro forma budget for their construction company next year.

Wade, what’s that all about?

[00:09:16] Wade Carpenter: It’s a different approach.

Looking at the budget is like, looking in the rear view mirror and what happened and going forward from that versus pro forma is like, what do we actually expect to happen? old analogy, you’re driving your car by looking out the rear window. We want to look forward and what we’re doing and is it the right thing we got on our plate?

[00:09:37] Stephen Brown: Fantastic. Now, I knew I’d goose you up with that one because there’s nothing more exciting to an accountant than a pro forma budget. It’s exciting to me. I hate the B word. That’s scary. It’s intimidating, but wow. Instead of looking at the rearview mirror, you say you’re looking out the windshield for what’s coming up in the next year. That’s fantastic.

So we have clear and concise goals. We threw out a couple of topics like your organizational structure, your financial planning. else might be involved?

Analyze your risk

[00:10:09] Stephen Brown: I’ll just throw the next one out and it would be analyzing your risk. Nothing more risky than a construction company, Wade.

 How do you do that? I would say call in your insurance agent, call in your safety manager. Analyzing risk might be your safety program for keeping your workers healthy. It might be looking at the risk of your materials and supplies not coming in as they’re supposed to.

It might be analyzing the risk of how much you put out there on a job that’s a little bit different than you’re used to doing. There may be great reward, but learning how to do that risk sometimes costs a lot of money. So the more you think and strategize about that way, the better.

[00:10:54] Wade Carpenter: Absolutely. Actually, you stole mine because that was what I was going to–

[00:10:58] Stephen Brown: I’m sorry, .

[00:10:59] Wade Carpenter: It’s okay, but I’m approaching it a little differently. We’ve talked about it many times.

What happens if you get hit by that beer truck? A lot of contractors do not understand what a burden we put on our family when something goes wrong. A lot of times we’re not thinking about our retirement, or maybe we are thinking about retirement, but we are just so strapped with the day to day that we never really get there.

And setting it up to be able to continue after you’re gone, does it have any worth? Can you sell it? I think I’ve told this story many times. I was talking about business valuation in front of a group of contractors one time, and one guy stood up and said, hey, my business has no value because if I die, there is no business. And if that’s the type of business you build, that’s absolutely what you’re going to get.

 If that’s your goal, that’s okay. But just also think about what you’re putting on your family members if you consistently having zero profit, you’ve got nothing put aside for your retirement.

[00:11:59] Wade Carpenter: You started me on a rant and I’ll shut up.

[00:12:01] Stephen Brown: No I know of a couple of guys that put out a podcast recently on succession planning that was fantastic, but, we’re very humble when we say that, but succession planning, what a great topic, what a great category.

So when you’re doing your plan for the year, you should also be thinking out in the future, not just the next year. Long term because you have to start that long term planning somewhere, right?

How to use KPIs for strategic planning

[00:12:25] Stephen Brown: Okay. Back to financial planning. How could you use key performance indicators for strategic planning?

[00:12:33] Wade Carpenter: That’s one of the things that I would absolutely say you need to do.

And some of these little measures we think is not really effective. But, last year I did something very similar and I actually had somebody keep me accountable for it. And every month I reported this is what we accomplished on our goal. And you’d be surprised hey, this sort of spurred me on to hey, I’m on track to make my goal, or I’m not.

And, you can’t just say, hey, we did X amount of revenue. It’s gotta be a little more thought in it than that. Are we making the profit? Are we improving our balance sheet? We don’t get all those sometimes from everything you can see on a P& L. You’ve got to do a little measure and if you’re thinking hey, we’ve got to grow to this number of employees to be able to do this.

A lot of these different KPIs that you mentioned, they’re going to change depending on what your goals are. And this is absolutely the way I would say, do it. Set what those goals are, and then set the performance indicators that you need to get there, and have somebody hold you accountable.

[00:13:40] Stephen Brown: Okay. That ties into, the last few topics we’re going to have here.

Note the trends in your market

[00:13:45] Stephen Brown: What trends are going on in your market that you need to be aware of, and you need to adapt to, and that you need to change to get through? That’s hugely important.

The study of that, what a better time to do it than when you’re doing your strategic planning.

And then, as we talk about implementing these things, then you have to also have a category, Wade, of monitoring the things that you want to get done. How would you monitor the strategic plans, Wade?

