In THE REAL MF’ERS, Mobilization Funding CEO Scott Peper sits down with leaders from construction, manufacturing, and related service providers to see how they built their business, what they are doing differently, and why it works.

This is part 2 of our first episode. Scott interviews Founder and President of Alphapex, Charles Covey. They talk about everything — growing your construction business, core values, marketing, unicorns, and Whack-a-mole.

Full Transcript Below

Scott Peper  0:33   Okay, we’re back. I originally planned to have Charles with me just for maybe a half hour, 45 minutes, but we got into such a good conversation. We broke this into two separate parts. So I’m really excited to get us back here to keep going and continue this conversation. So without further ado, we’ll keep it rolling from here. One of the other key things that you have talked about a lot with me before is the systems that you’ve implemented and processes And how those have helped you really scale not only your team, but your internal and external capabilities, your customer experience, how you interact with your clients. Can you talk a little bit about some of those systems where you got how you put them in place, how they help you and what they what they do for you what they have done for you.

Charles Covey  1:18  I think systems are hypercritical in scaling a business. You can run a small business, and you can do a few hundred thousand or a million bucks a year and you can run it all out of your brain. But you’re not going to grow that much because you become the weak link. And I’ve done it, I’ve done it anyway go, how come I can’t grow this business? What’s going on? Oh, wait a minute. I’m the weakest link. And I think in construction we get, it’s kind of like the snowball starts rolling down the hill. And we’re just kind of going down this hill and things pick up momentum and you start getting clients and you start doing work and the work keeps coming in. And you’re going so fast and the speed that we have to operate in this problem and this problem and this problem and this problem is just I like to call it Whack a mole. You ever play that game, you know, take the kids cheese or whatever and you got to just so you’re just whacking but really What makes a big difference as an owner or as a manager, or as somebody that has a place to control what’s going on, is to slow down a little bit.

If you let it construction will drive you 100 miles an hour for the rest of time, you’re never going to get caught up. So you have to make that pause happen, you have to create that pause, sit back, look at your business from 30,000 feet, or look at your department that you manage from 30,000 feet and say, hey, what can I do to extend my abilities as a manager or as an owner? What can I do to extend my team’s abilities? And I think something that construction is really known for. And this may be, I think this section on systems is probably going to be the most critical. It’s a little bit boring at times, but it’s probably the most critical for your listener if they really want to make some money. And so I hope they’re paying attention because this is this is what’s been really impactful for us. So you think about construction, and know the systems are oftentimes just lacking. We’re running down that hill, so fast and the momentum is going. And so we’re just playing this Whack a mole. And just trying to get to the next thing and by the time you solve the next problem, boom, the other one’s already popped up, and boom, then the next one, and we’re just trying to just try to get to the next day. You ever felt like that, Scott?

You know, just trying to get rid of the shit from today so I can go home, kick back for 20 minutes, and then get tomorrow morning and do that shit again. And in construction because we’re gonna step back a little bit, look at those problems from a higher level and find out how we can extend the team’s abilities. So from what we found, that slowing down a little bit is super hard to do, and super valuable. So you’re thinking, Oh, well, you know, I need to be out on the jobsite. I need to be managing I need to be doing these things. You might actually need to just be still from it. You might just need to sit in your office with no noise and no phone and think about where you want to go. And what things in your business you’ve been avoiding. I’m guilty of this. What’s that big problem that’s in the room and you’ve been pushing. I’m real busy so I can just deal with it later. Well, then you look up and it’s two or three or six years later, and somebody else they handled that problem, they kicked your ass.

But we’ve got to take those problems, we got to tackle them head on. So I think system creation is really critical because you want to be able to step back as an owner. I’m not trying to grind this out taking 100 phone calls a day, playing Whack a mole for the next 40 years, are you? Hell no.

Scott Peper 4:17  No, no.

Charles Covey 04:19  But we see people do it. I know guys that are 70 years old. They’re doing everything exactly the same as they did when they were 30. And they’ve made some money and they’ve done okay. But are they at a peaceful and comfortable state in their life? No, but they could have been. And I think systems are a big part of that.

So you have to step back, you have to map out how your business works. And you’ve got to find a way to create processes so that things don’t get lost, and I digressed a minute there, I want to go back to a point. That construction has been in this rut, I call it hiring unicorns.

As you look at a lot of businesses and how they operate. You look at the, you know, the field ops manager or you look at you know, that head estimator, maybe the project executive that runs a whole team. Maybe the president in a bigger organization, they’re a unicorn. They’re a 1% guy, they’re very special in the way that their brain works. They can handle more shit than most people, you know. And the business hinges on them. And constructions really bad about this, or that foreman that really good for me. He just wants to be a foreman. That’s great, he does an awesome job. And, you know, that big project can’t run without it. That’ as big deal. What if he’s out for a week? What if something happens? Heaven forbid he has an accident and you don’t have a system to accommodate information. And now your unicorn leaves and everything crumbles. So construction has got to really wake up about hiring the unicorns. You can’t scale hiring 1%. There’s not that many 1% guys, that’s how percentage works.

So you’ve got to be able to hire and you’ve got to be able to put in place good people that identify with the core values — hard workers — can’t give up on that. But you can’t hire the 1% guy for every position. You got to be able to hire, maybe maybe, they’re in the 80% or the 70% or the 60% into the population, that they can follow the things that you do. And they can work really hard and identify with those values. So you’ve got to build a system so that that person can function just as well in the business, you know, the 60% person, the 80% person, as the 1% person. And I think that’s what systems really do. They allow you to scale.

And yes, you’ve got to have good people. But it doesn’t have to be that one unicorn. It’s so hard to find. And you do see this guy, do you see this in the businesses that you deal with? The one unicorn or the six unicorns? Maybe they’re at the top end of a company, everything comes to them, and if there’s a problem with them, it’s a shift.

Scott Peper  6:38  Yes, we see that all the time. One of the other things systems do for you and process is it allows the one percenters, it allows them to scale their department. Those one percenters and one thing that one percenters have in common is you need to grow because they’re going to want to do something different. And they’re going to want to grow and hire and teach and train and do the things and you need those systems and processes to help them do what you needed to do.

And on top of that, one of the things we’ve always talked about, you know, you kind of hit the nail on the head is getting on top of your business instead of in your business. And one of the things we hear a lot of our business owners tell us as they’ve grown from maybe 1 million to three or four or 5 million, and they become essentially a unicorn running around doing everything, and it’s they’re barely holding on and having everything in their head. And this is the key, one of the thing they say to us is, you know, I’m getting the same paycheck right now that I had when I was a $1 million company as I am when I’m a $5 million company.

Charles Covey 7:33  Yep.

Scott Peper 7:38  And so if you’re listening to this, and you hear this, and that’s You, go back to listen to the systems and processes piece again, because the systems and the process are the difference between you having the same paycheck with 100 times more stress as you grow your business or actually eliminating some of that stress. While you’re actually able to have more than just a single paycheck. Same as you did when you’re making when you’re only a million dollar company.

Charles Covey  7:58  People ask me a lot Well, why don’t you start with the system. You know your business better anybody, you know, the person at the top, I would assume, in most cases knows a little bit about each department and how it runs. You’ve got to think about how the information flows and you can’t allow there to be a disconnect in the flow.

Think about how construction goes. Okay, so we’ve got, you know, got Sally in Accounts Payable, and you know, she just gets those invoices that come in, and she just knows that on Thursdays, you know, usually on Thursdays, she just takes that stack of paper over and she gets them approved. She just knows that; she’s been doing it for 10 years, so she knows. But what if she forgets, and now you got all those suppliers that don’t get paid. Or what if you had to hire somebody else, and that new person — well, they don’t know because they haven’t been doing it for 15 years. So you’ve got to have a process.

Things like lists, things like flowcharts, things that connect the dots so that people can get this information comes in, then it goes to here. And then this person checks off and goes to here, and then it goes to here. It does this thing, the checks approve. It’s that level of detail. It gets stamped and it gets sent out. You’ve got to have things delineated and defined so that you can manage them so that you can train people for them. If you’re growing, you don’t need just one Sally in Accounts Payable, you need three, because your business is going to do 100 million dollars. And how do you scale that? How do you take all that information and document it? So systems really are just documenting, and then monitoring and managing all of those different things that happen in your company, and contracting and subcontracting. There’s a lot of stuff going on, when you start breaking down the processes. Oh, my gosh, there’s hundreds of steps to some of these things. Now they happen.

Scott Peper  9:35  And it’s the kind of work that nobody wants to do. I mean, I don’t, you don’t want to do it. It’s terrible. It’s the most … it’s not fun. It doesn’t feel rewarding when you’re doing it. There’s a great book for those of you that want more information that’s in a tactical guide executing this and it’s called the E-myth Revisited, by a guy named Michael Gerber. It’s an excellent book. It talks all about systems and processes and scaling. It’s very relatable. It’s not boring. It’s actually a great storytelling book on how it goes from chapter to chapter. It’s really, really excellent, well done. I highly recommend reading that for those of you as a quick sidebar that want to get some more detailed tactical info on systems and processes, we could probably have 6, 40 minute conversations about that and not give you nearly as much as in that book.

Charles Covey  10:22  Can I give you an example a story about one particular system that’s massive for us?

Scott Peper  10:24   Yeah, absolutely. Please.

Charles Covey  10:26   Okay. And this is a this was an issue I saw. I worked at a GC, they do, I think they did 600 million last year, good size operation. And they didn’t have a good system for pay apps. Didn’t have one. It was just up to the project manager to make sure they didn’t miss anything. It wasn’t documented. Nobody was checking on it. If something got missed, like literally, if they didn’t turn in an owner pay app. There was no check and balance to make sure that happened. And we see it really, really see it in subcontracting. I mean, it’s just, it’s a shit show.

And we’re, we’re built to do a lot of projects, a lot of volume. And as we continue to grow the size, the average size of those jobs keeps getting bigger. But we’re built to do a lot of volume. And to do that you have to manage the information. So and you know this really well pay apps and getting all that billing done in a month, they like 20^th, 15th to 25th, depending on what the job requires, you know, that timeframe, those, you know, 7 to 10 days of the month. The business hinges on that shit, you cannot screw that up. And we’re doing I think we might do 40 pay apps a month or something. And there’s a lot of parts and pieces that go with those. And so we were saying, though, at first, we created a list to make sure that every pay app got done, make sure they got done on the date. Do you know a random GC has a pay app due on the fifth? That’s kind of an oddball. But if you do it on the 25th, guess what? You’re screwed. It’s getting pushed to the next fifth. And you just missed 30 days with the cash flow, big problem. So that happens two or three times and you’re like, wow, this is not something we can continue.

So we make a list of all the jobs that are active and that way we check off. You know what happens we can, you can do an Excel, you can do it. We do web-based systems, we use Monday.com because it’s it you do on your phone on your computer, it’s cloud based, so everybody can see the information. It’s very modular. So you can make a list, talk to another list. Monday, comm is really next level phenomenal for us. But the basic idea is you create a list of every pay app that has to be done. And every and then then, you know, as that pay gets done, how much the amount was for what the retainage is, and then that flows to the bottom line. Now you know exactly what your billing was for the month.

Well, the other part was, you know, projects were not getting predicted correctly as to what was available to build during the month. And so you just get to the 20th. And okay, well, this is how much we did. So in the past, that was not a proactive manner of managing the money in the cash flow. And so we started doing  — we use the same list. So the list, it’s got the pay apps. Now that gets an analysis on the first of the month of what work is ahead of us for the next 30 days. What are we going to do? We’re going to do this percentage of this and we’re going to have this many feet of this and you just go down each Job, we’re going to hit this mini percentage, we’re going to this percentage. And then we know on the first, by the, by the third, I know on the third what my billing is going to be on the 30th. So from a cash flow standpoint, now I get another extra 30 days to know what the hell’s going on. And I can work with that.

