Strategic planning for
contractors
Why you need a business plan
BY C. M. AYERS
very time I hear someone
E say “why do I need a busi-
ness plan?,” I think of one of
my favorite sayings: If you
don’t know where you’re going,
chances are you’ll end up in the
wrong place and not even know it.
Saying your company doesn’t need
a business plan is like saying you
don’t need a road map to take a car
trip across the country. A business
plan is the road map for your com-
pany.
Long gone are the days when a
company could depend on intu-
ition, instinct, and ability to do the
right things at the right time. To suc-
ceed in the ‘90s and beyond, you
need some kind of formal business
planning.
Changing conditions make
planning necessary
Most contractors say, “I’ve been
successful for the last 20 years with-
out a business plan. Why do I need
one now?” My answer is that things
have changed over the last 20
years—even the last 10 years.
Bonding. Thanks in part to the in-
creasing bankruptcy/default rate,
it’s increasingly difficult and costly
to obtain construction bonds. If you
are starting a business you probably
can’t get a bond at all. Surety
companies are requiring more and
more documentation (like a busi-
ness plan).
In s u ra n c e. With the increasing
amount of litigation in construc-
tion, insurance costs are skyrocket-
ing, and in some cases availability of Banking. Contracting and con-
insurance is limited. Also, because
of increasing liability associated
with jobsite accidents, some owners
require formal safety programs and
put a maximum limit on insurance
struction supply firms need a lot of
operating capital. Howe ve r, lending
institutions are becoming cautious
t ow a rd the construction industry.
Today, good cash flow isn’t enough.
modification rates. You need increased collateral, a
good track record, or perhaps a
Table 1. Business Plan
Table of Contents
business plan.
Marketing. Twenty years ago
(Without Financial Section)
there was virtually no formal mar-
Summary keting in the construction industry.
Overview Today, almost every contractor, re-
Strategic opportunities gardless of size, has some level of
Goals & objectives summary formal marketing. Marketing bud-
Company analysis gets are big dollars, particularly for
Overview the small firm; so, you had better
History have a good plan for how you are
Services going to spend that time and money
Markets to assure a good return.
Customers Government regulation (OSHA,
“Right to Know,” environmental,
Facilities & equipment
civil rights, and so on). The record
Strengths & weaknesses
Technology position keeping and management control
Basis of competition needed to meet today’s safety, envi-
Key success factors ronmental, and tax re q u i re m e n t s
are staggering. Without a good sys-
Market analysis tem for collecting data and storing
Overview it, you could find yourself with seri-
Changes & trends ous problems. Personnel re c o rd s
Major competitors and policies also have become cost-
ly to prepare and maintain. You
Strategic planning
need a formal, organize program for
Overview
training managers to ensure they
Key performance indicators
don’t create costly personnel and
Plan assumptions
administrative problems.
Specific objectives & action
plans
Plans can be flexible
Management A business plan can direct your
Overview company over the next 1 to 3 to 5
Description years. Like an itinerary, a business
plan is not set in concrete. If you get
to a place you like and want to stay
for a while or want to take a side trip,
you can change your itinerary. The
same is true with a business plan.
Perhaps that new out-of-town
market is better than you thought
and you want to expand it faster.
Perhaps the flatwork market is slow-
er than you thought and you want to
delay a triple trowel purchase. Your
plan can and should be adjusted to
accommodate changes in the mar-
ketplace.
The important thing is that the
plan is written; therefore, when you
think about changing it, you’ll re-
member your original objectives.
Then you can determine whether
the changes are due to unforeseen
m a rk e t - o p e rating conditions or
poor management.
Many people contend that after
drafting a business plan, you can
simply throw it away because you’ve
already achieved 90% of the benefit
from the process. While there’s a lot
of truth in this statement, I’m not
prepared to endorse it as good prac-
tice. You still have to implement the
plan. That means doing things you
don’t know how to do or don’t want
to do. And without the written plan,
you probably won’t do them. Most
contractors’ business plans fail be-
cause they aren’t followed.
What is a business plan?
A business plan is:
■ A management tool—A complete
business plan is a guide that tells
you where you want to go and
what you have to do to get there.
It can be changed when needed;
but, because you have written it
down, you are less likely to make
changes without questioning the
need for the changes.
■ A management communication
vehicle—Because your key man
agers help prepare the plan, they
can express their views about the
strengths and weaknesses of the
company. And, by reviewing the
plan, they understand where the
company is going.
