If there's one skill that most people wish they had, no doubt it would be the ability to know what's going to happen next week… or next year… or in 10 years… or in 30 years. It sure would make contractors' lives easier if they could know what the weather would be like tomorrow, or whether business will be brisk enough in the coming months to recoup the cost of major equipment purchases, or whether the economy is going to head south next year, or what a cozy retirement will cost two decades from now. As long as this ability eludes us, however, we all must rely on educated guesses and sober analysis of available data and various indicators to plan as best we can for the short-term and long-term future. It's a daunting task we all face, in our professional and personal lives alike.
The key to running a successful business is to set realistic goals, develop a plan to achieve those goals, and implement the plan in a logical manner. According to Mark Bowman, a business professor at Emory University, “Every business plan needs to address three questions: Where am I now? Where do I want to go? How am I going to get there? In other words, assess your current business situation, identify where you want your business to be at some pre-determined point in the future, and spell out the strategies and tactics you should pursue to get there.”
Regardless of whether you're a painting contractor, a caterer, an architect or a photographer, if you're running your own business, you need a plan that addresses both short-term and long-term concerns. As author Mark Hendricks puts it in his book, Business Plans Made Easy, “About the only person who doesn't need a business plan is one who's not going into business. Anybody beginning or extending a business that will consume significant resources of money, energy or time, and that is expected to return a profit, should take the time to draft some kind of plan.”
Most of us live our lives by regularly setting and meeting short-term goals. Every time we draw up a “things to do” list and proceed to accomplish the tasks listed, we're pursuing a goal-oriented strategy, and that's a time-honored, proven way to be productive and stay focused on what needs to be done.
Long-term planning, though, is much more challenging, simply because of the many variables and factors that come into play as time passes and changes occur. Most experts consider long-term planning to be anything beyond five years, although some say anything more than two years is pure guesswork and should be regarded as long term. For example, who knew in 1999 that, two years later, the euphoric economic peaks would transform into gloomy valleys, made worse by catastrophic events that took everyone by surprise? It's difficult enough figuring out where you want to be a year from now; determining where you want to be in five or 10 or 25 years may seem almost impossible. But it must be done, even if only so you won't be spending your declining years eating meat loaf six nights a week.
Planning for retirement
“For the average self-employed contractor, when we talk about long-range goals, we're basically talking about retirement,” says Lynn Fife of Evergreen Technologies, a renowned expert in the contractor industry and author of several business-related books geared to contractors. “If your primary long-range goal is to have enough money in X number of years so you can enjoy a comfortable retirement, then everything in the long-range plan you develop must point toward realizing that goal.”
The first step, then, is to determine the kind of retirement you want and when you want it to begin. Fife notes, “Do you have dreams of retiring at age 45 and traveling the world? That's going to require quite a bit of money. Or are your hopes more along the lines of building a simple cabin in the woods and enjoying the solitude? Your financial needs will be significantly less in that scenario. Either way, you'll need to do research to find out how much money you're going to have to depend on as income to support the way you want to retire.”
In creating your plan, writes Hendricks, you must look at all the things a company's profit structure should have. You need to know your overhead costs versus your anticipated revenues on both a monthly and annual basis, and you need to regularly compare these two areas to ensure that revenues exceed expenses. The amount that remains, of course, is your profit, and if you find that it's insufficient to allow you to build the future you're shooting for, then it's time to amend your plan.
A crucial component of long-range planning is monitoring your profit margins and keeping a watchful eye on industry trends and economic signs, and then amending your plan as necessary to react when things aren't turning out as predicted. As the old business maxim goes, “Plan your work, and then work your plan, and then rework your plan.” If your margins are shrinking, or a competitor is eroding your market share, the time to take action is now. Increasing the frequency or breadth of your advertising efforts might be a solution; downsizing your staff might be another; raising your prices might be a third option. But doing nothing and hoping things will turn around on their own will almost certainly spell failure.
Maintain your message
When a recession hits, some businesses, ironically, do precisely the wrong thing by cutting advertising. They erroneously view advertising as an expense instead of as an investment. According to Advertising in a Recession, produced by the American Business Press (ABP), “When the economy slows down, it's time to make sure you maintain and even increase your advertising. Studies have shown that companies that continue to market themselves during a recession will solidify their customer base, take business away from more timid competitors, and position themselves for future growth during the recovery.”
The message you choose to convey to prospective customers can have a dramatic effect on your ability to win business in a down economy, the ABP maintains. “In a recession, people are eager to minimize risk when they buy. Emphasize in your advertising, brochures and flyers those factors that show how dealing with your company minimizes risk. If you have a track record of quality and reliability, and you offer warranties or guarantees, promote those prominently.”
Fife wholeheartedly agrees. “Contractors should advertise constantly, because as soon as you stop, you're going to slow down the influx of qualified leads you need to keep your business going. If your response to economic uncertainty — spurred on by war, or terrorism, or whatever the case may be — is paralysis, then you're letting panic put you out of business.”
McKinsey & Co. strategist Hugh Courtney told Business Week recently, “I'm really worried about people looking at the uncertainty following Sept. 11 and having it be overwhelming. It's natural that people adopted a wait-and-see attitude immediately following the attacks, but that can be a trap. A lot of the factors that matter most to a business — position in the market, what the competition is doing, the value proposition of the product or service — haven't changed much. We need to focus on those areas.”
React to customer base
In good or bad economic times, Fife adds, keeping an eye on your customers should always be a top priority. “Among the high-end residential, a down economy usually doesn't affect their spending habits much. Middle-class residential customers, however, typically regard painting as a want rather than a need, so in a down economy, they may conclude they shouldn't spend money on that right now. If they're a big part of your business, you should look toward diversifying, or shifting to other markets. Explore some of the niche markets that are emerging, like concrete acid staining, or faux finishing.”
New construction is different, he notes. “Even during a downturn, construction goes on, and builders need to have painting done. If you're not doing much work with general contractors, you should consider it. Some painters give in to fear and lower their prices in order to win contracts, but all you really ought to do is provide the same high-quality service at the same fair price you always do, and be aggressive in your pursuit of the business.”
Experts concur that, regardless of the current or future economic picture, the key to survival is your business plan, and your adherence to it. Presumably, your plan is designed to make you profitable enough to permit the type of retirement you seek. When the economy temporarily hits a rough patch, you may need to tinker with certain details, but overall, stick to the plan you devised in good times to guide you through the not-so-good times.
Fife's advice is straightforward. “Think positively, continue getting your message out, keep doing the things you usually do, pursue new business vigorously, and stick with your plan, working to improve those areas that affect profitability.