Also, from a field management standpoint. Now our team knows, okay, we got these to do, oh, well, we’re going to be a little bit short. Because we start dividing these up. And we know on the first that about the middle of the month, we’re going to have kind of a flood of stuff to do. We need to accommodate that we just bought a couple of extra weeks, we’re not going to get that that pissed off Superintendent asking us why we’re there, or we’re not there because we already predicted this. So that that whole predictive, proactive nature of that system that really allows us to move quickly.

Scott Peper  13:42  That’s key. I mean, without getting those payoffs on doing them correctly on time, not missing things, being proactive. I mean, in a world where you’re paid once a month, and you only have the ability to invoice once a mom, if you mess it up, it’s catastrophic.

Charles Covey  13:57  Absolutely, it could be. Yeah, I remember early the early days of the business ….  I don’t come from any money. My dad’s a firefighter. My mom’s a nurse. Like, we did not have any advantages. Alicia, my wife and I, we do this together. And we started this from zero, and almost went broke a few times, as we were working through things in cash flow. And that’s, that’s the deal. The first two or three years of the business, cash flow was the deal. That was what could have made or broken us a few times in a row. And I think we’re at a point now where we’re able to have facilities in place to manage that but you’ve got to manage the money coming in and coming out and a system really is the way to go. So anybody has questions, I’m here. If you, if you want to do, we could, you and I could probably do another call or a webinar, actually, on subcontracting systems. I think they’re probably pretty helpful for your for your listeners.

Scott Peper  14:45  You know, I’ll take you up on that because that would be helpful, very helpful. If we did just a webinar purely on systems and particularly around pay apps that would be extremely valuable.

Charles Covey  14:51   I think we’re probably 30 … 30 to 60 days away from having our system built to where the information flows. Listen to this. This is going to be great. See if we can make it work, I think we’re close. So when the job gets sent to us as an opportunity to bid, that information goes in, in this in the Monday.com list, and then it will flow to a job that if we select a bid, and it flows to another list, if we bid it, then it goes to another list to follow up on, for sales and business development. If we win it, then it goes to another list, that when we get the contract, and it goes into our contract department to do submittals shop drawings, make sure the contract insurance is all done all those processes. And then from there, it flows to project management. They do their review, put together a review meeting with the field team, then it flows to field and then field knows now it’s on their list. And it flows to the calendar so they know what to schedule it over the next 24 months. And that builds into our schedule system and then it floats to completion, close outs, all those last items to finish up the job. And we’re done. So literal, front to back lifecycle of the of the project. I think we’re pretty close to making it happen. It’s going to be

Scott Peper  16:00  That’s cool. You can get it right from the beginning when you first touch it when it just isn’t right. It might not even be a project yet.

Charles Covey  16:07  Yeah, it is a challenge and in subcontracting, you’ve got so many fragmented systems. You got your payroll on this system, your timekeeping on this system, and you got your submittals on the system. And then you’re doing, well, you’ve probably got change orders  on this one, when you got contracts, they’re on Dropbox, and it’s very fragmented. So there are there are ways to try to streamline that and make it more efficient.

Scott Peper  16:25  You’re now the first cut large subcontractor in the United States to have trained 100% of their field staff with OSHA 30 certification. I know that’s something you work really hard at it. More than 400,000 hours of work time with a non-event, and I’m going to knock on wood now. Right because your return on that. And, and that’s across 100 and plus employees and multiple projects and jobs. So one: I think that’s great that you’ve done that. I think it’s a big commitment to your group. I want to recognize you for that. I think it’s awesome. They should be really proud of that. I’d like you to talk about aside from protecting people’s lives and that they don’t get hurt. Maybe you could talk a little bit about what that does for your, what that’s done for your business. I have some ideas, but I’m wondering how that’s really helped you and where you’ve seen some real benefits. Your focus on safety?

Charles Covey  17:19   Well, this one’s interesting. And it kind of goes back to what I talked about earlier, I’m worried about every everybody else’s money, or their safety, or them in general, I’m worried about everybody else. And ultimately, I was just really worried about making sure that all of our guys get home safe every day.

I’ll tell you this story. If we have time, I’ll tell the story about how this all originated. I’ll get a little bit emotional cuz it’s, it’s tough one. So we had three guys we hired first started the company. And two weeks after we bring them on board, one of the guys falls off a ladder. He’s two rungs high, he’s literally two feet off the ground, falls off the ladder, breaks both arms, snapped, some bone sticking out blood everywhere. It’s just catastrophic. So we go, I get phone call, you know, they get into the ER, I go to the ER. I had to look his wife in the eye and tell her that I was responsible because I had not trained them on ladder safety. We, just like, they’re in construction, you know, they should know. No, that’s not how this worked. It’s my responsibility. So I looked his wife in the eye. And I told her that it was my fault, and then it wouldn’t happen again. And so every single day since it’s on my mind, how do I solve this? Because I’m not looking another wife in the eye and tell her that it’s my fault.

That’s just not happening. So you think about it from that perspective? How do we elevate the safety of our team members to where this cannot happen?

Scott Peper  18:39  It’s great that you’ve tied that desire and goal to something that impactful because that’s really what’s made it turn into a positive event for you and something that you’ve actually probably come through with, what uh, what I’ll add to, as I’m sure from a economical perspective, you know, your insurance premiums are significantly lower.

Charles Covey  19:00  Yeah our insurance company loves us.

Scott Peper  19:02   Yeah, that adds more money to your bottom line. What you do with that money, then with your culture that you’ve built, is give back to those employees and give back to the different charities that you support in your community. And so it’s important to not only save that money, but saving that money does things that are even better for those employees. So while you’re focused on their safety, you’re also allowing yourself at the business to be more profitable, save costs on what otherwise are a huge expense item, the lack of worker safety can increase your insurance premiums to the point where you could go out of business. You need insurance, by the way, and now you’ve been able to not only create that as an opportunity to keep everybody safe, but you’ve made yourself more profitable and you’ve given back to your employees with some of those dollars to do that. So I think that’s something important. And the client.

Charles Covey  19:47  Yeah, it’s been a huge selling point for us. And we probably don’t push this enough only because we’re, we’re just so focused on the team members being safe and we didn’t even realize at the time, what a selling point that would be.

You know, you look at some of these big clients, you know, on these multibillion dollar international general contractors that we work for, this is a very key item for them. In fact, it may be one of the key items for them on their list of things that they’re looking for. In a subcontractor, they got to have safety. They don’t need some bullshit on their job, they need to know that when they bring you on their project, the safety is handled, they don’t need a problem child. They just know that when Alphapex shows up, we’re the safest waterproofers in America. We say that one pretty often because it’s factually true. There’s not another company that can match our record or our training level when it comes to safety. So I’m assuming, and I hope that more companies will match that level, because I think that will just elevate our industry as a whole. But at least for now, we definitely are the safest waterproofers in America. And that’s a pretty good selling point. When you know, you could put guys on a jobsite and you could promise that GC, Hey, there’s not a safer company that you can hire right now. We’re going to help you be better at your job.

Scott Peper  20:50  I think it’s a big accomplishment, something you should be proud of and, and I also want to point out for our listeners to be able to understand the importance of it but also how it can help them as a business gain more customers, do a better job, and be more profitable? Who would have ever tied job performance and employee safety to those other three items? And they directly relate. So, again, kudos to you, man.

Charles Covey  21:11  Thank you. It was a very, very expensive process. Yeah, guys, you got you pull them out of the field you had at the cost of the training, of course, but then it’s the hours that they’re sitting in that train, and they can’t be out producing revenue for the company. So it was a very expensive process. I don’t think you can say safety is ever too expensive, because it’s working. And so from that standpoint, we’re very happy we have the opportunity in the idea to do it, I would suggest it for everybody. It’s a big, it’s a big bullet to bite, but I think you should consider it.

Scott Peper  21:40   Well, to the point what was two broken arms could have easily been two people dead if it was a little higher up and a different job, will longer, if you didn’t have safety protocols in place. Today with the type of work and the type of jobs you’re doing. It could have easily been a 20-foot scaffolding instead of a two foot ladder.

Charles Covey  21:58   Right. That’s a great point you bring up I get that We were working on smaller projects are much smaller company three people. And now we’re working on high rises all across Texas. And yeah, that’s a slip trip or fall from 33 stories up. There’s no coming back from that one.

Scott Peper  22:14  Yeah, man, this has been an awesome conversation. Charles, I really appreciate your time on this. I think you fit the bill perfectly. And I’m reading this point. So thank you so much for being so open and honest and sharing all the great value you have for us and our customers and clients.

Charles Covey  22:29  Man, it was a pleasure. So thanks for putting up with my monotone and my asshole nature. As we work through this just trying to make subcontracting better.

Scott Peper  22:36  You’re a nice asshole. I think your wife’s right.

Charles Covey  22:38  Appreciate it. Thanks a lot, Scott.

Scott Peper  22:41   You’re welcome, man. Take care everybody. Have a great day. Thanks for joining us. Talk to you soon.

Transcribed by https://otter.ai

Leading a successful construction or manufacturing business can be tough. To survive, sometimes you have to be a real MF’er. We get it — we’re real MF’ers, too. MF’ers do what’s right, pay it forward, lead through action, and get the job done.

Wait … what did YOU think we meant by MF’ers? 😉

In THE REAL MF’ERS, Scott Peper sits down with leaders from construction, manufacturing, and related service providers to see how they built their business, what they are doing differently, and why it works.

Full Transcript Below

Scott Peper  0:39   Hello, everybody. And thank you for joining us today. I’m really excited to have one of our guests Charles covey from Alphapex — Founder, President, great friend. We’re going to talk about all kinds of exciting things today is from Whack-a-mole to unicorns to how you can grow your construction business, marketing, marketing during COVID, safety. Just differentiating yourself to be what a kick-ass construction company looks like not only in the old days, the new days, but now moving forward here through the Coronavirus.

So, Charles, welcome.

Charles Covey 1:11  Hey, great to be here. Thanks for having me.

Scott Peper 1:14  Great. You’re welcome, man. I really appreciate you joining us. You are the perfect guest to the start this series off. You know, when we think of, we talk about Mobilization Funding all the time, and we always refer to it as MF or — really what happened was our customers would just call us MF or friends, investors, people would say Oh, MF and shorten it. And then we have the idea, albeit six years after we started, that maybe we should start coming up with a bunch of a group of folks called Real MFers. Well, you are the first Real MFer Charles

Charles Covey 1:43  Very cool to see that to see that terminology. Like when I first saw when I first saw the invite I thought you know that’s that’s really good branding, matches MFer and their company. Couldn’t have done it better.

Scott Peper 1:55  I probably would get some cool gear and shirts made up around this whole theme which of course, we’ll definitely share with you and get you some stuff. So I’m actually very fortunate and glad that our clients have referred to us as MFers and shortened our company name has it turned out to be pretty good. If you would just for the audience, would you take a couple minutes and just let them know about yourself, your business where you’re at? And then we’ll dive into some questions that I have for you based on some of the things I know about you personally and collectively and really get into it.

Charles Covey 2:25  I started construction at 16. So I grew up on a farm and you know, on a farm, if you got something to do, you got to do it yourself. There’s nobody coming to help you. So we just learned how to build stuff, build barns and we fix cars and we built fences, we did all this stuff that was necessary with our hands. So, going from that to construction was really a very smooth transition. When I was 16 I started framing houses and just loved it. Just love constructions love the people. I love being able to see that building appear from nothing is right in front of you. And I’ve just always identified with that and just passionately love the business and the people in it.

So I really started — you know, that hammer swinging history really guides a lot of the stuff that I do now because yeah, I was that guy, I was the lowest man on the totem pole, making a few dollars an hour, you know, on that roof in the Texas sun. And so I’ve been in that position. And that’s really how we’ve built the business, is really prioritizing the field and prioritizing the people that actually grind this out every day. So, I think that perspective has been good. As far as the business itself, you know, I was working in commercial construction for a large general contractor. And I learned a lot and I was always looking, you know, what are those ways that I can get into business for myself, what are those ways that I can, can be an entrepreneur, and waterproofing came up pretty often as a problem area. Come on guys, is there anybody that can take care of this scope and get it done well, and I just wasn’t finding those guys. So, I thought that was our opportunity. That was a chance for us to really disrupt a little bit this market.