[00:14:15] Wade Carpenter: One thing we just talked about was the KPIs and having, not just a this is what we did this month, but hey, looking at it over time, and are we actually on track? Having just some simple dashboard set up to do that. You talk about your financial board of directors .

Stephen, you don’t toot your horn horn enough too, because the bond agents sometimes are the most critical people that you can have in your corner and letting them know what’s going on and what you’re anticipating.

The bankers. Hey, we’re anticipating we’re trying to grow to this point this year. So our cash flow, we may need to stretch our line of credit a little bit this year to get there and tell them why versus you get in this cash crunch and then you all of a sudden, hey, we got a problem. Help me out. That’s a very different approach.

Get input from your key business advisors

[00:15:03] Stephen Brown: Yeah. Wade, that was just an easy chip shot to the very last part. And that is, the people that you bounce things off of to get good advice. What a good time of year, would say this to take your bond agent deer hunting with you or duck hunting, let’s just hang out. Let’s just talk.

You don’t have to talk business all the time, but let me just say this. As a guy, you remember in the old Westerns, if you got into another guy’s business, you were going to get shot. That was in every Western. That’s just the ultimate. And guys, as a general rule, we are not going to volunteer our advice or information unless you ask, right?

Now for you, for your situation, you perform best with the clients that respect your advice and take your advice. So do I. Every advisor does. So let your advisors, let your CPA, let your bonding and insurance agent, let your banker and let your attorney know that I am strategically planning for my company and I need your advice. Here’s what I was thinking. What do you think? I’d really appreciate your input.

Wow, that was hard, wasn’t it? But it’s everything. You’ve got to ask. So that was the last of my topics. Don’t be afraid to ask. And the rut is over here in West Tennessee, so I don’t think I’ll be deer hunting this year.

But, it’s a good time to spend a little quality time with your key advisors and or board directors if you have one.

[00:16:25] Wade Carpenter: Absolutely. What you said about having a board of directors, in working with contractors for 30 plus years, a lot of times contractors want people to think they’re doing better than they are. , I hate to say it, sometimes they’re embarrassed or they don’t want this stuff shared with somebody.

But hey, this is confidential. And we’ve seen it a lot of times more than you think. And you think it’s just you, but it happens all the time.

[00:16:53] Stephen Brown: Over and over. Just like Attorney Client Privilege, Wade,

[00:16:57] Wade Carpenter: Yeah.

[00:16:58] Stephen Brown: All of the Financial Board of Directors we discussed, have to keep your information. We can’t talk about your business with other people. We can talk generically. But our job is to give you the best advice we can on what we know.

So why not use us?

[00:17:15] Wade Carpenter: A lot of times we might be embarrassed about our finances, or we don’t really want to talk about it, or we don’t want people thinking that we’re not doing better than we really are. And that’s half the battle, is getting somebody in your corner that understands what’s going on because we all get these blinders on in our life, whether it’s personal or business related.

 Sometimes you need somebody to give you a real wake up call.

[00:17:40] Stephen Brown: That’s like saying I am too overweight to hire a personal trainer. What does a personal trainer think? Ah, you’re overweight, we had to get you in shape, right?

[00:17:50] Wade Carpenter: Many different analogies with that too. I mean, I think people you know, they’re not profitable. And so they ask me like, hey, can I start Profit First? I need to get profitable for a start. When better time should you be doing something like Profit First when you’re not profitable?

[00:18:05] Stephen Brown: Great point. Strategery. Be strategic and get going. Start. , Hopefully we were some help. to our listeners, Wade, in this regard. And again, please reach out to us. Say, I’m struggling with this. I’m struggling with that. What do you think about this? We’ll tell you. And that’s what we’re here for.

We want you to learn from the mistakes of others that we’ve seen. And all advisors appreciate being asked their opinion. I can tell you that. And being old guys like Wade and I are, we have an opinion on everything. You can argue with us and we’ll defend it.

But folks, that’s all I had. Thank you for listening.

[00:18:45] Wade Carpenter: Thank you all for listening to Contractor Success Forum. Check out the show notes at Contractorsuccessforum. com or on the Carpenter CPA’s YouTube channel for more information. And we would sincerely appreciate it if you would consider subscribing and follow us every week as we post a new episode, and we will look forward to seeing you next time.

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