August 2007: Straight Answers to Tough Questions

Q: Another construction company approached me several months ago about merging our companies or selling to us. It’s a good company with similar values and business philosophies. They do $4 to 5 million in sales and we consistently do $5 million plus. My initial reaction was not enthusiastic because we have things going in the right direction. Plus when things are working, you hesitate to mess with them. If we merge, we can consolidate overhead expenses. But the key would be to maintain both company’s sales volume and customers with profitable margins. What do you think I should do?    

Barry Zermit
Zermit Steel Constructors

A: I find that partnerships can only work if one party has the majority controlling interest. 50/50 partnerships never work over the long haul. Do you want to stay in control of your future? If so, you must keep 51 percent of the vote in a merger. If the other party wants to stay in control, is that Okay with you? These are the first questions to resolve.

Next, will a joint company really maintain a $10 million volume? With combined resources, your goal should be to expand to $15 million or what’s the point of a merger? Do you want to run a company that big? Can you maintain your profit margin as you grow? Do you have systems in place for a bigger company? You have to answer these big questions to see if it is what you want. After you work out the big issues, hire a CPA to help you analyze the financial deal points. Go with your gut. If it doesn’t feel right, pass.
 
Q: We are a twenty-five year old electrical contractor owned by two brothers. My two cousins are project managers and I am the son of an owner. The owners think they save money by eliminating the need for more electricians when they perform field work rather than having employees do it. Recently on a $600,000 contract, my dad went out to work in the field. I told him it was a bad idea, but he said it would decrease our overhead. We have nearly thirty employees, but the owners can’t seem to trust anyone else to handle problems except themselves. When we bid projects, we don’t use estimating software as they think it is a waste of money. This problem is compounded because some projects we have built have not come in as we originally forecasted. This was a result of not having the correct labor units for most items. Now, the owners want to look over these projects that are not meeting the original numbers. The owners also think it is a waste of time to track the various projects after they have been completed. I can’t tell you how many times I’ve been told: “You think too much,” “Watch your costs,” “We have to cut costs” and “Cost is our No. 1 priority.” Of course, when we ask how, they say “Make sure you have enough in your bid.” That’s fine, but shouldn’t we have some estimating software first? Last year, the owners came into my office and told me we were not making any money on projects. I am at my wits’ end and would greatly appreciate some direction or advice.            

Mike Harris
Excell Electric Company

A: People don’t change unless they want to change. You can’t make others change no matter how hard you try. I get this type of question often from young men who work for their fathers or relatives. The younger people have lots of new ideas and are in tune with the reality of business today. Older people are set in their ways and don’t want to try any new ideas or change the way they do business, even when they’re not making much money. Often their only answer is to work harder. Your choices are simple. Endure a long and miserable life waiting for your Dad to change his ways or find another job where you can develop, become the best you can be, given the tools to succeed and be appreciated and compensated properly.

 
Q: We are a small striping company for parking lots and small airports. We got beaten out of a bid by a company that has never striped an airport. They are much bigger than we are and one of their main sources of income is barricades. But, they do not have any specialty barricades used on airports. The general contractor called us to rent airport barricades only from us for the project. They were referred to us by the engineer we work with. We don’t want the competition to copy our barricades and we want to maintain our high standards. We have some really cruddy barricades that will work. Some of my partners want to rent out these cruddy ones while some want to use nice ones and take the chance our competition will not copy them. What should we do?

Sue Rottinghaus
Arrow Striping Inc.

A: What are you worried about your competition for? Don’t you think they’ll find out your secret eventually? What’s your company standard for quality and service you offer customers? Give them junk and you won’t get referred by the engineer ever again. Be a pro and build your business. Send out the best you have.

Construction Business Owner, August 2007