If you think about our particular space, so Dallas Fort Worth North Texas area. Very busy, always been a good construction, how a lot of growth here for the last 2030 years and the waterproofing space — there’s three or four competitors, and they’re all 25 or 30 years old. And they’re still doing it about the same way they’ve always done it. So that was a really good spot for us, you know, to be the innovator to be the disrupter, to kind of jump in that space and and turn it upside down a little bit. So we don’t have to completely revolutionize it, but we just have to do things a little bit better, a little bit more innovative. And that’s how we ended up where we’re at.

So, it’s just really taking the approach of, of every day trying to be a little bit better of seeking out what are the processes that can change? It turns out, almost everything can stand a little bit of change. So, we find out what those key elements are, and we try to change them a little bit and get more efficient, get better.

Scott Peper 4:37  Yeah, and it doesn’t have to be brand new, just doing the same thing in a different better way.

Charles Covey 4:43 Agreed. Agreed. Yeah, we just seek that out every day. Most of the things that I’m doing, that you’re doing, every single day can be improved on. Like, let’s not pretend that the human race has just perfected existence. There’s so many things that we do that we can improve on. So we’re always seeking out, What are those things? And what are the ones that really impact the bottom line and really impact the people around us and impact those buildings that we build? We try to find those.

Scott Peper 5:09 Well, it’s funny one of the things that I always admired about you and your story, I obviously share a similar background in construction. At least working in and around, my father had a commercial glazing business and I worked in and around that business all the time on the job sites and really develop the same passion for construction that you did. Albeit I ended up in this field, or in and around it in a much different way. But the genesis of the enticement to it was there. One of the things that I always found really intriguing about you is you did find this waterproofing space. And as you mentioned, I’ve always heard in and around our world here in the last six years, just that scope being very difficult, and if you can find someone that does it, they either don’t do it as well as they could or as wanted. Just it’s just hard and you seem to have figured out the hard but also how to maximize that opportunity to deliver a great product, do it efficiently and run a great business.

You started to touch a little bit on the origin of how you got into the waterproofing side. But can you talk a little bit about where you saw the problem area was and then how you decided to get yourself up to speed quickly on what waterproofing is, how to make it better? And then most importantly, how did you execute on that?

Charles Covey 6:26   Yeah, the biggest deal that I was seeing as a as a project manager, as a superintendent for GC, I did both of those roles is that the subcontractors in the waterproofing space, they didn’t have the clients interest in mind. They had their own interests in mind for damn sure.

But you know, where was that customer service? Where was that high level of care for what helps the client be better? So yeah, of course, they wanted that change order for them. But what about the client? What about the person, you know, who hired them on the job? How do we make them better? And it was really easy for me mentally to go from that approach. I don’t know why some people have that have an issue with that approach. But I’m in the business for my clients, plain and simple. And really, that was the spot that we saw. Nobody’s really operating at a high level of customer service. But it’s not that complicated. So if you come at it with the right, right mindset, it’s really been game changing, I think in our space. And it’s, it’s been a wake up call for a lot of subcontractors in our area to really elevate their game to a higher level of customer service.

Scott Peper 7:24  Did you find that to be in every scope or just particularly waterproofing? That opportunity?

Charles Covey: 7:31  There’s Yeah, great question. I think there’s space for improvement in every scope. Waterproofing is unique a little bit in that it’s not a scope that the GC has time to really understand on an infinitely detailed level. But the devils in the details with this scope, you have to know them. And so if they don’t have a trusted partner that they can go to, now it’s on them to try to figure this shit out. And that is not an easy thing with our scope just because there’s so much minutia and if it leaks, it’s a million dollar problem just that quick and so on. Having that trusted partner that could really elevate their customer service game and still be knowledgeable and still be a high quality installer. I think that was a spot that was underserved. And our clients can attest, it’s been a really, really welcome thing for them in the marketplace to have somebody like us to turn to, hey, we’re not we’re not perfect. We have a lot of human beings that do things wrong a lot because they’re imperfect. Me especially. But I think that mindset of Hey, we’re in it, to serve our clients and to really help them be better at their job. I think that’s the key.

Scott Peper 8:34  You know, it’s funny to hear you say that because I talk to a lot of our clients and just general contractors, people in general and, you know, few humans think that way, whether it’s on the general contractor side or the subcontractor side.

Maybe it’s the GC thinking about it for the owner, or the sub or really the GC thinking about how important the sub is on the contract for that on the project for them. I think if, one of the things I like to talk about, is if everyone would just sit down and have a real conversation and stop hedging against each other, as a third party on a construction project, seeing it from both sides, and really have an invested interest in in nothing more than just the success of the project. Because for us, we Yes, we have a client that is our direct borrower, but that general contractor and the owner on the project is just as much of a client of ours, because we are completely linked to one thing and one thing only, and that is the performance on the project. If that project performs that means our subcontractor performs that means the GC performed, that means the owner got what they wanted, and money flows all the way down the hill to everybody and everybody’s happy. And it’s what I always find is the lack of communicating sometimes on some of these projects, causes the issue. It’s like, well, I don’t want to tell them that and I want to I’m gonna fight this and push against that. And if everyone just sit down and say, You know what, this is what I’m great at  this is what I’m not, this is where I need help this where I don’t, it seems like it’d be so much easier for a construction project.

Charles Covey 10:00   Now I think you’ve hit that right, that nail right on the head. Because for us, I think that, at the very least, can we just get the real, the real stuff? Like, why do we have to like, well, you’re not gonna hold my card with my chest, I don’t want to let him know, Let’s just be real, let’s just be honest with each other, let’s just be upfront about the problems that we see. Because ultimately, that that upfront communication, getting all that out on the table, that’s what the project needs to move. And so trying to hold on to some information, because that might help us later … That’s bullshit. You know, like, we’re trying to get our client and their building to the end in a profitable and expedient manner with a quality building, like, you need the information to flow. And so I think that that’s something that I don’t know, like subcontracting and general contracting is gotten to a really interesting point where it’s a combative space, sometimes. You see this, you see jobs go south, and really, it’s really not the job going south. It’s the relationship going south is the communication going south. And if you can hedge that by just being real and just being upfront, just being honest with the client about what’s going on, and let all that information just be on the table as a discussion point. I think that perspective, maybe we’re not, we’re not perfect. We have communication issues at times. But I think that being upfront and real with our clients is a really big differentiator.

I think of an example, like, a lot of times when we’re doing contract buyout, I’ll tell the client, hey, you know, I really think that you should hold us accountable for this particular thing. Let’s make this language pretty broad, because, you know, you need us to finish this result and cover this whole scope for you. So let’s make this language a little bit broad, because I know that’s good for you. And then on this thing over here, it’s a little vague, like, you kind of got me wrapped into this other guy’s scope. Let’s clarify this one here. So I’m trying to buy a contract. It’s good for them and me. And it’s not that complex. Let’s just all work together as a team, we got the same goal, get this building built profitably at a quality level, and it’s not that complicated.

Scott Peper 11:52 You know, when you and I first met one of the things I admired, I don’t even know if you remember this part of the conversation, but as in your office, we’re talking through the scopes, just having a general conversation about the construction and one of the things I thought was really interesting about your particular scope and what you have to manage around. I always hear a lot of people talk about is they’re always blaming the other trade Oh, they’re slowing me down this trade slow me down, I don’t have the site or they screwed this up so I can’t do my thing. You know, more than any other scope, you probably touched just about one every other trade on that job. I mean, whether it’s walls erection, roofing, electrical, plumbing, your ceiling — for everyone doesn’t know what waterproofing is. I mean, your ceiling, the structure, you’re making it waterproof, obviously. So you’re you’re on the walls are around the windows, you’re near the joints, you’re near the roof lines, anything that connects anything. You have the opportunity to blame everybody for any problem you want. But yet, when you and I talk, you never blame anybody. Never.

Charles Covey 12:48  Never. We, we have to be careful with that. You know, like sometimes somebody screwed up and I can’t start because they didn’t do their job. But I’m not just going to send a letter. Hey, we’re delayed this other guy sucks. I’m going to come out and say, Hey, this thing needs to go, these four changes need to be made, and then we’ll be able to start as soon as possible. Yeah, sometimes there has to be some, some work back and forth, but doesn’t have to be in a combative manner. We can just say, Hey, this is the facts. I need this to keep moving. Let’s do it together. It’s like, you know, providing the solution instead of just putting the blame. But you see that you’re right. I mean, the blame gets pushed in, in the contracting space. So many times like, well, it’s just somebody else’s problem. We try to own the problem, you know, like some other trade has a thing. Let’s walk it through, let’s make sure that we’re there. Make sure it gets done right. and own the problem. We want to carry that on our shoulders. And I think our client appreciates that.

When a client comes at us and says, Hey, guys, you didn’t do this thing. I mean, if it’s true, I’m gonna take the client side, like, yeah, you’re right. We screwed that up. Now I look right at my PM. Like, what the hell is going on? And why aren’t you taking care of this client? There’s going to call them out because it’s real. That’s actually what happened. And to take the client side, I’m not going to push back and and pretend that we didn’t screw up because yeah, we’re human, and we mess some things up and we’re gonna own that shit. We’re going to fix it quick and move to the next.

Scott Peper 14:03  You talked about some of the early days. How did you maintain the success level as you grew and scaled hiring talent, finding talent and doing these jobs and keeping up that level of performance?

Charles Covey 14:14  I’ll tell you if you want, I’ll give you what I think is the absolute single biggest factor. I don’t worry about Alphapex money.

That seems crazy, right? Like how could that be? How could you run a business and not worry about the money? Yeah, I review the financials. I know what’s going on with the money, but I don’t make the money. My first concern. So I’m going to measure the other things. Are we the safest in the business, are our clients getting taken care of and the buildings getting built on time and correctly? Are we solving the client’s problem? Are we so good at helping them with their job that they’re not going to go anywhere else? So if I worry about all those things, ultimately, I’m worrying about their money.

So if you think about this, so I’m worrying about what gets them to their money, faster. So for the client that’s going to be getting the building done, getting the mobilized and off the site, no callbacks, no leaks, no warranty issues over the course of the job. And then for, now, what about my suppliers? They’re very critical to the, to the chain of things that we do. I got to worry about them. Yeah, I’m going to write them a check. But I still need to be worried about their money, because I’m going to need them. So I worry about getting them paid quickly, making sure that our ordering processes allow them to be efficient, they get to make more money, they love us. And then our staff, our team, people that on our team, I worry about their money,  are they being paid top of the market are they in a work environment where they want to be there. We’re not just working them into the ground, and in the way that construction is known for. So I’m worrying about everybody else’s money. And guess what happens to Alphapex company funds? Most of the time, it pretty much takes care of itself. Now, when I try to explain this to people at first are like, you know, this is pretty crazy. How can you not worry about your money, but I do I worry about everybody else’s money and then Alphapex gets taken care of.

Scott Peper 16:01  You know, instilling that culture in yourself is one thing we you know, you’ve grown now you have over 100 employees, culture is very important. You talk about it all the time on your website, it’s on your paperwork, it’s on your documents, it’s in your, it’s in your company logo, it’s everywhere, you can tell you’ve worked really hard on that. Talk a little bit about how you develop that culture, how you implemented it, and what you do to keep it going.

