Few people thought there would be a 2020 football season, but millions of people are tuning in to cheer on their favorite teams and Monday Morning Quarterback their successes and failures on the field. While there’s not as much enthusiasm for accounting and management practices for construction firms as there is for Sunday football, you might be surprised to learn how much the two have in common. ABC Maine recently hosted a webinar that I presented, What Do Football and Construction Firms Have in Common? In true 2020 fashion, the first few minutes of the webinar did not record due to a technical error; however, the presentation slides provide a full summary, and I am taking a detailed look here as well.
Business is a Team Sport
Football – “More sport than business, but it’s still a business” – Coach Bill Belichick
Does your team have the right components and most experienced players? It’s a question I often ask my clients. Just like a football team, you need an owner setting a sound team tone, a GM (think of HR) to find and retain top talent, a head coach (maybe your president or CEO) to direct business in line with that tone, and a quarterback (perhaps management), running employee plays best-suited for the team and the business. Ultimately, all of your employees, as well as your subcontractors, bankers, surety and insurance agents, your CPA, and attorney double as your offensive and defensive linemen.
Continuing the Draft
“Talent sets the floor, character sets the ceiling.” – Coach Bill Belichick
Football teams never skip the draft, and it’s important, now more than ever, to strengthen the bench. You need to be prepared for growth and for unexpected losses. It’s important to think of recruiting 365 days a year, not just when your business adds a position or loses an employee. Seek talent all the time, and seek out opportunities to improve team performance. Business owners should also dedicate significant time and resources to developing the leadership team.
Fundamentals: Blocking and Tackling
“There are no shortcuts to building a team each season. You build the foundation brick by brick.” – Coach Bill Belichick
Football teams always emphasize certain fundamentals, such as blocking and tackling. Why? It’s difficult to advance to a place of success if you don’t have the basics down first. For construction firms, the fundamentals lie in formalized, standardized, documented systems, policies, procedures, training, and safety systems. Having this in place allows you to build accurate and efficient job cost systems, construction accounting software, and financial management reporting; timely, accurate business intelligence; and effective project and risk management. The Patriots have established the “Patriots Way” as a collective culture. Construction firms should approach fundamentals in a united way that’s best-suited to the firm’s goals and culture overall. It’s a way to establish a common language and to say, “This is our way, and these are the trusted methods we operate by.”
“Every single player matters. Every single player can change the course of the game.” – Coach Bill Belichick
Think about your morning huddle, and your safety “toolbox” talks. Your business will have production goal meetings and assessments focusing on things like mobility, planning, the budget, or technology. Like a football team, you will need field access to job information and site conditions, such as weather and potential safety hazards. You also need to communicate for the purposes of subcontractor coordination to find out who is on site, are they prepared, and what oversight looks like. And you’ll also need ways to circulate certain information periodically, such as managed scorecards.
Real time communications occur during games, so players can update accordingly. The same is true for contractors. Best in class scenarios will also include a “half-time huddle,” held later in the day to update the team on pertinent information. Keep in mind that the biggest time waste on many job sites stems from lack of communication and instructions, which often leads to incorrect execution and to rework. Just as a lack of communication can cause a team to lose, it can cause a construction team to experience accidents and quality issues. Technology allowing for field access has become much more affordable and can lead to positive results for performance, budget, document and plan access, and less time spent shuffling paperwork.
I also encourage my clients to keep in contact with me as aspects of their business and finances continue to evolve. And the same is true for your other advisors and other team members, such as your surety team, insurance agents, bankers, and attorney.
“Whatever you have to deal with, whatever changes there are, then collectively as a team you manage them.” – Coach Belichick
In football, a fumble during a handoff is a game changer. Exiting a business is no different. As you begin a project-to-project handoff to a new manager, you’ll need a formalized process and job strategy meetings to communicate key facts about construction risks, contract provisions, site conditions, safety issues, owner’s expectations, scheduling matters, plans and documents, and the budget. You should use a critical path method to develop an optimal timeline for project actions, as well as an evaluation and review of those actions.
As the Director of Altus Exit Strategies, LLC, a wholly-owned subsidiary of ARB, I guide business owners through the handoff by providing a range of services, including Comprehensive Exit Planning utilizing the BEI Seven Step Exit Planning Process™. In addition to developing beneficial tax strategies, I work with my exit planning clients to identify and prepare a successor or suitable buyer; on key employee insurance, equity, and cash-based compensation plans; ESOP feasibility analyses; and on pre-sale due diligence and assessment of the value and marketability of their business.
