All very good points Randal. You most likely developed these ideas because of your involvement on both sides of the construction equation as a tradesmen and an accoutant. BjR
How To Setup Your Construction Company Board Of Advisors
Having your own private Board of Advisors is a competitive advantage that a lot of smaller contractors are not aware of which means they are missing a tremendous opportunity.
If you have been in your construction business for a year or more and are making enough money to survive and pay your bills then you have know the basics and this information may be relevant to you.
Large profitable contractors create a Board of Directors to develop and manage the Strategic Objectives of the firm. They provide insights from a theoretical 30,000 foot view to show where the firm is heading and to provide input for course corrections as needed. Part of their job is to protect and grow shareholder value.
Smaller contractors can be like cowboys and cowgirls who get up in the morning, grab the tool of their trade in one hand and a cell phone in the other, jump on their horse, grab the reins between their teeth and start riding fast and furious across the plains to the most Urgent Important crises. When that's handled they do it again and again and again until they retire; which means they got tired of doing it or their customer got tired of them.
Smaller contractors do not have time to develop a formal Business Plan with Strategic Objectives and feedback systems to help them to protect and grow shareholder value because they need to fight that next fire or get some marketing done. Or just do something even it is wrong because they are working in Quadrant 1; the Proverbial Urgent and Important square.
This one thing implemented can change your life and raise you from working IN your business to working ON your business.
Setup you Board of Advisors as outlined below:
#1 Your Commercial Banker
Go to your bank and ask the branch manager to introduce you to a commercial banker. Your commercial banker can be one of your greatest allies and mentors and they usually are paid by the bank not you.
During your initial meeting let them know you are working with an external accountant that is doing all or part of the bookkeeping and accounting, plus you have a C.P.A. in another firm that prepares your Federal Tax Return. Bankers like to know you are using “Trust But Verify” to help limit fraud and errors because the same firm that does your bookkeeping is not connected to the firm that does you Federal Tax Return.
Next set regular appointments to meet with them on a monthly, quarterly, semi-annual basis whatever works for and have two printed copies of your Profit & Loss and Balance Sheet to show them.
Ask them these three questions:
- Is there anything on these reports that I should be aware of?
- How can you and your bank help me run my business better?
- Who is your target customer and how can I refer you business?
No matter what business you are in, whether you need to borrow money or not, money lending is only a fraction of the services that banks offer. Banks have access to lots of people who need all kinds of construction services and they frequently ask their banker for referrals.
We serve contractors who sometimes catch "Yellow Fever”. This Randalism occurs when Caterpillar, the world's leading manufacturer of construction equipment unveils their new backhoe or grader or heavy equipment with all the latest gadgets.
Our advice is "Wait for it…Wait for it...wait for it" and keep meeting with your commercial banker, keep developing the relationship and whamo! You could get THE CALL…
”Hi Bob….how are things? Hey we haven’t met in a while and I was wondering if we could meet again soon because we are about to REPOSSES a piece of heavy equipment that a contractor recently purchased and I was wondering if you would be interested in it? I shared your last Profit & Loss and Balance Sheet with some people at the bank and they thought we may be able to work something out if you are interested...”
The bank is not interested in storing equipment, they perfer it would go from the repo man to you in one continuous motion and often times the price and terms are very fair. The key is to remember this Randalism “The Pig Gets Fed, The Hog Gets Slaughtered!” Negotiate a deal that allows the bank to get something and you get something, win-win.
#2 Your Outsourced Accountant
Find someone that you can outsource the mundane tasks of bookkeeping, accounting, monthly and quarterly reports and keep it in an orderly fashion for whoever prepares your Federal Tax Return.
Choose someone that specializes in your industry because the days of the one-size-fits-all accounting practice has gone the way of the other dinosaurs and will put you at a competitive disadvantage.
They must be using current technology which means having their own private server housed in a secured server farm that allows you to access your QuickBooks via virtual desktop over the internet. You need to see, use and work with the same QuickBooks software that you see on your desktop now, not something new and hard to learn.
Your outsourced accountant needs to provide you an easy way to get the paperwork to them using faxes, scans, emails, and in person. Being in an office building, not their home is a must and the building needs to have a secure lock box that allows you to drop paperwork off 24/7/365 when it is convenient for you, not just during business hours.
They must have the ability to scan all your paperwork into a paperless secured server and link source documents to the transactions in QuickBooks for easy retrieval later in case you want to see it, print it or email it without having to dig through a file cabinet or pile of papers.
Finally they need to be someone you can meet with and discuss how your business is doing and they will explain your Financial Statements, Profit & Loss and Balance Sheet. And they have to be able to generate reports showing how your business is doing compared to other business.