Charles Covey 16:25  So the core values are not done for show. They’re not done to impress. They’re done to create a mindset frame framework. And so, those core values are — there’s five elements in the Alphapex core values. And some of our other businesses have a slightly different set of values based on the decisions that need to be made in that business. So it’s a decision tree, and we create those core values. So it’s, this is not just the thing that we put on the wall, just because it looks nice and has bright colors, and it checks the box of Yeah, we have. It’s a decision making process for every single thing that pops up. So we had to run through these, you know, we think these are the core values, we got six or seven here and run through every possible scenario we could. Does this word or this phrase help our team make decisions and be better and take the company to the places we want to go? And I expect at some point, those core values will adjust as the goals and needs of the company changed. So it’s a decision making tree that goes that goes with us every moment of every day.

And I think some people just look at, well, you know, we want some, what’s some nice words that look pretty and we can put them on the wall? What are they going to do for you? What are those words going to do to actually improve the business and take it to a new level?

Scott Peper 17:35  When is your team first introduced to your core values?

Charles Covey 17:38  Immediately, the core values are in the onboarding paperwork. They’ve agreed in the onboarding paperwork that they read them, they have to understand what they mean, and they have to agree to uphold them. If you don’t uphold the core values, buddy you’re out. So that’s a pretty quick one. And I think that’s really it.

People understand pretty quickly that that’s the way that the business runs and we talked about to our clients too. It’s a selling point. I was at a client yesterday, client in Fort Worth, and we were doing a presentation for their field team. So all their superintendents and assistant superintendents, and we were talking about waterproofing and quality and the other items that we do every day, and just try to help their team be better. Just, you know, free information I got, I want to help these guys be better, and help to help them understand our scope of work. And they’re super appreciative, great group. But we talked about the core values, they’re like, hey, this is the expectation that we have of our team. And you see somebody not matching it, please let us know. That’s a really interesting thing. We promote those core values to the client. And I’ll get a phone call or a text occasionally, hey, just so you know, I saw one of your guys on the site, you’re probably going to want to know about this. I’ll get a text, they’re not upset at me, but they know that I would care.

And they know that I have a super high expectation, and they’ll let me know, I really appreciate that. That’s been a pretty cool thing of, you know, really pushing that to the clients, letting them know that hey, we’re a high-level organization, well developed. We have these core values that are a functional part of how we operate and they’ll help help us watch out for him, which is really neat.

Scott Peper 19:01  So this is such a good topic and it’s hard. It’s also a hard topic specially for a business owner and I speak from experience. It’s hard it’s hard for me I think it’s something I’m always working on is how can we make our culture better? How can we keep our culture the way it is, and always coming up with new and creative ways to do that, or, or keep new and creative ways to keep what we have going? You know, to your point.

Charles Covey 19:22  I always have to do a disclaimer, you notice my voice is monotone. It’s the same shit all the time. I’m excited. I’m sad or whatever, you don’t even know the difference, because I’m just kind of like this all the time. It’s really funny because like, Oh, you know this guy Charlie’s doesn’t seem to be very excited. No, I’m pumped. Are you kidding me? But this is about as animated as I get. So yeah, I’m excited to be here for sure. But you might not tell from my facial expression or my voice inflection.

Scott Peper 19:48   You’re a little more animated when you had about 17 inches more haircut and you went about four months past your normal date there during the Coronavirus.

Charles Covey 19:55  Yeah, I don’t look good like a gorilla. I wasn’t very happy. My wife thought it was cool as a novelty. Like Yeah, anyway, that was a good time. The other disclaimer is that I’m an asshole. It’s just kind of how I’m wired. My wife has to make sure when we go to client events, She tells them up front, Hey, just so you know, I’m the nice one. Charles is an asshole, don’t hold it against him.

Scott Peper 20:17  She called you a nice asshole.

Charles Covey 20:20  That’s true. Yeah, she does say that I’m the nicest asshole she knows.

Scott Peper 20:24  Charles, one of the other things I really wanted to cover with you was your I think you do a great job marketing your business. We’ve talked about some of the ways you’ve separated yourself, with your customers and your clients. But one of the things that I really want you to discuss is just your overall general philosophy on marketing, what you were doing in the past what you’ve been doing along the way, what you’ve learned, and I think we’d be a little remiss if you didn’t maybe talk a little bit on what you think might change with your marketing moving forward, you know, specifically as it relates to the Coronavirus or just what you think is going to change here and in construction, our approach to marketing

Charles Covey 20:59  Our approach is virtually the same thing that we do on the job site, and we talked about this and some previous things have, we’re worried about the client, what is the client need to be better. And so our marketing really is that, is that way too. So we’re giving a lot of information, the client wants to see their project, they want to see nice pretty video of their project. As it goes together. They’re emotionally invested in this project that they put hundreds or thousands of hours into. So we’re going to definitely showcase those projects and let them see it and let their friends see it. We’re going to share information with them, either in person, in their office, or with a lunch and learn or with videos on YouTube or on the different social media channels, or different things that we send out, that help them be better at their job with the things that we know which is our scope of work. So help them understand how to QA/QC our work, how to understand our work, how to help direct their project, regarding the things that we do in Division Seven. And so our marketing is very similar to the way we put work in place and that’s really be focused on what does the client need to be better. And then we don’t really ask that much we find that if we give a lot, when we do have that ask of, hey, let’s do this job together, that ask is welcome. Because we’ve been giving so much before that. So if you think about this, ties back to that whole thing of helping the client, get to their goals or be better at their thing.

So, birthdays, anniversaries, these things mean a lot. That’s an emotional tie. So as a marketer, as a business owner, you want to tie your business name, and the things you do every day, to an emotional connection. And birthdays are a really good way to do that. We found that a lot of a lot of our people that we work with, our clients, they, their own companies don’t even remember their birthday. The card that they get from us might be the only thing they got that day from somebody outside their family. So it has a really emotional connection and impact and it’s very, very long lasting. People remember these things for a long time. So just an example. I don’t believe I have one handy, but, we do pocket knives for birthdays. So it’s a pocket knife and it’s got their name on it and then we got a birthday card that is signed by everybody in the office wishing them a very happy birthday. And they receive that. Now, this is a big task, because you have to have a database of all your clients, their contact information, where they are, what company they’re at, how to get to them, their birthdays are it’s got to be accurate. Otherwise, you look like an idiot. But this is a lot of information. It’s hard. And that’s why most people don’t, that’s why most people don’t do it. And so I think that in marketing, you’ve got to look, what’s that next step? What’s that really hard thing that you don’t want to do? But nobody else is doing it? So you really should do it. And that’s what we found is the real differentiator, what’s the hard thing to do to connect to your client? Go do that. Chances are, your competitors won’t.

Scott Peper 23:41  No, you’re right. It’s invaluable. And anytime you’re attaching a memory to you and your business of something you’ve done that’s really been emotional to that person. It’s going to be more memorable and more impactful and those are two great things that every time

Charles Covey 23:54  But how often do you get gifts that’s just got … They send you a gift — we’re going to use gift loosely because it’s just an item that has the company’s name on it. That’s not for you. That’s just a general, they’re giving you a generalization of where we kind of feel nice about you. But if somebody goes to the effort to document all these things, took us forever to get all these names and emails and, and addresses together and birth dates. But once you do that, and you identify that you care about them as a human being on their birthday, which has intrinsic meaning, and something special, something custom, something you made for them. It’s, it’s really, it’s really a very important connection. I think. We don’t give anything to a client without their name on it. Does anybody throw away something with their name on it? Absolutely not. They keep that thing forever. So we’ve seen these, these different colored Yetis that we’ve given to people, they’re five, six years old, they’re just beat to shit. And they’re still carrying that thing around on the jobsite, every day because they love it. It’s got their name on it. And that’s really cool for us and our brand and what we stand for, and they really cherish that. So that’s cool. I would say putting somebody’s name on a gift is really impactful. Just don’t give it to them if you can’t put their name on it.

Scott Peper 25:04  I’m trying to think back. Am I throwing anything out that have my name out other than junk mail? And I would say probably say no.

Charles Covey 25:11  You should see our office around Christmas time, we might send out 500 or 600 custom gifts around Christmastime. Can you imagine the volume, like, how do you keep track of that many custom gifts? Got to check the names you got to check the addresses people moved between companies all the time. Got to make sure you’re taking it to the right location. Yeah, it’s a logistical nightmare but it’s totally worth it. I definitely give kudos to my wife Alicia who handles all of those elements of the business and she does a next-level amazing job to get that done and keep it organized. Everything goes out wrapped nicely with a bow on it with the name tag. You know, our branding, their name, custom gift.

Scott Peper 25:49  It’s awesome, man. That’s definitely an impact. People are gonna remember that. What are you doing different now with Coronavirus? I guess in general, what are your thoughts around the impact of the Coronavirus? What’s happened? I mean, there’s so many it’s impacted everybody there’s there’s no country, there’s no person, there’s no industry, everybody’s been impacted. What are the things you’ve done differently? How have you adjusted or maintained or, or etc?

Charles Covey 26:13  Yeah, so construction has been incredibly blessed. You think about it even across the country that Texas has been sheltered, maybe more than some, but there’s a few states that have had some construction shutdowns. But for the most part, construction, construction suppliers, construction manufacturers are still being able to operate. And that is, that’s just amazing. We’re very, very fortunate to be in that position, very thankful. But if you think about it, the world has changed a lot for construction and for everybody else. So yeah, we can still work every day. But the way that we do that, the way that we connect to our clients, the way that we get information from our job sites, the way that we interact with our team members, the way that we train for us has been very different.

You know, we can’t have that training meeting every Monday and pack 120 guys into a room. That doesn’t work anymore. We’ve got to come up with ways you’re like, how do we do this and film it ahead of time. And we text out a link to everyone. So they could still get the same information, but on a screen of a phone instead of in person, and then how do you connect from a screen of a phone is not the same emotional connection, as it would be as if you were in person. So now you do it in smaller groups. Now you do a one on one, you’ve got to find a way to connect, I think to your, to answer your question more specifically about the client relationship. Connecting with human beings is a really, really important part of construction. Like Yes, we build buildings, but hey, man, we are in the people business. And that’s not going to change with technology, but new building methodologies like we’re going to be in the people business forever. And because that we can’t lose sight of the fact that, Coronavirus or not, you still have to find a way to connect with the people that are in the business. So finding one of the ways what are the ways we can think outside the box, come up with something new, to get a contact so get an emotional connection like we mentioned. Here I’ll show you an example. This is the Alphapex Pandemic First Aid kit. If you can see that it’s whiskey and beef jerky, and a mask.

So it was a huge hit, you know, superintendents, project managers are just getting beat over the head every day with all this Corona stuff and having to sanitize job sites and, you know, make sure everybody’s washing their hands and check temperatures and all the different protocols, and whiskey and beef jerky was really impactful. So that one was just outside the box, what’s something we can do that will allow us to connect with our clients for just a second, just to get there and let them know that we care about them that we’re here for them if they need us. And it was a challenge to get all those delivered. Because you know, some people at the office, some people at the house, some people on the job site, and so we were able to get that done and send out a few hundred of those and it was pretty neat to see the reactions but we’ve got to think outside the box now.

Scott Peper 28:44  You know, finding new and creative ways man and helping people when no one else is or when fewer people are is so important and if you just generally focus on helping the person and helping people in general, anyone you come in contact with, but especially your customers, especially your team, you’re going to be so much better off and it’s so much easier to manage your business because the decisions are are easier you do what’s right you just do what’s best for each person and when something extra special for someone in the point where they’re especially when they’re getting beat down by everybody is a memorable and honorable thing, really is.

Charles Covey 29:22  You have to have the long game in mind. This this stuff that we do is not a short term thing you don’t see a monetary result quickly.

Scott Peper 29:31  No, no. And you know you’re not doing it for monetary result either. And who knows you you’ll never tie an ROI to how many custom gifts you bought, you know, doesn’t mean you can add more money to the project, doesn’t mean any of those stages means it’s what’s right help separate you keeps you more memorable a game where everybody’s everybody can be very similar, right?

Charles Covey 29:52  It’s a differentiator and I know absolutely for a fact that if you show people you care, your business will grow.