■ A company image builder—
Nothing gives you more credibili-
ty in the financial, insurance, and
business community than a well-
written and implemented busi-
ness plan. This is particularly true
for the construction industry
because so few companies
have one.
You need more than just a
sales and marketing plan
One of the most important parts
of a good business plan covers sales
and marketing. For many compa-
nies, the strategic planning process
starts with a feeling of need for a
sales-marketing plan. Unfortunate-
ly, many contractors bypass the
overall plan and try to develop a
sales-marketing plan separately.
Generally the results from a sepa-
rate sales-marketing program are
unsatisfactory. If you don’t have the
correct people, services, and capa-
bilities, no amount of selling can get
you enough good, profitable work—
plus the work you perform may be
unsatisfactory to the customer. The
Table 2. Business Plan
Table of Contents
(With Financial Section)
Executive summary
Table of contents
Historical development
Business environment
Product description
Market analysis
Marketing strategy
Management plan
Operating plan
Financial plan
Appendix
A. Historical financial data
B. Major customers
C. Principal suppliers
D. Key event schedule
E. Resumes of key people
F. Report forms and schedules
G. Sales forecast
H. Operating budget
I. Income statement projection
J. Cash flow projection
K. Balance sheet projection
general business plan addresses the
company’s strengths and weakness-
es and allows you to develop a prod-
uct or service that will sell.
Above all, don’t take the simplistic
and usually unsuccessful approach
of hiring a director of marketing and
saying: “Go get some work and by
the way write a sales plan while
you’re at it.” Just as the instructor at
the weight loss clinic can tell you
how to lose weight but can’t lose it
for you, a good marketer can tell you
where the work is, get you a chance
to present your company, and iden-
tify what you will have to do to get
the work; but he or she can’t get it
for you. Customers will want to
meet the people who are going to
build their project. They’ll want to
find out if the rest of the company
will support the promises the mar-
keter has made.
Remember, although the market-
ing plan is a self-contained pro g ra m
complete with objectives, strategies,
tactics, and a budget, it is only a
sub-plan to the overall company
business plan. To quote manage-
ment consultant Peter Drucker,
“There is only one valid definition of
business purpose: to create a cus-
tomer” and “It is the customer who
determines what a business is.”
Preparing the business plan
Table 1 shows a typical table of
contents for a business plan without
a financial section. Purists would
say that a business plan without fi-
nancial data is no plan at all. I do
not agree. A common reason con-
tractors avoid writing a business
plan is because they aren’t comfort-
able with or don’t understand the fi-
nancial format. Contractors nor-
mally are craftsmen, engineers, or
builders, not financial experts. Con-
tractors usually only know if there’s
enough cash flow to pay the bills,
enough capital to make invest-
ments, and whether or not profits
were made.
If you’re comfortable with a finan-
cial format, such as in Table 2, in-
clude that data. Howe ve r, you also
can include a copy of the financial
reports prepared by your accoun-
tant in your business plan folder to
satisfy the financial requirements of
the plan. That lets you concentrate
on preparing the nonfinancial por-
tion of the plan.
Note that you should prepare the
plan. Too many contractors say, “I
had a business plan written 2 years
ago. It cost me a lot of money and
didn’t help at all.” They show me a
dusty, 3-inch-thick ring notebook
with a title like “Construction Com-
pany Fi ve - year Plan.” It’s usually a
market survey-company analysis re-
port, not a business plan.
One such a plan with more than
100 pages of data had only 1 page
describing any activities for imple-
menting the plan. The consultant’s
cover letter for this plan contains a
classic statement: “I certainly
learned a lot about the Construction
Management business in preparing
this plan.” This consultant got a
valuable education at the expense of
the client. But worse, it left a bad
feeling with the contractor about
the value of a business plan.
The point is that a business plan
is a working document. If you don’t
refer to your plan at least once a
month (or better, once a week), you
don’t have a good plan. Remember
only you and your managers can
prepare a meaningful business plan
for your company. You can hire an
outside consultant to assist in the
planning process, establishing a
timetable, and physically summa-
rizing the data and writing the re-
port. But the plan must contain
your thoughts and ideas.
What does it cost?
How long does it take?
Table 3 details an outline of activ-
ities for the planning process. The
planning meeting (Item IV, Table 3)
is attended by the key company
managers. It takes about 1 to 3 days
to develop the initial plan.
