So guys;
My dreams of Wall Street come to a halt recently.
Long story short, changed degree and accepted a job as an operations / chief assistant to the boss / estimation for a local construction company. Construction, HVAC and welding are all considered unsexy trades and not traditional businesses that college graduates get into normally. I make good money for a 20 year old with little experience, but I want to grow this company.
The future seems bright for the industry, and the baby boomers (the trades guys) are looking to retire and there aren't too many motivated businessman to take their place. You can easily cut costs, and increase revenue using 'new age' business tactics which these 'owner operators' are not use to employing. I see potential. If this company can get into the 10MM-15MM I could make the equivalent to Wall Street wages in this area (approximately 250-400K) pretty easily. If I can just increase my company's revenue by 50% (not too hard from my projections) it should be possible to pull 120k around the age 23-24 which in this area is pretty great. That assuming I take a role like Chief Estimator or Chief Operating Office or the like while growing and not going out on my own.
Background: the company is considered a general contractor (but willing to sub out to bigger GC's) with a distinct field of expertise which is growing: sewer work, water work, dirt work, paving and concrete. It's a more recession resistant area than residential & commercial vertical construction, but very 'dirty'. These companies run a very mangled office staff and normally operate between a 12-20% profit margin with net income being form 3-12% of contract amounts. Many of these companies operate on a contract amount of 2.5MM to 7MM. If you're not in that range you're normally in the 50MM+ range. There isn't much in the middle and I can't figure out why.
I want to build this company from a small business to a medium/large player in a growing section of Texas. Anyone have tips?
I've kind of summed it up changes like this:
Business Structure
Most of these businesses have no structure, they hire at different levels with different pay rates and no structured plan. I'm going to organize it so that there is a clear directive from labor to operator to foreman to superintendent etc. Also more general pay/bonus structure. Also all of these small trades companies have terrible sales initiatives. Plan to personally handle this and develop outbound techniques. Lastly there is a strong desire to remain humble and not play 'business' like it should: like war. That's harder to do, but something I hope to change and instill.
Technology
We use Excel, but we don't use MS Project, we don't use specialized software for planning. Our email is through an outdated system and most companies like this have websites which are shat. This isn't just us but most of these 'dirty trades'. I plan to fix this but what is something which I think is pretty evident. For as little as $200 you can save over 25 hours a month of mess.
What are some suggestions you have, you've seen or that you think could be applicable? I can give more feedback if you want it, just think this is the single handedly best forum to kind of talk about this with knowledgeable people.
Don't have much to add, but I think this is cool stuff and if you're good at what you do you can make a solid living. I know about ten older guys who own small construction companies, home building, and even electricians and carpenters who are pretty wealthy. And like you said, all of those companies could use huge improvements in how the conduct business.
Thanks man for commenting. It looks like fun, worst case I learn a shit ton on how businesses work and what to do / not to do to launch out on my own.
It's surprising that they are able to operate like this though. Even looking at the bigger names, until the company starts bringing in 50MM+ in revenue they appear to be poorly ran from a business perspective. Simple tweaks here and there to net percentage point on percentage point of profit. It's like flipping houses, but actually able to make money off it.
Who owns the company? Just curious about the power structure if you are going to shake up the whole business. I don't know anything about that type of business, but from your description it seems like there is a potential opportunity.
Owner and his wife. Wife serves as an office manager and accounting portion of the business. The owner does the supervision of the construction projects, finds them, bids them, does literally everything else. They are both nearing retirement age and specifically brought me on to 'help take over'. Which is ambiguous itself (don't think they plan to sell to me exactly, might be some type of partnership or purchased equity agreement). Other than them, it's a secretary and myself.
I can give a bit more of a description. Most of construction work is government, which requires you to determine an 'estimate' how much it'll cost to complete. Pretty simple but hard thing to do and requires a bit of luck/forecasting/art to it, but not impossible to do. Multiple companies give their estimate and the city/state/whatever choose the lowest one which meets their standards. You don't want to low bid because you leave money on the table and can end up costing YOU to do the project. Not a good situation. After that you build it, they sign off on it and you're done. Private work (for commercial enterprises) works similarly but its not publicly listed and more likely to be relationship based.
Hiring isn't hard, not hard to find good laborers and potential operators, the only constraint is cash flow and bonding limitations (which is calculated with a formula and underwriters, but morphs as your company grows). Its very easy for the company's owner to become very content with how they are doing and not want to grow. But as a 20 year old I have nothing better to do than put in 80 hour weeks and try to grow this company over the next couple years at least building exceptional work experience before attempting to get an MBA or start my own thing.
