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Warning: Be Alert to Glitches That Can Ruin Your Business

Inadequate systems and procedures are insidious. They drain the life out of companies bit by bit. They can cause employees and customers to edge away and, over months and years, they can shrink your profits. Some disheartened owners eventually file for bankruptcy and go back to swinging a hammer for someone else.

We’ll save you that hardship. Here are key warning signs and pitfalls of faulty systems and scrambled operations. Take notice and start fixing any problems before it’s too late:

• Low profits compared to similar companies. You may do the same volume as the guy down the street, but if he consistently nets more than you do, your costs are too high.
  
  
• Poor cash flow management/negative cash flow. Symptoms include late draws and spending that isn’t tied to your business plan. Some builders in a bind draw on their personal assets or take out emergency loans, but you don’t want to go there.
  
  
• Constantly putting out fires. Business can’t proceed when operations are responding to an immediate need or problem, says Ed Caldeira, president of Caldeira Quality, a Crofton, MD-based consulting company to the construction industry.
  
  
• Working more than 14 hours a day. This is a classic sign of a business that runs its owner. It’s unhealthy for you and the company.
  
  
• Too much time spent on answering employees’ questions. “When you keep too much information in your head and don’t share it with everyone, that really handicaps productivity,” says David Bryan, president of Blackdog Builders in Salem, NH.
  
  
• Employees have little autonomy or aren’t empowered to make decisions on their own. “Too many new business owners have a hard time letting go and letting others do their jobs,” says Bob Kovacs, a former home builder who runs Constructive Solutions, an Iselin, NJ-based consulting company. “They spend most of their day checking and rechecking their employees’ work instead of running the business.”
  

• Operations go into a tailspin when an employee leaves. There’s an easy fix for this: Cross-train your employees. Why should someone take all your expertise with them when they leave the company? They could be taking your customers with them, too.
  
  
• High staff turnover. This jettisons employee morale and raises your overhead. It generally costs less to retain employees than to rehire to fill vacant positions.
  
  
• Unpaid change orders. You did cover the change order process in your pre-construction meeting with the clients, didn’t you? Document every change and its associated costs (every extra screw it takes to mount a switched-out light fixture, for example) or you’ll eat those costs.
  
  
• Homes aren’t delivered on schedule. Besides disappointing customers, this raises your costs. More time on the job means more labor costs and more money spent on land loans.
  
  
• Unhappy customers. Look out: They’ll bad-mouth you all over town. They also require more care and feeding than satisfied customers who have good faith in your company and its systems.
  
  
• Unhappy trade contractors. “When trade contractors have to deal with problems on your sites, you pay for it with inflated bid prices,” says Caldeira. And just try getting them to show up on time.
  
  
• Decreased referrals. That’s a killer for any business, but especially for home building. A drop-off in referrals reduces your market share and ratchets up marketing expenses.

This information is excerpted from “All Systems Go: Putting Order in Your Business,” a free 32-page booklet that examines the advantages of systemization and the basics of systems development. It also provides tips for bringing a systems approach to business planning, hiring, scheduling, managing selections, shortening punch lists and handling warranty work.

To receive your free copy of “All Systems Go,” e-mail NAHB’s Business Management Department or call 800-368-5242 x8388.

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