The Top 3 Mistakes Contractors Make Running Their Business
(And How to Fix Them Before It Costs You Everything)
A contracting business is relatively easy to launch but it can be challenging to run well. Most contractors are very good at their craft but many are underdeveloped business operators. They chase work just to pay the bills, and their sales funnels and related cash-flow fluctuates greatly. The result is often strong revenue, but profits are shallow, and stress is high.
If you talk to most contractors, you’ll hear the same thing: “We’re slammed right now.” Jobs are lined up, crews are working, phones are ringing, and yet, there’s stress. Cash is tight, margins feel thin and somehow, after all the work, there’s not much left over.
Here’s the hard truth:
Most contractors don’t have a work problem—they have a business problem.
There are 3 key mistakes that many contractors make that will kill profits and could ultimately kill the business:
Mistake #1: Not Knowing Your Numbers (a.k.a. “I think we’re making money…”)
This shows up when jobs are priced based on competition instead of actual costs. There’s no clear break-even point and no structured job costing system. Jobs are won that actually lose money, and there is a constant cash crunch. Stressful!
To fix it:
- Establish your break-even point by knowing your fixed costs (overhead, salaries, insurance, vehicles, etc.) Then calculate how much revenue is required to cover your fixed expenses.
- Implement job costing by tracking labor costs, subcontractor expenses and materials for every job. Then compare estimated vs. actual costs to make sure your numbers are accurate.
- Set target profit margins. Build adequate margin into every bid and stop pricing to “win” jobs. Price to sustain your business and to grow. Need to charge higher prices? Add more value!
Mistake #2: Operating Without Systems (Everything Runs Through You)
This looks like every decision running through you, the owner. You become the bottleneck that slows job execution. Employees constantly ask how to do things, and you can’t step away without things falling apart. The mindset is “It’s faster if I do it myself,” but that leads to burnout and an unscalable business.
To fix it:
- Document core processes such as estimating, project management, client communication, and change orders.
- Create checklists and Standard Operating Procedures (SOP’s). Keep it simple. If someone can’t follow it, it’s not a good system.
- Define roles clearly. Be explicit about who does what. Demand accountability and open communication.
Mistake #3: Chasing Work Instead of Building a Business
This looks like saying yes to every job and taking low-margin work just to stay busy. There’s no defined target market or ideal client, and the pipeline swings between feast and famine. There’s no real branding or marketing strategy, just another contractor chasing work.
To fix it:
- Define your target market and who you want to work with. Understand their pain points and what motivates them. Know your price range and how to support it with the value you provide.
- Build a constant pipeline (a good CRM will help). Encourage referrals, connect with strategic partners and select 1-2 marketing channels to broadcast your unique value proposition (UVP).
- Learn to say no. Every “yes” to unprofitable work, gets in the way of better opportunities. Learn to “fish” in the right populations and throw back the opportunities that are not good.
Contractors will fail if they keep an “in the field” mindset. Success requires shifting into a leadership gear and systems thinking.
In short: Know your numbers. Run on strong systems. Choose your work strategically.
If you don’t take control of your business, it will control you. Freedom and success come from building a scalable business on solid principles that can operate without you.
Rick Wickizer is a trained and ICF credentialed business coach and a successful entrepreneur. Rick has served the building industry for over 30 years and is dedicated to adding value to all he works with. For information about coaching services provided by Rick, go to: rickwickizer.com
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