#3 Your Federal Tax Return Preparer
If you own and operate a business you absolutely positively need a C.P.A. to review your QuickBooks file or whatever method you use to keep records and file your taxes. Sharie, my wife, and I have used C.P.A.’s to prepare our Federal Income Tax forms since the early 1970’s. It is one of the best decisions we ever made because we do what we do best and outsource the rest.
There are other ways such as doing it yourself with or without a myriad of tax preparation software or taking it to one of the chain gang stores that pop up around tax time; however, before doing this refer back to #1 and ask yourself “Am I jumping over $5.00 bills to pick up a $.05 nickel?” Randalism “You can cut costs only so far; however, finding new ways to add value to your clients is the fastest way to grow your cash balance and increase profits”
#4 Your Commercial Attorney
If you own and operate a business you absolutely positively need a commercial attorney to:
- Setup your business entity, LLC, Inc. or whatever is best
- Review contracts you will ask your customers to sign
- Review contracts you will be asked to sign
- Keep you out of trouble wherever possible
- Keep you out of litigation if at all possible
- Setup your partnership agreements
We have used the same law firm for since the early 1970’s. They are expensive in the short run and have been the worth their weight in gold in the long run.
If you are a contractor for any length of time you will be paying legal fees. The question is will it be to defend you and your contracting business or will it be to pay for somebody else’s attorney that is coming after you and your construction business.
#5 Your Financial Planner
Eventually you will want to leave your business and pursue other interests so plan ahead now. Get a copy of Quicken load it up on your home computer and play around with it. You can learn a lot about investing, dollar cost averaging, present value of the future dollar. You can run some scenarios using your budgets and your numbers to show you how much income you will need to retire and develop an action plan.
Once you have some basic knowledge get a Certified Financial Planner. If you do not have a lot of money to ask your commercial banker to recommend someone at the bank and eventually when your reserves build up get a Certified Financial Planner.
One of the keys to investing is the old adage “If it seems too good to be true it probably is”. One of the best books on investing ever written is “The Richest Man In Babylon”.
That’s all I have for now and if you have read this far please do me the honor of commenting and rating this article. Tell me what you liked, didn’t like, tell it like you see it because your feedback is crucial and I thank you in advance.
Learn more about the author, Randal DeHart, PMP, QPA.
Comment on this article
Posted by Brad Rodgers, Seattle, Washington |
Aug 05, 2010
Posted by John Curry, Mercer Island, Washington |
Aug 12, 2010
Much agreed. Building a team is key in any business. Everyone needs a cpa and a financial planner that they really trust. Learning some key concepts/strategies is important.I enjoyed. The strategy of building a relationship with a commercial banker. People need to think long term. Excellent article.
Posted by Patrick Ingram, Lynnwood, Washington |
Aug 18, 2010
Randal, As usual you have great insights into the mind of the contractor / small business person. That was a great idea on working with the banker to acquire equipment.
Keep up the great articles.
Patrick Ingram, MBA, QPA
Posted by Beau Pictor, Seattle, Washington |
Sep 06, 2010
Great advise! I think you have answered some key questions that small business owners have to grow there companies and be more successful.
Posted by Randal DeHart, PMP, QPA, Lynnwood, Washington |
Sep 07, 2010
Good Morning Jim & Beau,
Thank you very, very much for your feedback!
Jim, it is truly an honor to be one of you Mentors. Beau, we are looking forward to working with you.
Posted by Elvis Arias, Jersey City, New Jersey |
Nov 07, 2010
thanks for sharing
Posted by Steve Borcherdt, Mountlake Terrace, Washington |
Jan 27, 2011
It is amazing how timely this article is. I was going over the process of assembling a team just this morning and happened on this article. This is stellar advice and you have included people I was not thinking about and ways in which to incorporate them into my plan. I can see benefits not just the features of this kind of thinking.
Thanks so much for an outstanding article that is straight to the point and clearly written.
Posted by Joe Yosso, Vancouver, Washington |
Feb 07, 2011
Thanks for the very helpful information. You have obviously been through this scenario many times and your advice is very helpful and timely. Thanks
Posted by Tim Meechan, Bothell, Washington |
Feb 08, 2011
Randal, I agree with some of the other comments and think the focus on building a team of highly qualified individuals to help direct every step of a contractors, or others, business is the only way. Our world has become so much more complicated and believing that an individual business owner could handle all of these areas and do them well is not only poor judgement, but will probably send a lot of contractors to the bankrupt line or worse.
Of course all of this fits so well into the networking and sharing of people and ideas that these forums offer.
Keep up the excellent writing, Tim Meechan
Thank you for your comments and observations.
Yes I have been through this scenario many times and expect to do it again and again and again
Which is O.K. because I have passion when it comes to working with contractors and anyone involved in any trade.
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