I did not know you are this deep into this company ( at least from the stand point of seriously considering in doing so). As I mentioned briefly in your resume thread, infrastructure and project finance might be one of the least known branches of finance in Wall Street but is no less important to the real economy and the work might be more interesting (an intersection of finance, construction/civil engineering, project risk management, etc.).
The way I see it, your potential exits could be 1) join the company as principal, focus on its unique niches (what is its competitive advantage) and grow its size so that it becomes an interesting take over target (size and scale is important!). Your equity could be VERY significant. This is the best outcome IMO; 2) acquire the key transferable skills and move to a Wall Street bank group specializing in infrastructure finance.
I'd stick at it for a couple of years and really get to know the nuts and bolts of how it works. Really get to know how to estimate a job, what can go wrong, how to manage cost overruns and change orders, working from your bids to hiring labor and sub'ing work out, figure out how you can get from the size of jobs you're doing to the larger jobs and how you can grow the balance sheet and your bonding capacity. And get to know all of the players involved.
Go through a bunch of jobs from bid to completion, get to know how milestone payments work and how that can affect cash flow, what working capital requirements you need to stretch from getting paid from an agency or municipality to needing to pay your people and subs (a general rule of thumb is that the bigger and stronger the payer, the longer they take to pay you but you still need to make payroll and pay your subs right away, so you can easily have a 60-90 DSO and be on net 15 with your payables and less with payroll, so it's easy to have an out of whack AP/AR loop). Try to determine what banking relationships the company has currently and if there are possibly better options and products out there. You wouldn't believe how poorly banked some decent sized construction companies and infrastructure service providers are. Most of these guys walked into the front door of their local bank branch 15 years ago and have had a shitty relationship with some asst VP of commercial lending when there are far better options out there. For example, instead of simply line of credit at a bank you may also be able to factor some of your receivables if the payer is credit, such as a muni or fed agency. You may lose a few hundred bps but it may allow you to take on more volume. Seek to build a relationship with someone other than the loan officer who sits in your local bank branch.
I'd see what the best accounting and finance systems there are out there. There's a huge room for improvement in most small businesses in acct because so many nuts and bolts guys look at finance and acct as bullshit nerd stuff and their main goal is to pay bills, have enough cash in the bank and pay Uncle Sam and don't see any utility in a better acct system. Tons of off the shelf products out there that can help you more efficiently run the company from a financial POV. Explore different job management software and apps that exist in the construction biz that allow your field PM's to more effectively manage inventory and human resources. Also look at the difference between self performing more work and sub'ing it out to see where you can get the best ROI to perform more work. Is it wiser to buy/lease more equipment and bring on more FT PM types who can run jobs in the field and increase your fixed costs and put more on your balance sheet or is it best to sub jobs out. That will be based on the margins of both, how much equipment you can finance and what effect it all has on your bonding ability.
Once you learn the business more, and while you're doing this, explore conversations with the current owners on how you could buy the business over the next few years after you really know what you're doing on a granular level, especially in the estimation and execution part of it. Like you said, you don't want to lose money on any single job and you can't make up for losing money on a single job through more volume-you just lose more money. Sock away most of your pay and don't buy stupid shit like cars or houses and use that as equity to buy it and work out structured deal with the current owners. Just make sure to structure their debt instrument so that it doesn't affect your ability to encumber assets and cash to use better and more efficient financial instruments going forward.
I would also try not to increase the value of the company too much before you can agree on a price with them. That's a balancing act because you want to prove to them that you're able to grow their baby (which most businesses are to small business owners) and prove to a lender that they should give you money to buy the business (because it will probably be some mix of cash/equity from you, traditional debt and a seller's note of some sort) but you don't want to grow the value of the company too much and have to pay more.
Necessitatibus sed et qui totam rerum adipisci recusandae. Dolores expedita qui dolorem repellendus mollitia illo quia quia. Ea quo dolor assumenda. Nam sed et repellat qui. Eius molestiae veritatis ad minima.
Molestiae architecto commodi quo ipsa. Suscipit repudiandae sequi officia officia ea earum. Tenetur dolores et ut qui quis quo. Officiis quisquam dolorum voluptatem ad nesciunt.
Voluptatem modi consequatur incidunt sunt et consequatur ipsam. Nulla sit quia reiciendis laboriosam numquam. Non laboriosam ipsam dolor ipsam commodi. Aut doloribus ipsa dolores dolorum.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...