Scott Peper  30:02  100%

Transcribed by https://otter.ai

In our new YouTube series, Built for Growth, we talk with experts about some of the biggest issues facing the construction and manufacturing industries. For our first episode, we were honored to have Loretta Calvin, Diversity & Inclusion expert and CEO of Monroe Strategic Business Solutions, join us to discuss diversity in construction.

It is no surprise that construction faces a diversity issue. The stereotype of a white, male, middle-aged construction worker has been largely accurate for decades.

According to the Bureau of Labor Statistics, the construction professional workforce breaks down like this, in terms of diversity:

• 9.9% women
• 6.2% Black
• 2% Asian
• 30.7% Hispanic/Latino

Why diversity in construction matters

Calvin spells out why construction business owners need to invest in diversity and inclusion. For one thing, the workforce is aging out of the business. The median age of a US construction worker is 42. Investing in diversity efforts can open up new pools of talent.

Construction is a great career track, with an industry average salary of just over $53,000, plenty of career stability and opportunities for upward mobility. With expertise in a construction trade, construction management, or construction administrative services, you can work almost anywhere in the country, or even the world.

According to Calvin, the industry should invest in training and educational programs for high-school students, women, and other under-represented groups, in order to increase awareness about construction as a career track and build early relationships with future recruits.

• Diversity also opens up new opportunities for government and municipal projects. General contractors and large subcontractors can partner with minority-owned businesses to win government contracts, which often have diversity workforce requirements.

Last but certainly not least, investing in diversity and inclusion supports your business’s productivity, workplace culture, and innovation.

If you are interested in working with Loretta Calvin and Monroe Strategic Business Solutions, click here to send an email.

The construction industry is built on relationships. Having a background of mutual trust and respect, on top of a history of solid performance, can catapult your company over the competition when it matters most. If you are new to the industry, this is intimidating. You need the jobs to build the relationships, and you need the relationships to get the jobs. Creating a set of core values for your company and broadcasting them to your customers will signal to a GC or owner that you are a solid worker and an aligned partner. Core values will win you more business, attract and retain the best talent, and give you and your team the most fulfillment from the work you do.

Core Values Defined

Core values are the principles that guide YOU and consequently your company’s actions, the individual actions of your leadership team and employees. They are the foundation of your corporate culture — how you speak and behave toward each other, your customers, your larger community, and the world at large.

Core Values Start with You

In an article from Winning the Business titled Improving the Win Rate for Your Organization, growth consultant Jeremy Brim writes,   “the biggest determining factor in win rate and the growth trajectory of organizations … is the behavior and commitment of their leadership and how that is cascaded down through the organization.” You have to create a culture of winning. You do that through established  values of perseverance, integrity, and excellence.

It’s okay if your core values are aspirational – they should be. Present them to your team with an action plan that takes you from aspiration to reality. Values must be statements that truthfully and accurately embody your company’s culture. If not, they are meaningless at best and harmful at worst.

Values Matter Every Day

To reap the benefits of core values, you have to actually live them. In the HBR article, Make Your Values Mean Something, the core values of Enron are listed: Communication, Respect, Integrity, Excellence. That sounds great, until it was all revealed as lip service.

You can’t put your core values on the wall, or on your website or letterhead, and call it a day. Just as in the rest of life, words and actions build reputations in the construction industry, not fancy displays with no substance. You have to embody, and live in each day, the core values of your company. This is why they have to start with YOU. Every day, in every decision, you must allow your core values to guide you.

Remind your team to allow the corporate values to drive them when making decisions and acting on behalf of the company. When your core values are a living practice shared by your entire organization, rather than a dead-on-arrival document, you all act according to those values. Acting with integrity and respect earns you a reputation for having integrity and being respectful. Striving for excellence in everything you do creates a reputation of excellence, because it becomes your and your team’s standard.

Establish core values to guide how you will work — then go do the work.

Core Values Drive Sales

Core values define culture, which guides actions. This includes how your sales team approaches new opportunities. Your core values are the cornerstone of your sales culture. When your entire sales team is aligned in their approach to new business, you get consistent results you can bank on.

Your core values set you apart from the competition. They create a positive identity around your company. They become part of what your company is known for. That can be a powerful influencer during the bidding process.

Imagine a steel erection company, we will call them Sam’s Steel, submitting a bid to a GC they’ve never worked with before. Sam’s core values include statements such as:

• We are accountable to our customers, our community, and each other.
• We always communicate with as much transparency as possible.
• We are committed to excellence in everything we do.

The bid includes a schedule of the way they will go about doing the work, how they will invoice for it each month, a cash flow prediction, breaking down the startup costs for the project, estimated weekly expenses, and how they finance their schedule and project costs.  It also includes a testimonial from another general contractor. In the testimonial, the GC says that Sam’s Steel was great at communicating, open about challenges and ready with solutions, and that they performed excellent work with no major issues.

The GC can see that Sam’s Steel is already living by two core values: transparency and accountability. The project cost breakdown shows the gaps in cash flow, and the subcontractor has wisely already solved the problem for the GC. The testimonial lets the GC trust in Sam’s Steel plan and gives them peace of mind that the work will meet and exceed their standards. The trust comes in the details that Sam has provided and provides the comfort to the GC that Sam knows what he is doing!

Core Values Drive Hiring

There is a common misconception — in the construction industry and others — that skilled labor goes where the money is. The truth, according to the data, is that money is rarely the primary reason an employee leaves a job. In fact, according to a report from Hays US published in Construction Dive, 65% of surveyed construction professionals would take a pay cut for their ideal job. Even more telling, the #1 reason given for employees leaving was … CULTURE.

Create a culture that is hard to leave. Live your values with your team as much as you do with your customers.

According to a report from Manila Recruitment, 80% of employees leave due to bad hiring decisions. That means their resignation is on You. If a recruit can’t perform the work, you failed to hire the right person. If a recruit doesn’t share your company’s core values, you failed to hire the right person.

Make your core values known at the beginning of the hiring process. Talk through them with recruits. These are our expectations. This is the code we live by. If someone does not align with your core values, they are better off elsewhere, and you are better off without them. Not because they are bad employees, but because they throw your company’s alignment off-balance. It only takes one employee who does not believe in acting with integrity, for example, to frustrate and demoralize the rest of the group.

Core Values Drive Personal Fulfillment

As the leader of your company, I can guess that you spend a LOT of time at work. Why not enjoy that time more, by being surrounded with people who share your principles? They don’t have to share every opinion you have (in fact, that would be boring and limit your creativity), but they move through the world making decisions based on the same set of values that you do.

That is what a team built on core values gives you.

When your team is built on values, their performance, both on the jobsite and off, can be a source of pride. Invest in their ability to live those values in their own personal lives, and the feeling of pride and fulfillment only grows. You are now building a business with a purpose.

When core values guide your company’s actions, you reap the reward of new business, better employee retention, and your own personal happiness.

Like what you just read? Then you will LOVE our newsletter. Our CEO Scott Peper shares his personal journey to live a life and lead a company driven by purpose and guided by core values. We also include industry news, upcoming events, and our latest videos, blogs, and digital guides. You can subscribe by clicking here.

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Make Core Values Part of Your Business…

Since the beginning of the coronavirus, the construction industry has found itself wading through murky waters. Are we essential? Is our project on hold? If we are working, how will we keep our team safe? And if we are not, how will we keep our teams paid?

It has been a LOT to figure out. Luckily, many companies that serve the construction industry have rallied to provide clear, accurate information specific to your industry, your challenges, and your opportunities. We partnered with legal, financial, and other experts to produce our Coronavirus Q&A  YouTube series, for example.

Even as the country slowly begins to reopen, there are new questions around construction work. The need for information from expert sources familiar with the construction industry has only grown. When Levelset asked us to join their Coronavirus & Construction Virtual Town Hall, we sent them back an emphatic: WE ARE IN!

Mobilization Funding’s CEO Scott Peper joined Ben House, a construction and commercial litigation attorney in Texas, and Greg Reaume, an attorney with McInerey & Dillon, a construction litigation firm based in Oakland, California.

Listen to the recap to hear their answers to the questions asked by construction business owners just like you!

Questions like:

• What difficulties or challenges do construction business owners face during COVID-19?
• Will there be lien period extensions due to all the courts being closed?
• How can subcontractors do a due diligence check to vet the GCs and owners of their projects?
• What happens if an employee contracts coronavirus and files Workers Comp?
• What are the laws concerning workers who had been infected to return to work?
• How can you protect employees ongoing? Can you ask them to wear masks? Submit to temperature checks?
• And more!

 

You can also access the video and a full transcript on Levelset’s website.

This construction finance content was produced in partnership with DARE Capital. 

You are having success building your construction business. You have blueprints for jobs, but a financial blueprint for your company? Not so much.

If your construction business is growing every year, but …

• your paycheck seems to stay the same;
• you always feel like cash flow is too tight;
• and it is stressing you each week to make payroll;

then it is probably because you lack a financial plan that supports your growth. There are very easy (yet not widely known) ways to control your expenses through a cash flow plan. This allows you to finance your growth – and YES, it was created for and is specific to construction.

You need a goal and a plan that will help you reach it. You need to understand your options to acquire capital when you need it, what to spend it on, and how to pay it back without slowing down your momentum.

Accounting: Your Construction Finance Foundation

Solid financial tracking and reporting is the bedrock upon which you will build your company’s future success. Before you can plan for future profit, you need to know exactly where your money is going now. The only way to do that is to clean up your current bookkeeping and accounting practices.

Separate your personal expenses from your business accounts.

Your personal and business checking accounts must be separate and so should the expenses associated with each. This may seem obvious, but too often we see personal and business expenses in one account. For one thing, a merged account is just not professional and is more likely to result in problems for you – whether it is at tax time or if you are trying to get a business loan down the road.

Your company’s ability to build credit is also negatively affected when you blend business and personal spending.

Keeping your business and personal accounts completely separate will save you hours of work and frustration in the long run.

Open a dedicated payroll checking account.

It is common for business owners in construction to operate their entire business from one bank account, but it is not advisable.

One of the biggest reasons for having a dedicated payroll checking account is cash flow management. In construction, the balance of your bank account is rarely the amount of cash you actually have on hand. Those funds are already ear-marked for vendors, suppliers, and overhead costs like rent, utilities, and debt payments. Don’t double-book funds for payroll on Monday only to discover they are gone on Thursday. Keep your payroll safe and you employees paid on time!

A separate payroll account ensures the money you have assigned for your employee’s paychecks is available when those checks are cashed.

Get more payroll tips in our blog, Payroll Tips for Subcontractors. 

Hire an accountant.

You may think hiring a Certified Public Accountant (CPA) will cost too much money, but the reality is a good accountant will save you from making costly mistakes and allow you to focus on growing your business.

It is good practice to hire an accountant right away, but if your company has more than a few employees, your revenue is growing, and you are juggling multiple jobs, it is definitely time to hire a CPA. A good accountant often pays for themselves in a relatively short amount of time. After all, finances need to be current and accurate for you to stay on top of your accounts and plan for growth.

Know the financial warning signs.

Your company’s financial health is much like your own — it needs regular, preventative check-ups to spot warning signs early. Unfortunately, many business owners are only monitoring one vital statistic when it comes to their business – cash. That’s like assuming you are healthy just because you have a pulse.

Here are the financial warning signs you need to watch out for:

Negative cash flow.

If your business is routinely spending more than it earns, it probably doesn’t matter how much new business you generate. That’s because with each new job, more expenses will come too. A prolonged negative cash flow is a red flag that something is very wrong.

Cash flow is tricky in construction, with a large portion of project costs coming out long before any revenue comes in. This is another reason a CPA with experience in construction finances is so essential for your future growth.

Poor profit margins.

This particular warning sign is common in construction, and sometimes can be solved with a simple bidding adjustment. If you are applying a blanket markup on top of project costs to every bid, you may be starving your company of the essential profits it needs to grow and thrive. The total overhead cost divided by your total revenue is the percent you need to add to bids to properly account for overhead in your future estimates.

