Have you ever wondered why some contracting companies are successful in the business of metal roofing, while others are not? The struggling companies always say that the successful companies are “lucky” and are “at the right place at the right time.” I believe that “luck” is best defined as “when preparation and timing come together.” In this article we will investigate what elements the successful companies have in place to allow them to be prepared when their time comes.
Organization:
For a person or group of people to form a company to provide metal roofing services, they need to first create an organization. Depending on the type of business, anticipated size, number of owners, type of work to be performed, etc. the proper corporate organization needs to be created. This organization not only needs to determine what taxing structure it desires (subchapter S, LLC, C-corporation, sole proprietorship, etc.) but also create a business plan that includes the following:
A. Mission Statement: This statement is 1 paragraph in length that very clearly states the mission of the organization. No features and benefits, just what the organizers of the company expect the company to provide to its customers.
B. Competition Analysis: This analysis is a must unless your organization is operating in a vacuum! Think about it; how do you expect to create a strategic plan of how to operate your metal roofing company if you do not know your competitors? Make a list of all known competitors and identify their size, strengths, weaknesses, geographic area served, type of metal roofing work offered, etc. Whenever you can, continue to gather information about your competitors listed above plus any information regarding their pricing. This data can allow you to be much more competitive, as well as allowing you to get extra margin when the job and potential competitors allow.
C. Strategic Plan: This portion of the business plan is the core around which all other areas revolve. It includes a written analysis of three (3) areas of the business; 1) Operations, 2) Sales, and 3) Administrative. Each one of these areas needs to be looked at from a current perspective as well as predicting how this area will need to change to accomplish the established goals of the company. In addition, an action plan with defined accomplishment dates needs to be prepared for each area showing when and how the objectives will be attained.
An integral part of the strategic plan is the budget for expected company revenue as well as an expense budget for each of the three (3) areas of the company. The comparison of the revenue to the total expenses allows the owners to make strategic financial decisions, instead of “do we have any money in the bank account” decisions. In addition to creating such a budget spreadsheet prior to the business year starting, it is equally important to monitor the actual revenue and costs throughout the year. While this statement appears self evident, it is one area that is most overlooked by metal roofing companies. It does no good for us to stick our head under the metal roof and merely hope for good year-end results. The good companies know what they expect, know where they are with respect to those expectations, and make informed corrections to their strategic plan throughout the year to insure success.
D. Banking/Bonding: The metal roofing contractor must establish a positive banking relationship. While this business is a higher margin business than most contracting business, it still has schedules that effected by weather, owners demands, labor restrictions, competition, etc. Needless to say, each of those elements can adversely affect the cash flow of the company, even if the profit & loss statement is positive. Remember, in the contracting business “Cash is King!” That is the reason that a solid banking relationship is necessary to have prior to running into a cash trough. The banker will require you to have a well thought out business plan, including yearly financial projections in order to offer a term load and/or line of credit. He will want to see your past year’s financial statement, usually prepared under a review process by a licensed CPA. Because most metal roofing companies have limited physical assets, it is usually necessary for the owners to also provide personal financial statements and guarantee the loan personally. The best time to secure a bank commitment is when your balance sheet is strong and your projections look good. Again, this seems self-evident, but invariably the contractor only goes to the bank when he is financial trouble. Let your banker get to know you when you are financially healthy to create the image that you know how to run a financially successful business.
In addition to banking, any metal roofing contractor that plans to present bids for public work and commercial work will require an ability to provide bid, payment, and performance bonds. These bonds are merely an insurance policy to guarantee the owner that you will pay for all costs associated with the project and perform the work as identified in the contract documents. If you fail to do these things, the bonding company will assume the contract, pay for all unpaid bills, and insure that the work gets completed. To be able to acquire a bond, the contractor must demonstrate to the bonding company that he has the financial strength, corporate capability, and operational ability to perform the work and pay all of the bills. Just like the banker, the bonding company will want to see your last year’s financial statement (a review is usually acceptable), next year’s projections, and evidence that you have the experience and capability to perform work in a range identified. They will make a bonding program available that will be determined by the company’s liquidity and/or net worth. In most cases, the company will be given a limit of the maximum size of any one (1) contract as well as the aggregate amount of the company’s unfinished work. They will require the metal roofing company to provide periodic (monthly or quarterly) evaluations of all unfinished work. Maintaining a positive relationship with your bonding agent is as necessary as one with your banker. Be strategic when developing this relationship and make sure that you continue to maintain it in a positive manner.
E. Licensing: While licensing will not be required by all of the readers of this article, it is a requirement in a large portion of the geographic areas to use the most metal roofing materials. Before you solicit for work in any state, be sure to inquire if there are any contractor licensing requirements. Licensing usually requires a contractor to submit financial information similar to that needed to obtain banking/bonding. In addition, there is usually some type of written test that a full time employee of the company must take to determine their competence with respect to their work. The tests are made up of questions concerning local code requirements as well as industry standards for acceptable work. Licensing for a metal roofing contractor can require him to obtain a general contractors license and/or a specialty contractor’s license. As you can tell, licensing requirements are not standard and need to be identified as soon as a company determines that they wish to perform metal roofing work in a certain area. The time to obtain a necessary license varies with locale and must be factored into the contractor’s plan. All licensing board’s make it illegal to solicit for metal roofing work until such a license is acquired.
So – you want to be one of the companies that are “lucky” in the metal roofing business? Well, the elements identified in this article must be done to allow you to be prepared, from an organizational standpoint, when your time comes. Take the time and make the effort to perform this work prior to that nice job being available to you. You will enjoy being lucky!!
For more information about the many aspects of how to prepare your business to be able to take advantage of the metal roofing market, contact Chuck Howard with Metal Roof Consultants (MRC) at (919) 465-1762. You can also get information about MRC at their website, www.metalroofconsultants.net.
