Industry leader Des Moore explores how to build a stable business—something that scaffolding businesses need to consider at all times, but that becomes even more critical during volatile economic periods.
In my previous articles for ScaffMag, I’ve talked about how to scale a business for sale. In short, the more stable and well-managed a business is, the more attractive it is to a buyer. But even if you have no intention of selling, you should still make it a priority to ensure your business is as strong and resilient as possible.
Not only is this important for your long-term personal success, but your employees rely on you for their livelihoods, and your clients rely on you to support them with their projects. As a company owner or leader, it’s your primary responsibility to build a stable business. And it’s even more important when the economy is volatile, when there are pressures on the sector, and when an election is looming – all of which we are facing at the moment.
In this article, I’m going to cover the business fundamentals that contribute to creating a strong business. These principles apply to companies of all sizes and in all stages of growth.
Know what your business is for
Every business should have a ‘Raison d’être’ – you may wonder what this is. It’s simply a statement that sets out your company’s reason for being. You should also have a vision of where you want the business to be in the next five years, and you should have a set of values that reflects your individual approach. This shows your clients that you have a clear purpose, and that your employees understand what that purpose is. It also gives you a clear target for where you want your business to go – and that forms the central part of your business strategy.
Manage the bigger details
A strong business has to be built on the details. This means having an up-to-date budget that supports your business strategy. It means ongoing cashflow management, and it means having an action plan that sets out how you are going to achieve your goals. You should also consider essential factors like timely agreements of variations to contracts, as this can have a significant detrimental impact on your working capital. Measure your progress against these strategies on a regular basis – at least once per month – so you can make any changes you need.
Make sure you have a mix of work
The broader your spread of work, the less reliant you are on one customer or one job. You’re also not committing all your resources and equipment in one place, so you are lowering your risk all round. By taking on a range of project sizes, for example, you can make sure you are keeping your cashflow healthy and not overcommitting the business to any one project.
Don’t rely on three or four primary customers
It’s important to build good relationships with your customers, and take on plenty of repeat work. But if you only have a small number of main customers, you are creating a huge potential risk for your business. What happens to your company if one or more of those companies fail, or you fall out with them? You will lose a significant proportion of your work overnight and this could put you in a very difficult position – particularly if there is a large amount owed to you. If you are in this position now, you should look for ways to balance these customers with other work, to give you a safety blanket sooner rather than later.
Accept a measured level of risk
Every business has risk. The question is, how much are you prepared to accept? If your aim is to build a stable business that can withstand market, economic or any other shocks, you need to accept a level of risk, but minimise it where possible. I’d say have at least 75% of your business insured. Be realistic and detailed about the risks facing your business, mitigate them wherever possible and review them regularly.
Work across multiple sectors
Every sector is subject to its own risk. So, to protect your business, it’s safest to spread your work across several sectors. For me, four sectors is optimal – you are able to understand your customers’ needs and develop expertise in each sector, but you are not overcommitted to any single one, and you will know the risk to your business of work disappearing from any one of those sectors. In particular, stand back and look at the types of contracts you have – are they progressive, where you are regularly supplying scaffolding so your cashflow is constant? Or are they static, where you get a payment when the scaffold is erected and then nothing for many months – or even years – until it’s time to take it down?
Manage your cashflow
When smaller or owner-managed businesses fail, it’s often because of poor cashflow management. It’s absolutely imperative to understand both how cash comes into your business and how it goes out. Generally, this is referred to as Days Sales Outstanding (DSO) – the number of days it takes for payments to come in from clients – and Days Payable Outstanding (DPO) – the time it takes to pay your own suppliers. Simply put, if you don’t have a grip on this, you could end up with a mismatch that has a serious impact on your cash position, and your working capital will be squeezed.
Consider taking out bad debt insurance
We have all been in the position where a new customer – no matter how good your due diligence was – doesn’t pay their bill. Usually called a ‘trade credit’ insurance policy, this insurance helps to protect your business against non-payment. It can help to mitigate a common risk faced by the scaffolding industry. I’ve always had this – and so should you.
Don’t jump into an exceptional contract
Large, exceptional contracts are very tempting. You can see that they will bring in good income, and they may improve your market reputation or result in increase work with a new client. However, these exceptional projects come with their own complications. You will need to commit significant equipment and workforce to them, for example, so your overheads will increase. Large projects also tend to pay on much longer terms, which could affect your cash flow, and you could end up failing to serve your existing customers well because you have been distracted by a more ‘glamorous’ option. And, when these jobs are finished, they invariably leave a large hole that can take two or three years to fill – all while you are still carrying those overheads. I could cite several examples of this – but it would be unprofessional to name the individual companies concerned.
Regular project reviews
Project reviews help you to plan ahead, manage your workforce and learn lessons from challenges or failures. For example, reviewing work on an ongoing basis allows you to make any necessary changes to processes, work with your clients to resolve problems and show that you take a proactive approach.
Support clients’ financial wellbeing
I am a strong believer in helping clients to succeed. Your business is not just here to provide a hands-off service; it’s here to help your clients flourish – if they don’t, you won’t. So invest time in advising your clients on the best, and most cost-effective way to do things, not just at tender stage, but during the course of the project. This will help you build strong relationships and increase the likelihood of repeat business and referrals.
Involve your team
Employees should feel that they have some ownership and shared values of the company they work for. The more involved and engaged your team is, the more successful you will be. So be clear about vision and values, ask them to take part in key discussions and always be transparent with them, irrespective of the position they hold – from apprentices in the yard to directors in the boardroom. This doesn’t just mean ‘telling’ them things – it means explaining your decisions so that they can see your thinking. Be open, be clear and be honest, and if your people are still unclear, take the time to go through it again. I guarantee that this will pay significant dividends in the future.
Next steps to a stable business
The first thing to do is assess where your business is now. Look at your current clients by project value and sector. Think about the potential risks to your business and how you are mitigating them. Pay attention to your cashflow and working capital to get a clear idea of the financial stability of your business. And make sure you have a clear purpose and business strategy to give you the focus you need.
Ask yourself this question: If there was a recession tomorrow, what would I do to protect my business and my workforce? Whatever the answer is, you should already be doing it today.
I can help you with this initial assessment, showing you where your strengths, weaknesses and opportunities are, so that you can take the right steps to build a strong and stable business for the future.
This article was originally published in Issue 22 of the ScaffMag magazine.