Falling profit margins may also signal an increase in costs or a decrease in income. This is a warning sign you need to address immediately. Once profit margin impacts cash flow, other complications arise quickly.

Debt payment performance.

If you are constantly extending your payment dates or missing debt payments entirely, your company should head directly to the financial equivalent of urgent care. An inability to pay your debts on time tells creditors you are in real trouble, which will limit your options of recovery.

Late payment or poor payment performance can also lead to even tighter cash flow constraints because it will reduce your ability to get credit from your suppliers. Having to pay suppliers COD will further limit cash and can then lead to the need for even more long-term debt which will further erode your company’s profits.

Assess your financial foundations.

Before you create a plan to grow your business AND make a profit, you need to know where your company stands financially. In order to get an accurate assessment of your finances, you will need to start with good financial reporting. These are the three reports you need to have on a monthly basis to review your company’s financial standing:

• A Balance Sheet
• An Income Statement
• A Statement of Cash Flow

What are you looking for exactly? Just like health warning signs, there are clear indicators when a business is doing well.

• Revenue growth year-over-year, if not month-over-month
• Flat or minimal expense increases as a percentage of revenue
• Positive cash flow
• Ability to service your debt payments and overhead expenses
• A consistent (and hopefully High) overall profit margin
• Steady new business pipeline
• High customer retention

If you don’t have all of these right now, don’t worry. Once you identify the weak spots in your financial foundation, you can work to shore them up — either before you launch your plan for growth or at its start. Your CPA can tell you what each of these financial statements mean for you and how you can make adjustments to best impact your business.

Materials List: Your Construction Finance Solutions

One of the most common mistakes business owners make is to view debt as a thing to fear rather than as a tool for growth. The reality is plenty of business owners borrow money not because they need it to survive, but because it is the smartest way to capitalize on an opportunity.

However, financial solutions are not one-size-fits-all. In order to build a financial plan that will support your growth, it is important to use the right funding option for each opportunity. Here is a list of funding sources your company can take advantage of, when it is best to use them, and when it is not.

Cash

Cash is king, and everybody loves that feeling of paying for something with cash. Too often, business owners get so hung up on the pride of paying with cash that they forget that cash is king for a reason — it can save you when there are no other options. For this reason, access to your cash is very important for actual emergencies.

There are four critical rules for cash to always keep in mind:

1. More cash is better than less cash;
2. Cash now is better than cash later;
3. Less risky cash is better than more risky cash;
4. And finally, never run out of cash.

Good for: Ensuring your ability to survive during a pandemic, making sure payroll is covered when your customers pay late, or taking advantage of an opportunity that arises.

Don’t use for: There are no bad uses of cash per say, only when you deplete all your cash.

Selling equity

Equity is the most expensive form of debt so be sure you are getting value for the equity you bring in. That “Value” is not necessarily always a lot of money, but it can be experience and talent in areas of business that you need. You want to avoid “dumb” money, and instead seek equity partners who bring something like industry expertise, access to a customer or set of customers, or have favorable relationships with suppliers.

Good for: Raising cash for working capital to drive the business, pay off high interest debt, bring in expertise that can help your business, or to help fortify your balance sheet.

Line of credit

This is the gold standard for working capital lending. The funds in your LOC can be used for anything, including financing the upfront expenses on a new job. Similar to cash, though, it is important to use your LOC to drive business and fund monthly operations while saving some availability for more critical needs should they ever arise.

The only real downside to a LOC is that is retrospective — it is always determined by your past 24 months financial performance, not the next 24 months. If you are growing fast, you may outgrow your line of credit.

Good for: Working capital. The cash needed on a day to day basis to manage expenses that will otherwise turn into an invoice o your customer (for example: COGS, other material purchases, equipment rental, and payroll).

Don’t use for: Buying Vehicles, equipment, or other capital expenditures that you don’t intent to pay off right away from business operations.

SBA loans

A term loan or working capital line approved and backed by the Small Business Administration is often easier to acquire than a traditional bank only line of credit, if you qualify as a small business. For commercial construction, the SBA defines a small business as one with no more than $39.5 million in average receipts.

SBA loans require a LOT of documentation and a good sponsor. Working with the right bank to sponsor your SBA loan is very important, as it can impact how they present your business. The bank is still taking a risk on your SBA loan and their assessment of your business and the perceived credit risk is just as critical to the approval process. Not every bank that makes SBA loans are created equal and each of them have different criteria for approval. Just because one bank turns you down for an SBA loan does not mean the SBA turned you down!

The downside to an SBA loan is once your company grows too large, it will no longer qualify.

Good for: Working capital, initial capitalization for your business, acquiring or merging wit another business, refinancing debt.

Invoice factoring

Invoice factoring is common in construction, as it significantly shrinks the 60-90 days between you submitting an invoice and receiving payment. A factoring company will advance you a percentage of the invoiced amount upfront. This makes it a powerful tool to balance out unpredictable cash flow streams, which gives you the chance to fund your project for the next month of the job and reduce the amount of cash needed to operate a project. Having access to more of your cash will allow you to do more projects that fit into your strategic growth initiatives.

The drawback is invoice factoring does not get you funding before a job starts or before you submit an invoice. Many high-performing construction contractor companies use invoice factoring combined with another financing solution, funding growth and keeping the cash flow stream moving positively.

Good for: Project-related expenses and operational overhead associated to the project you invoiced.

Don’t use for: Buying equipment or starting another project, or paying off long term debt (you need profit for that or another form of long term debt).

PO financing

Less common in construction is Purchase Order financing, in which the lender will pay your supplier to fulfill the order. The customer or supplier then pays the PO financing company directly. It deducts its fees and sends any remaining balance to you.

Good for: Cost of Goods Sold (COGS) purchases, other materials.

Merchant cash advances

These “quick-cash” daily debit loans can destroy otherwise profitable and healthy businesses. An MCA repayment involves a daily or weekly draw from your checking account, which can make forecasting your cash flow even harder than before. These daily withdrawals are almost impossible for commercial construction companies to keep up with, especially in the months after a project is completed but the loan is still active.

Think about like this – if you take out a loan today because you are short on cash and the repayment of this loan requires daily or weekly payments, but you only are paid monthly and often times that is even more delayed – then how could you possibly think you will be able to keep up with a daily or weekly payment without the money coming from somewhere else it is needed – like payments to your suppliers, vendors, or employees payroll.

MCAs are very easy to get, but can have devastating long-term effects including bankruptcy and personal credit problems.

Good for: I cannot in good conscience recommend an MCA for a construction company as I have seen way too many devastating things happen to great people.

Mobilization loans

This is a short-term loan that is tied to a specific project. It is meant to cover the upfront costs of launching new work — materials, supplies, labor, bond premiums, etc. When working with a partner such as Mobilization Funding, the repayment plan is aligned to your pay apps, which reduces the overall strain on cash for the business and relieves the stress associated with how you are going to pay for the project related costs. The repayment of the loan is in line with when you are paid for the project so you can pay off the loan as you earn the money.

Good for: Any project related expenses – material, equipment, labor, insurance, etc.

Don’t use for: Purchasing equipment, refinancing other debts

Other options

There are other funding options that work well in the construction industry, such as heavy equipment financing and payroll financing. The best thing for a company owner to do is to find financial partners they trust and lean on them when a new funding question arises.

When you know all the tools at your disposal — what they do and in what circumstances they will work for your business — you can make borrowing decisions that not only protect your company from loss but help bolster its growth.

Grow to New Dimensions

Now that you have a clear and accurate look at your financials and know the different funding solutions you can use to balance cash flow and execute on new work, it is time to set goals for your financial growth.

Setting Financial Goals

Your financial goal can start with a revenue number you want to achieve. For example, “I want my company to be a five-million-dollar business.” But numbers rarely inspire a team, especially when facing the inevitable growing pains that will come with growing your business.

Push a little deeper and give that number a purpose. What will it mean for you and your employees if you grow from a two-million to a five-million-dollar company? A purpose-driven goal is more effective at aligning your entire team, getting everyone on the same page and working toward the same goal.

Make sure the goal is ambitious but achievable and tied to a metric of time so your progress can be measured.

Profit
Revenue is important as it’s an indicator of growth. But keep your eye on profitability and set some profitability goals by total number (i.e. $2.5 million in two years) and also as a percentage (i.e. go from 7% net profit to 12% in three years). Sometimes we fall in love with big revenue numbers, but we have to keep our eye on the prize of profit.

Cash Reserves
While this may sound impossible to some people, it’s important to focus on building a cash reserve to weather inevitable (and sometimes absolutely unpredictable) downturns. Have a goal of at least two months’ cash put away. The recent pandemic is likely to encourage companies to build up even more cash reserves. If you can do three, four- or six-months’ cash, that’s great. But start with a small goal – the ability to operate on your own cash for at least one month, or two. Aim to grow it little by little each year. If you are growing each year by 10%, you need to grow that cash reserve by at least 10% to maintain two months’ cash on hand. It’ll help you sleep better at night knowing you can weather a storm.

Customers
While this isn’t a financial goal, it’s worth considering having a goal tied to number of customers. A broader base of customers can reduce risk for a company. If a large customer is lost, it helps to have a significant number of other customers with jobs to which workers can be redeployed. It also makes the future a little less risky, because other customers can make up for the shortfall of losing that customer.

A growing customer base can also show a bank another data point of the company’s health when that bank is considering making a loan.

Your Dashboard

Everyone with a car has a dashboard. It tells us how fast we are going, where RPMs are, how much fuel we have, and our oil levels. This is a snapshot of our vehicle’s performance and ability to perform. A company needs a dashboard, as well. There are a handful of numbers that are really important to help manage the business, and they will differ slightly for each company. But generally, they are simple, though not always tracked for growing businesses.

Customer Satisfaction
Given the importance of reputation in construction businesses and services, this is something to keep an eye on. As online reviews have become more commonplace, it is even more important: the better work you do for someone, and the happier you can make them, the more likely you are to gain additional work. The opposite is also true: unhappy customers are likely to tell five other people and hamper the ability to win new jobs. Seek to collect information on customer satisfaction. A simple “Net Promoter Score” (NPS) rating, “How likely are you to recommend others use us?” is a great way to track this.

Market Share
This one may be challenging to gauge given your particular market or niche, but you want to know how you’re doing relative to the competition. This pertains to how much of the available work you would like to have that you are winning.

Margin
As we said before, profit is what matters most, and the healthier a company is in other areas on this dashboard, the healthier its profitability. This needs to be tracked over time so owners and managers can determine if the company is getting healthier or weaker, or remaining the same. It is also an indicator of how well jobs and the business are being run. Are you gaining margin as you grow?

Labor Utilization Ratio
It is important to track the utilization of your most important asset. For most companies, that is their people. For others, it might be a piece of equipment. But it is crucial to know how much of our labor is working and how efficiently. Once a company knows this, they can set parameters around what that ratio needs to be. For instance, in one company, they might know that as long as their labor is being used 80% of the time, they’re ok and they will be profitable. But if they fall below 70%, they are in trouble. They may also find that if they get to 90% labor utilization, they must turn away other jobs.

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What is Construction Financing?

Equipment financing is another powerful tool to help your business grow and succeed. Financing a newer piece of equipment can help you cut costs, avoid delays, and build credit. We sat down with Gerald King, founder of King Commercial Capital, a cash flow solutions brokerage firm that specializes in equipment financing, to learn how equipment financing works, when you should use it, and how to find the right funding source for your needs.

What is Equipment Financing?

Put simply, equipment financing is the use of a loan to purchase a piece of equipment for your business. It is a broad term and can be used for smaller pieces of equipment like a $5,000 stamper and for million-dollar items like bulldozers and cranes.

The terms and details of the loan vary by lender and by the client’s needs, says King. “There are multiple solutions for financing for businesses. It depends on the business. When someone calls and says I need to finance this bulldozer, I talk to them about their needs. Their financing needs. I have to learn from the client what they need to structure the solution properly.”

