Risk & Business Magazine Lloyd Sadd Insurance Brokers Fall 2016 | Page 6

CONTRACTOR GROWTH Why Growth Can Cause Contractors To Fail Uncontrollable Work Loads T he construction industry, understandably, is a growth-driven industry. As residential and commercial demand grows, so do construction companies. For contractors, a lack of projects can spell disaster. It means they are going to have reduced profits, low revenues, and, ultimately, no positive cash flow. Surprisingly, a lack of projects is not the big reason why many contractors fail. On the contrary, many contractors fail because they simply have too much work. That excess work leads to uncontrolled growth which then leads to failure. The old adage that a person can have “too much of a good thing” is especially true for contractors. Here are four big reasons why: 1. MANAGEMENT ISSUES Many contractors start small, but it should come as no surprise that landing one big contract can lead to major growth. The small-business owner may not have the leadership skills, financial management experience, or business knowledge required to manage a mid- to large-sized business. 2. NEW TYPES OF WORK Every project has the potential to bring in unfamiliar types of work. A lack of 6 | FALL 2016 expertise in a specific field can lead to problems with field management, estimating, and the bidding process itself. 3. GEOGRAPHIC CHANGES Through the pursuit of growth, many companies will tend to expand outward from their local territory. Expanding into new markets can, understandably, bring in new work and new clients. It can also, however, bring in changes in regulations, new logistical problems, new labor needs, unfamiliar weather conditions, and a number of other obstacles. The farther a company goes from its “home base,” the truer this becomes. 4. INSUFFICIENT CAPITAL In terms of both money and employees, when companies grow, more cash is needed. Assets are often not sufficient and liquid resources will be required to both handle problems which arise on current projects and to get new projects started. HR personnel are needed to handle things at the office and to help supervise in the field. If the cash on hand is not enough to handle new projects and the staff is unable to keep up with office work, it can quickly lead to a company-wide failure. BY: ALLEN WALTER LLOYD SADD INSURANCE For companies which handle surety bond underwriting for construction companies, none of these issues are new. Underwriters know that when they encounter companies who are looking for explosive growth, it can quickly lead to new problems. Thus, it is nearly always better to discuss how you plan to grow your company with your underwriters prior to beginning expansion plans. To many contractors, sureties can almost seem like a burden. Contractors feel as though sureties are trying to be a bit too conservative, which results in their companies being held back. In actuality, both the contractor and the surety will either fail or succeed together. The relationship between the two is a give and take. For more information, please contact us at 1.800.665.5243 or [email protected]. + Allen Walter arrived on the insurance scene in 2007, after studying accounting, a bachelor in applied studies, and being a member of the Varsity Golf team at Central Arizona College. According to Allen, the best thing about working with the Lloyd Sadd team is the group’s combination of talents and skills, which enables them to provide the best for each client.