“To live in the past is to die in the present.”- Coach Bill Belichick
Football coaches practice every conceivable situation to prepare their team, but, inevitably, there will be critical path disruptions such as unplanned safety, environment, and/or site conditions; the loss of a key supplier, subcontractor, or project manager, or any number of other accidents or unpredicted catastrophes.
Today’s construction firm’s are in a competitive bidding environment. Many construction companies are hyper-focused on building their backlog of work, which means they may be bidding on more jobs than they would normally. It’s important to keep pre-bid evaluations and risk management at the center of your work and not to let fear encourage your company to submit low-ball proposals or underestimate the importance of risk management simply to get the work on the schedule.
“We’re not on a sightseeing tour here. We have a job to do. We all have something that we want to try to accomplish.” – Coach Bill Belichick
Construction firms absolutely need a strong game plan. It may not be on paper, but in my experience, having a game plan in place makes a huge difference in the level of success you experience. By performing a SWOT analysis and establishing short-term and long-term business strategies, you can discover where your true differentiation lies and market your products and services in a way that highlights your strengths and where you add the most value in a competitive environment. Your plans should be adaptable and flexible, allowing for in-game adjustments, and should be derived based on your firm’s culture.
Replacing Your Star Player
“On a team, it’s not the strength of the individual players, but it is the strength of the unit and how they all function together.” – Coach Bill Belichick
As I said, players, coaches, owners, and GMs all resemble your construction firm team of owners, managers, employees and outside vendors and advisors. All levels need training and coaching. You have to develop your bench and practice “stretching.” Construction firms should establish incentives to retain employees, maintain a healthy work environment, ensure upward mobility, and develop comprehensive contingency and owner exit plans, especially in one-owner firms.
“There certainly was room for improvement there. I’m not saying that was any masterpiece.” – Coach Bill Belichick
To successfully and effectively run a construction firm, you need to know your job cost numbers, your labor and overhead costs, and your gross and net profit margins. You have to identify Key Performance Indicators (KPIs) to gain the competitive edge and understand leverage and compliance in terms of your bank covenant and debt service coverage ratios. You have to know at what point you break even and monitor your tangible net worth, months in backlog, surety capacity, and performance factors, such as bricks per hour, to set standards. You also want to know how you will bid based on your bid win work and spreads.
“Understanding what not to do sometimes is just as important as what you can do.” – Coach Bill Belichick
Businesses use playbacks in post-job completion reviews; budget vs. actual and production assessments, whether monthly, quarterly, or annually; to calculate estimates and maintain efficient project management; in dealing with personnel issues and subcontractor management; and for customer satisfaction purposes. It’s low in cost to perform, as it only requires time, and it is high in value in terms of what you receive from reviewing the data. Additionally, playbacks are useful in terms of formal process for jobs above a certain limit; for assessing safety incidents and identifying successes, failures, and action steps. Essentially, it’s a tool that acts as a feedback loop on which you can base business decisions, such as operational decisions and accounting matters, and it provides a basis for self-improvement procedures.
“I don’t Twitter, I don’t MyFace, I don’t Yearbook,” – Coach Bill Belichick
Who are the cheerleaders for your construction firm? Your customers, architects, engineers, subcontractors, vendors, bankers, and advisors. Construction firms can promote these relationships through customer satisfaction surveys; profiling successful projects; issuing statements, press releases, and quotes from clients, vendors, and other affiliates. Construction firms can also promote their efforts by establishing a well-rounded project portfolio; through newsletters that tout successes; through community involvement; and by maintaining an active social media presence.
Connect with a Linebacker at ARB
ARB’s Construction Firm Services Group specializes in tax, compliance, bonding, and operational challenges unique to your industry. My team and I can identify problems and offer savvy solutions to help improve the efficiency and profitability of your operations.
I also provide services to facilitate the surety to provide bonding, and, as the Director of New England Funds Control, LLC (NEFC) and Altus Exit Strategies, LLC, both wholly owned subsidiaries of ARB, I provide funds control & escrow services and succession & exit planning services, respectively. Contact me today to discuss your playbook and your tax, accounting, and business advisory needs.
Visit our COVID-19 Financial Resource and Tax Center for additional information on related matters, download our contractor resources at the links below, and check out other recent ARB insights for construction firms.
ARB Subcontractor Pre-qualification Form
13-Week Cash Flow Analysis Worksheet
by David Jean, CPA, CCIFP, CExP
David Jean is a firm principal and the Practice Leader for ARB’s Construction & Real Estate, Succession Planning, and Business Advisory Services Groups. David focuses primarily on financial accounting and consulting for construction, real estate, and manufacturing companies. He is a member of The Certified Public Accountant Advisory Council, an exclusive, 10-member council formed to serve as the resource team for the National Association of Surety Bond Producers (NASBP).