When to Use Equipment Financing

Many contractors may shy away from obtaining financing and, preferring to pay for equipment in cash. It’s understandable — paying in cash feels like the responsible thing to do, but is it the best use of your cash reserves?

Probably not. There are plenty of instances when your business might need cash on hand — a project delay might put payroll in jeopardy, for example. King advises clients to utilize available financing solutions and save cash for emergencies. “Don’t spend $100,000 on a new piece of equipment in cash and then have nothing in your coffers. Cash is king. Save it for when you need it.

Equipment Financing and Banks

If you have a line of credit with your local bank, you may consider using that to purchase your new concrete mixer. Hold that thought. A bank line of credit (LOC) is similar to cash — it is a finite resource and is extremely valuable in an emergency. Tapping out your LOC on a five-year loan isn’t the best use of that available capital, and you’ll miss having that LOC option if your business suffers a financial pinch in the future.

Another reason an equipment finance broker is a better option than the bank? Exposure. A bank can (and will) only loan so much money. It’s a matter of risk mitigation. However, finance brokers often have a variety of funding sources, which means they may be able to loan more to one individual client than a bank can.

This can be critically important if your business is growing. King says, “A bank won’t grow with you. They will draw a line in the sand. Equipment finance partners don’t run into that exposure problem. They can grow WITH you.”

Finally, a bank looks at an equipment loan much like an auto loan. If the equipment is several years old, they may not consider it to be valuable enough to warrant the loan amount. Equipment finance partners have far more flexibility. “If it makes you money, saves you money, or makes you more efficient,” says King, “I can usually get it financed.”

When Not to Use Equipment Financing

Most equipment finance loans are taken out for used equipment. That’s because new equipment is often purchased from a distributor or manufacturer, and they offer their own competitive finance options.

Other than new heavy items financed through the manufacturer, equipment financing can be used to purchase a number of items your business needs. King says, “Equipment can be anything from computer software to a crane. Bulldozers, dump trucks, whatever it is you need.” He added with a smile, “Just don’t ask me to finance the vending machine.”

Sorry, snack lovers.

Equipment Financing Documentation

What paperwork you need to submit will depend on your lender, your business, and the equipment you intend to purchase. King says that often a smaller-ticket item can be financed based on an “application only” submission. That means you only have to provide bank statements and an application. Larger items, anything over $100,000, requires a full credit package including a few years’ tax returns, and possibly your personal bank statements and tax returns.

But, King advises sending over as much documentation as you have, regardless of the size of your loan. More documentation helps paint a more complete picture of your business — it tells the story of any hiccups on your credit and how this equipment will help you grow.

“I have to paint a picture to underwriting on why this bulldozer is going to be good for their business,” says King. “I need to be able to explain the hiccups on their credit. More documentation makes it a verifiable story.”

Renting Versus Owning Equipment

Are you currently renting a piece of heavy equipment and think buying would save you money? It might, but it depends on usage. King has a formula to help contractors decide when to pull the trigger on a new purchase. “If you are going to use the equipment 30% of the time for business purposes, definitely buy.”

Maintaining Equipment Versus a New Purchase

Let’s say you have an old forklift that you keep repairing because you don’t think you can afford to buy a newer one. Before your next trip to the mechanic or parts shop, sit down and do the math. How much is this piece of machinery costing you to maintain? If the cost of its maintenance is higher than the cost of a payment on a newer, better, more reliable piece of equipment, then it is time to turn that bad boy in.

“The cost is only going to increase,” King says. “If you spent X this year on maintenance for this equipment, what are you going to spend next year?”

There is another cost to consider if the equipment is critical to your business performance. Work stoppage and delays are cash flow problems, and cash flow problems are like snowballs rolling down a mountain. They grow exponentially if you don’t stop them fast.

“If you can’t use the equipment, how does that impact your schedule?” says King. “And how does that schedule impact affect your cash flow? For example, if you are doing underground boring and your older equipment breaks down, you can’t work. Downtime is a cash flow problem. It makes sense to buy and keep your guys working.”

Choosing an Equipment Finance Partner

Not all equipment partners operate similarly, and there are bad apples in the industry just like anywhere else in lending. King cautions contractors to do their research, ask questions, and read the fine print before signing.

There are three practices some lenders utilize that you want to watch out for, says King. They are:

Evergreen clauses. An evergreen clause means if you don’t terminate your financing, it auto-renews. That could mean you get stuck with way more payments than you originally contracted. For example, if you had a 36 month loan or lease, and you get stuck with an evergreen clause, you might end up paying an additional 30-35% on top of the original asset cost.

Payoff penalties. Some equipment finance lenders will include “prepayment penalty” or “sum of total payments” language, which basically means that if you pay off the loan early you still have to pay the interest and fees associated with those future payments. Ask your prospective lender if there are any pre-payment penalties or fees, and if future interest is included in the payoff amount. Then, read the contract to verify their answer.

Interim payments. Think of this one like a home loan and prepaid interest. Whatever time of the month you close, you still owe interest for the rest of the month until your first payment is due. So, if you close on the 25th, you have 5 or 6 days of interest accrued that you will need to pay. The trouble with interim payments, or “interim rent” as it is often called, is when lenders get creative with dates. For example, if you sign a contract with quarterly payments and they tack on an entire extra month to round out the quarter.

King has simple but smart advice when choosing an equipment finance partner. “If it sounds too good to be true, it probably is.”

King takes his responsibility to his clients seriously, which is why he is part of our preferred referral partner network. King Commercial Capital, much like Mobilization Funding, believes in building relationships and doing what is best for our customers. King puts it like this, “I have a fiduciary responsibility to put my clients into the best possible financial situation for their given scenario.”

Equipment financing is one more weapon in your arsenal for growth. Used wisely, it can help you execute on more jobs more efficiently, build your company’s credit, and keep your cash flow liquid.

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Your Construction Finance Blueprint

The coronavirus has put tremendous pressure on small business construction contractors across the country. Whether their state has deemed construction “essential work” or not, business owners are grappling with tough decisions. Some of these challenges are human — balancing the need to keep a business solvent against the very real pain of letting good people go right now. Others are purely practical, but no less stressful. How will I pay rent and utilities if there is no new work coming in?

Training yourself during this extraordinary time will make the other side of this crisis feel like a breeze in the wind. Getting strong now during this time will allow you to get through it and thrive on the other side.

We have launched a YouTube series to help inform your decision making during this pandemic. We interviewed experts from across the business spectrum and are continuing to add new videos as often as possible. .

Our own leadership has been having these same conversations and making the same tough choices. We see you out there. Being a business owner is a challenging job under ideal circumstances, and things are far from ideal right now.

This article isn’t about finance, payroll, insurance or SBA programs. Those are all important, but there’s something else equally important — your wellbeing and the wellbeing of your crew. That’s what we want to talk about today.

The struggle (and the stress) is real. How you manage and overcome it will determine where your business stands at the end of this crisis.

The first step is simple: admit that you are worried. It is OK to do that. Once you do you can focus on what you are going to do about it – that is the most important thing!

Acknowledge Anxiety

According to a National Small Business Association survey, 77% of small business owners are “very worried” about the economic impact of COVID-19. Here’s the bright side of that statistic: You Are Not Alone.

Anxiety can be an incredibly isolating emotion, especially in business leaders and entrepreneurs. You are used to solving problems, answering questions, and relieving stress from others. Acknowledging that things ARE uncertain and that you DON’T have all the answers can feel uncomfortable, but you need to do it anyway.

Refusing to acknowledge negative emotions is actually harmful to your health and the health of your business. It can lead to physical ailments like insomnia, indigestion, and headaches, and can make conditions like cardiovascular disease worse. There’s also the mental side of emotional avoidance. When you don’t confront stress, you can’t let go of it. Those bottled-up emotions become toxic over time and can lead to depression and other mental health conditions.

How does avoiding stress and anxiety hurt your business? One of the cognitive side effects of prolonged, unresolved stress is a decline in cognitive thinking. It can also lead to forgetfulness, an inability to focus, poor judgement, and overly pessimistic or “doomsday” thinking.

It is harder for you to make the good decisions you need to save your business because of how stressed out you are about saving your business.

So, let it out! But before you start venting to your team or your spouse, keep reading.

Find Your Peer Support Group

Finding a safe, supportive space to talk about your fears, challenges, and frustrations is critical. You want to keep morale up within your team, and you don’t need to compound any stress at home with work stress. You and your partner or spouse have your own challenges right now (groceries, kids at home, concerns over your health and that of your loved ones). You need an audience that can listen with empathy without being emotionally invested, which would add to their stress.

One option is to find a network or community of business owners — on social media, email, or a text chain — who share your concerns and can offer you encouragement and support.

Another is to hire a professional e-counselor or tele-counselor. Psychology Today has an index of counselors who offer virtual conferences.

Take a Break

Turn off your phone. Walk away from the television. In fact, go outside and take a walk. Or, skip your usual news broadcast and watch something that will make you laugh. (Digital Trends has a few Netflix suggestions.)

“I have too much to do to relax,” you’re saying. The reverse is true: You have too much to do, and the work is too important, for you to do it at anything less than 100 percent.

Business owners tend to be “always on” people, and when they feel stressed about their business push even harder. That’s great — that drive is what made your business successful in the first place. But, when facing the stress of a global pandemic, a national recession, the health and wellbeing of you, your family, and your team, AND the financial future of your business …. Yeah, it’s a lot. You need to disengage from that overwhelming pressure every now and then. It allows your brain to reset.

Start a Manifestation Journal

This may sound a little woo-woo, but stick with us. Part of what drives performance is mindset, and part of what establishes your mindset is your thought patterns. A manifestation journal is a simple way to train your brain to think more positively. Write down your anxiety or fear, and then write out the best possible conclusion you would like to see. For example,

• I am worried about making payroll next week.
• I will find a financial advisor who will help me get a PPP loan and make payroll.

Your specific anxiety leads directly into an action item — something you need to do in order for the positive conclusion you want to occur. It gives you a focus point, and it trains your brain to speak in “I will” statements instead of “I can’t” or “I won’t.”

Take Care of Your Health

Mental health is part of your overall health. What you eat, how much (or how little) you exercise, and how many hours of sleep you get all contribute to your overall mental health. Now is the time to start forming healthier habits that will help you stay mentally and physically strong during the crisis.

• Eat whole foods that are rich in vitamins and nutrients. Things like berries, citrus fruits, whole grains, and plenty of lean proteins.
• Set a sleep schedule that allows you to relax in bed — no tablets, TVs, or phones — and sleep for a full eight hours … or as close as you can get to it.
• Find an exercise activity that works for you. It can be a low-impact workout like walking, yoga or swimming, or turn up the heat and go for a run or a fast bike ride.

Talk to Your Team

Now that you have your own mental well-being plan in place, it’s time to spread that energy out to your team. Your team needs you to ease their anxieties, and a great way to do that is by first acknowledging your own.

It may sound counter-intuitive, but a leader who models vulnerability feels more confident and trustworthy than an aggressive bright-sider. Your team knows the situation; they need you to tell them how to feel about it.

Start by acknowledging the uncomfortable reality and your own response to it. “I know times are scary right now. I’ve been worried, too.” Then, lay out your plan. Tell them how you are going to weather this storm.

If you are furloughing employees, laying off staff, or reducing hours, make sure that conversation is in-person (or at least a phone call) and upfront. Start by stating the news directly. Ambivalence, while it feels easier for the speaker, is much harder for the receiver to process. Explain how the decision was made. Let the employee share their thoughts, but don’t debate with them. Stay positive and offer help when and where you can.

Give Your Team Resources to Cope

It’s important to remember that the construction industry has the highest male suicide rate in the country AND the highest rates for alcohol and drug use. As the leader of your team, you can help them survive and thrive right now by offering them resources to deal with their own depression, anxiety, and stress. We recommend checking out the resources available from the Construction Industry Association for Suicide Prevention.