Hold the meeting away from the
office and have a detailed agenda.
Leave this meeting with a detailed
consensus of your company’s
s t re n g t h s, weaknesses, goals, and
o b j e c t i ve s. When doing an annual
Table 3. Business Plan Activities
I. Organize for planning
A. Develop organization chart
B. Identify people who will participate
C. Develop a time table
II. Communicate the planningprocess
A. Tell participants what is expected
B. Explain the objective of the planing
C. Communicate the time table
III.Pre-meeting preparation
A. Interview participants individually
B. Distribute topics and questions
C. Obtain, tabulate, and distribute
responses
IV. Planning meeting
A. General discussion
1. Company strengths
2. Company weaknesses
3. Future direction
4. Pre-meeting survey results
B. Establish company objectives
1. 1 year
2. 3 or 5 years
C. Establish marketing objectives
1. 1 and 3 or 5 years
D. Strategies/tactics
1. Generate several strategies
2. Choose best one
E. Discuss action plans
1. For each operation
of the business
2. Marketing
3. Each participant’s responsibility
V. Formalize/communicate plan
A. Company/strategic plan in writing
B. Marketing plan in writing
C. Activity/action programs in writing
D. Draft/review/revise
E. Present final plans
VI.Control systems
A. Update/revise procedures
VII.Follow-up
A. Three meetings
1. One every 1 or 2 months
update of a plan, the same type of
meeting is held except it is usually 1⁄2
to 11⁄2 days long and emphasizes
the results of the previous year
and the goals and objectives for the
coming 1 to 5 years.
Please note that Item VII, Table 3
describes follow-up as a pro g re s s
meeting every 1 to 2 months (at
least three per year). These meet-
ings take 1⁄2 day and involve a de-
tailed progress report for each of the
detailed strategies in the business
plan.
Follow-up meetings, and to some
degree the main planning session,
emphasize implementation. Who is
going to do what by when?
The activities shown in Table 3 are
for a medium-sized contracting op-
eration (about 75 to 100 people;
$15- to $30-million sales volume).
For a we l l - o rg a n i zed company of
this size, using the services of an
outside consultant, the cost of
p re p a ring a business plan for the
first time normally will be between
$12,000 and $20,000. The annual
update costs would be about $4,000
to $10,000. Of course, time and cost
requirements vary widely with the
size and status of the company and
the planning capability of the man-
agement staff.
For a well-organized small com-
pany (10 to 20 people; $3- to $10-
million sales volume), the cost of
p re p a ring a plan for the first time
could be as low as $5,000 with the
annual update costing $2,000. For
large companies the cost can easily
exceed $30,000 initially with annual
update costs of $15,000 and more.
These estimates are for outside
services only and don’t include the
time and effort of management or
in-house staff. Many companies al-
so do organizational analysis and
management training along with
their planning program. These ac-
tivities can add to the overall cost.
If you aren’t convinced of the val-
ue of a business plan, these cost es-
timates will probably be high
enough to make you postpone the
planning process. Howe ve r, if you
are convinced that having a formal
business plan is a necessary part of
doing business in the ‘90s, then
these cost estimates are reasonable.
The moral of the story is that you
must be convinced of the value of
the planning process before you
start. Go to seminars, read books,
and talk with other contractors and
business acquaintances. Do every-
thing you can to become comfort-
able with the process. You must be
committed to both writing and im-
plementing your plan to have a
chance of success.
Getting planning help
Chose your outside consultant
wisely. Many planning consultants
who aren’t familiar with contractors
fail to realize how much time and ef-
fort must be spent on implementing
the plan. In many other industries,
managers know how to implement
a business plan because they have
been trained in basic business prin-
ciples. But most managers in the
construction industry came from
craft or engineering backgrounds
and are unprepared to implement a
plan.
Contractors are conditioned to
look at costs in one of two ways—
they are either project billable or
overhead. They’ve been taught all
overhead is bad or at best a neces-
sary evil. Therefore, it’s hard for
them to consider the time and
money spent on strategic planning
to be worthwhile or productive. But
times are changing so rapidly that
refusing to accept new ideas
and methods could be fatal to your
company.
Charles M. Ayers has more than 30
years’ concrete construction experience
and is president of C. Ayers Ltd.,
Northville, MI, a technical and general
business consulting firm. He also is a
Fellow of the American Concrete Institute
and chairperson of its membership
committee.
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