Solving business problems, Part 3

BY RICHARD P. DiTOMA,
contributing writer

This article is the third in a series based on the following two questions contractors should ask themselves: “What do I consider to be the biggest problem the PHC industry has faced in the last ten years?” and “What is the solution to the problem, in my opinion?”

Feel free to answer these questions and e-mail your answers to me at richardditoma@verizon.net with your name, business name and address, the number of years in business and the type of services you provide. I’ll incorporate your opinions into future articles. Sharing your opinions can give you the opportunity to help improve our noble industry and your own business.

Problem

Michael Chiarella of Chiarella Heating & Cooling/Aire Serv performs heating, air conditioning, plumbing and electrical services in the New Milford, Connecticut area. He says that the problem is: “Many contractors lack an understanding of doing business. Contractors know their trade, but they don’t understand how to run their businesses, which results in a negative effect on the industry.”

Michael’s solution

“There should be mandatory schooling educating the contractor on how to properly run a business. There is schooling that teaches them about their trade; there must be schooling to teach them how to run a business. I strongly believe that educating contractors in running their businesses will benefit the entire industry, including the consumer.”

My thoughts

Education in true, sound business principles is the foundation needed to insure the delivery of excellence to consumers and the opportunity for success to contractors. All consumers want value for their dollars; all contractors want to experience their American dream.

Michael is correct, with one exception. It’s said that you should strongly consider what you wish for; you might get it. Mandatory requirements that come from government directives mean more government. That means higher operational costs to you. Over 30 years ago, Ronald Reagan said, “Government isn’t the solution to our problem. Government is the problem.”

Making business education mandatory presents more problems. For instance, three licensing boards with which I am familiar chose to make “continuing education” a prerequisite for license renewal. In all three cases, a certificate of completion of that education was mandatory before a renewed license would be issued.

Hampered by reality, after having increased the operational cost of contractors trying to abide by their directive, two of those licensing boards have since suspended the requirement. The third doesn’t even ask for the certificate any more. Ronald Reagan knew that “government is the problem.” Getting education is wise; making it a government mandate is problematic.

It stands to reason that, before a contracting business can deliver technical excellence, contractors must be educated in proper business techniques. But they still have to choose between the delivery of excellence or mediocrity. Knowing how to do something and actually doing it correctly are two different things. Mandatory business education does not guarantee proper implementation.

I believe that most contractors start off with the intention of delivering excellence to their clientele while reaping their just reward for the delivery. Due, however, to a lack of proper business acumen and to the ever present financial burdens on business, some settle on performing in a second-rate manner. The harvest that they reap is the nightmare that took the place of their American dream.

By basing their prices on those of competing contractors who sell below their cost —because they were never educated in proper business procedures — contractors create and exacerbate their own problems. Knowledge of true cost is the foundation of any business. Ignorance of true cost leads to the road that takes you off the cliff and into the abyss of poor business practices, followed by much nervous tension and a great deal of disappointment.

Prices must be based on sound mathematical fundamentals. Identification and calculation of true operational costs is essential to the recovery of costs incurred by serving the public. The choice of a proper profit margin is the only way contractors can attain their goals after they recover their costs. Basing prices on the delivery of excellence to consumers is the only way to sustain excellence.
Intelligent consumers appreciate the value they get for the dollars they spend with contractors who deliver excellence. They know that an excellent contractor who runs his/her business properly is worth more than the stumble bums with no business education who can’t afford to stand behind their workmanship because their prices are too low to allow them to properly implement and warrant their work.

An old adage says, “You get what you pay for.” Price buyers usually get the substandard value they deserve for the low price they sought out. They want excellence, but they are only willing to pay prices that do not give contractors a chance to recover their cost, let alone earn a profit.
Selling at or below cost is foolish. It artificially lowers the consumer’s perception of prices throughout the industry. That’s why Michael feels that the lack of education is the biggest problem facing the industry.

And he’s right!

Before I had an epiphany, I competed with those poor misguided souls for my first ten years in the contracting business. Fortunately, I have the ability to understand the contracting business and the numbers involved, as well as the ability to logically and coherently speak to my clientele. So, in 1988, I embarked on the daunting mission of educating contractors in the delivery of excellence to their clientele so that they can reap the rewards commensurate with the delivery of superior service.

As an active contractor, I not only know what you encounter but I face it every day. I have a unique perspective, which enhances my ability to run my business properly and to show other contractors how to improve their business protocols and results. I want to thank Michael for his insight. I’m sure that intelligent contractors who read this article will also be thankful for his input.

If you would like me to show you how to improve your business results, I’m willing, I’m able, and I’m waiting for your call at 845/639-5050. I’ve coached many contractors over the years who have improved their business results. If you understand and properly implement that which I can show you, you can improve your business and attain your American dream.

By the way, what are your answers to the two questions at the beginning of this article? Let me know. I wish you much good health, happiness and wealth.

Richard P. DiToma is a contracting business consultant and active PHC contractor with over
40 years of experience in the PHC industry.