Put Your New Positive Outlook to Work

When we are mentally healthy and thinking positively, we are able to process new information and make smarter decisions. Our ability to plan and strategize increases. All of these skills are critical to your ability to keep your business going during the COVID-19 pandemic.

Exercise your mental outlook every day, and just like a muscle it will gain memory and grow stronger. You will arrive at the end of this long, strange, stressful journey with a toolbox of stress-busting techniques and a powerhouse of positivity to face the future.

Construction payroll is more complex than payroll in more “traditional” industries. Your payroll can fluctuate when a new project starts, and every week throughout the job right up to its completion. Managing payroll internally is time-consuming, inefficient, and potentially exposes you to mistakes, lost revenue, theft and fraud.

Yet, many contracting companies still choose to keep payroll internal. Worse, they process payroll along with all other expenses from their Operations account.

We sat down with Bruce Patz, President of Associated HCM, to shed some light on common issues in construction payroll and offer a few tips to improve yours.

Why should construction contractors separate their payroll account from their operations account?

One of the biggest reasons to set up a dedicated payroll checking account is cash flow, says Patz. “A lot of business owners operate on what the bank says, not their actual cash flow. That means one person can write payroll checks believing the money is in there, and then another person write a check for supplies, which causes payroll checks to bounce.”

It’s not that subcontractors are inherently bad with money, but managing all of that outgoing cash is tricky, especially when several members of the team have access to the account.

A separate payroll account ensures the money you have assigned for your employees paychecks is safe. With a dedicated payroll account, there is zero chance of someone else writing a check for other expenses which would impact your team’s payroll.

Another reason to separate payroll? Ease of accounting. Whether you balance the books yourself or have a CPA (and you really should have a CPA), separating your payroll from your operations account makes life, and bookkeeping, a lot easier.

Tips for smarter construction payroll.

Plan ahead. With good financial oversight, based on data from the previous year’s payroll and your expected projects and growth rate this year, you can determine an estimated forecast of your payroll expenses.

Don’t forget about payroll taxes. “A lot of contractors forecast labor on a new project, but they forget the employer taxes when they estimate the payroll expense, “says Patz. “Taxes can be 15-20%, so they need to be in your estimate.”

Separate your payroll and operations. Seriously, it’s that important. If you work with a payroll company and have a dedicated payroll account, you know on Monday what your payroll expense is going to be. It gives you a few days to figure it out if you find yourself short. This is better than the 24-hours-or-less panic that often ends with a contractor taking out a high-risk Merchant Cash Advance Loan (MCA).

Do you have questions about payroll during the COVID-19 pandemic? Check out our YouTube video with Bruce Patz and Caroline Catlender.

 

Cash flow is always an issue in construction. How can contractors best ensure payroll ALWAYS gets met?

“Work with a payroll service that understands your industry and your cash flow cycles, so they can make recommendations,” says Patz. “And hire a CPA, or a payroll service that has accounting as a service, to help with budgeting, reporting, and forecasting. The more you can plan ahead, the more you can get ahead of any problems.”

And planning ahead allows you to better plan for growth and capitalize on opportunities when they arise.

Patz also recommends having a financial partner. “Go with your line of credit first, if you have one,” he says. If you don’t have a line of credit, don’t panic. There are financial partners out there who can help you.

Like us! Check out How Our Loan Process Works to learn more.

What is the benefit to hiring a 3^rd party payroll service versus doing it in-house?

A good payroll company can help with a lot of things beyond processing payroll, such as:

• HR Compliance
• Employee Handbooks
• Equal Pay Act Compliance
• IRS forms for talent acquisition
• Worker’s Comp payments processed along with payroll, rather than a lump sum
• Out of state payroll tax calculations
• Calculating exact payroll per project
• Managing the different wages by project (Ex: Davis – Bacon Act Wages)
• Providing Certified Payroll Reporting

Many payroll companies also offer payroll finance programs. Some will also help calculate employer taxes and offer other accounting services.

For Patz, being a great payroll service comes down to that one word: service. “What sets us apart is that we are a small business, and we have a personal relationship with our clients,” says Patz. “We’re very different from the big payroll companies. A lot of the bigger companies don’t care how their clients make payroll. We start at the beginning. We talk about cash flow to understand it and create payroll solutions that work for you. Our services mirror and align with who you are and what you need.”

What should a construction contractor look for in a payroll company?

Finding a payroll service that specializes in construction can be tricky, and there are plenty who say that they understand the cash flow realities of construction subcontractors. Patz recommends starting with a simple search. “Google them,” he says, “and see if they have ever been accused of stealing tax money. That’s an easy and important first step!”

Next, be ready to vet the company by asking a few questions. Do they reconcile their tax accounts daily? This helps prevent errors and fraud. What is their liability coverage? And finally, can they provide referrals or case studies from other construction companies they’ve worked with?

Construction payroll is complex, but it doesn’t have to be painful. Save yourself and your team the headache of processing payroll yourselves and instead focus on what matters most — performing the work and growing your business.

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Revenue is the lifeblood of your business. Profit supports your goals for growth, but many construction contractors operate on the thinnest of profit margins. Here are eight strategies you can start using today to increase the profit margin on individual jobs, and your company’s overall profit margin.

#1 Know your job numbers.

They say every river leads to the ocean. The same philosophy is true for your profit. The profit of every job adds up to your company’s overall profit. Increasing your profit margin a few percentage points on each job can add up to a significant increase in net profit and free cash flow for your business.

How do you increase your profit margin? It starts with your bid. Accurately estimating profit margin from the beginning can tell you which jobs to pursue, and which aren’t worth the sweat. That means you need accurate bidding, which all comes down to numbers. It feels great to get a job every time, but doing work that is not profitable just to have work will RUIN your business and is one of the leading causes of why construction businesses fail.

Don’t do work if you aren’t going to make money.

Make sure your bid includes ALL job costs, including overhead and cost of capital. It is imperative you add the cost of your general overhead to every job you bid. In order to do that you have to KNOW what your total overhead costs actually are. Overhead, in its most general sense, is the total of all the costs to run your business that are not directly linked to a specific job. That includes all employees that do not work on the job, your rent or mortgage, insurance costs, payroll fees, entertainment, any other debt payments, etc.

The total of all those costs on an annual basis needs to be calculated – that number is your total overhead cost.

The total overhead cost divided by your total revenue is the percent you need to add to all of your bids in order to properly account for overhead in your future estimates.

In order to figure this out add up all the costs from your 2019 income statement that are not related to actual jobs. Then divide that by your total revenue in 2019. Here is an example for you:

• Annual Revenue: $3,000,000
• Annual Expenses:
• Office staff Salaries – $100,000
• Rent – $30,000
• Insurances (GL, workers comp, auto, etc) – $80,000
• Debt Payments – $40,000
• Total: $250,000
• Total Expenses ($250,000) divided by Total Revenue ($3,000,000) = 8.3%

8.3% is your Overhead allocation. This is what you need to add to every estimate just to break even on the job.

If you bid $100,000 on a job and you have $80,000 in labor and materials on the job you make think you are making $20,000 or 20% margin. The reality of that is you are only making $11,700 on that job because there is $8,300 of overhead expense that needs to be paid also.

Dig into historical data to determine if the costs you have estimated in bidding were accurate at the end of the project. If not, it’s time to update your estimate numbers.

Your profit margin needs to be higher than retainage. Waiting to pull a profit from retainage will put you at a huge risk of a cash flow shortage until the job is completed and your retainage is paid out, which can take a long time to be released.

#2 Know your company numbers.

Now that you are keeping track of your overhead, job costs, and profit margin on each individual job, expand that thinking out to your company as a whole. Remember to include all the costs we discussed in #1 like insurance, your fleet, and office supplies. Do you have outstanding debt with interest that is nibbling away at your profitability? You need to know which debt to attack first, and how the entire ecosystem is working for or against your profit.

This macro view of your company’s profitability can be a real eye-opener, but it’s critical to your success. Profit margin is one of the biggest reasons new construction companies fail.

Pro Tip: Hire an accountant. A CPA can help you determine these numbers accurately, identify cost-saving efficiencies, and help you forecast numbers for the future.

#3 Reduce your cost of customer acquisition.

Lead generation is always a hot topic with contractors. The cost of that lead generation, and its outcomes, are two critical pieces of data that impact your profit margin. How many leads is your sales team producing? How many leads have you purchased? And, most important, how many of those leads converted into new business? If you have 100 new leads and 0 new clients, we’re sorry to tell you that you have wasted your money. At the same time, if you have a rock star sales representative who closes a new deal every day, that person is worth their weight in gold.

Track which lead generation channels are delivering the most leads, and the BEST leads. Cut what isn’t working. Spend your marketing dollars where you are seeing the best production to increase your profit margin.

#4 Borrow to GROW.

Borrowing to survive is bad, but borrowing to capitalize on an opportunity for growth is SMART! If you can borrow $500,000 in order to execute a job with a 20% profit margin and you earn $125,000 in profit, then the cost of the financing is worth it.

Every funding option has positives and negatives, and borrowing without a plan is almost always a bad idea. It’s important to view every lending opportunity with this question in mind: Can I borrow this money to grow and make sure I don’t undercut my growth during the payback?

Read more about borrowing to grow:

Borrowing Capital is a Smart Way to…

#5 Stop competing on price.

You are not a commodity. Neither is your business. A strategic price reduction under the right circumstances is one thing, but when you compete on price alone to win business, the message you are sending is that your work is only worth that much. That’s not a great recipe for long-term growth.

Instead, focus on your reputation as a leader, your company’s reputation in the industry, and the quality work your team is executing. Performance and accountability build a great reputation that will last longer and open more doors than a cheap bid.

Go back and read that last sentence again.

This comes back to bidding. Show your numbers and be upfront about how you came to them. You know what it will realistically take to get the job done right, and a good GC does too. Make their lives a little easier with bids that are clear and comprehensive, that answer their questions, erase pain points, and put their minds at ease. Showing them how you are going to fund the job will also help to put them at ease and trust that you can perform the work they contracted you for. That’s a long-term growth strategy that will show up in your profit.

#6 Trim the talent fat.

Take a deep breath, this one is hard.

You need to balance permanent staff and contract workers. Even harder, you need to take a look inside the office. Is your payroll bloated with specialized staff members who do only that one job or don’t do their job well enough? Would you be more profitable if you combined roles or outsourced a few of these duties? If you have people on your payroll that you have to pay whether there is work or not, you need to make sure they are (1) necessary, and (2) helping the business grow. Get lean and efficient to increase profit margins.

Nobody likes to let good people go. It is not a reflection of them or you — it is business. Be the boss they’ll never forget by helping them find their next opportunity. Leverage your network.

#7 Search for efficiencies and lean into them.

You might be surprised where you can find efficiencies that increase productivity and profit margin. Updating your project management software will have a cost, but if it means you can schedule more work faster, it will soon pay for itself. The same goes with basic fleet maintenance. It may be cheaper to repair that old equipment right now, but in the long run how much are you spending on repairs? At some point, it becomes a better investment to retire old members of the fleet and replace them with newer vehicles.

Efficient and effective communication between your field crew and office staff can help you get paid faster. When you get paid faster, you can pay your vendors, suppliers, and lenders faster. All of which means fewer interest payments and an increase in profit margin.

#8 Set goals and track your progress.

To increase the profit margin for your company, assign a goal to each of these tips. Can you increase your average job margin one percentage point this quarter? Can you reduce your cost of customer acquisition from $350 to $100? Set the goals and then track your progress toward them. Monitor the data after every job, at the end of every month, and at the end of the quarter. You do not have to do all of these things at one time – pick one or two and see them through to the end and then pick 2 more until you implement all of them.

Increasing your profit margin gives your company a solid foundation from which to grow. It makes you more attractive to lenders, increasing the odds you will get the funding you need when you need it next. It also gives you more peace of mind and less stress, so you can focus on doing the great work that your business is known for.

Now go out there and get paid.

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