1. Not Holding Your People Accountable

Know what accountability means. In very basic terms, accountability means that every critical employee knows specifically, the minimum that is expected of them each day; that their job performance is relative to the profit and sales of the company, is measurable and therefore objective to results; that the measurement is communicated to them regularly; and that their ability to exceed the company standards will impact how much they earn each year or, if performance is a standard, that they may lose their job. Standards and measurements can be developed when revenue is planned and controlled, when a plan of sales, gross profit, labor productivity, schedule, material controls, general conditions, overhead and profit is linked to what employees actually do every day, week, month and year.

Know what accountability means to sales and profit. The process of lead generation, selling, estimating, pre-construction, buy-out of materials, labor scheduling, labor productivity, project management, dispatching, parts, tools, vehicle, materials usage, job costing, punch list, post job completion reviews and marketing is linked to the selling and profit making process. It does not matter whether the standard of performance is specific to a sold job directly or to an office support function. If employees are clear about their job expectations and the measurement of their performance, and they accept that they can do the job defined for them at the standard of performance required, then accountability can and will exist when routinely managed.

Learn to manage accountability to attain it. Managers are accountable to the results of their managed processes and to those who report to them. Managers must communicate with their employees, support their achievement of planned results and get out of their way of doing their jobs. Also, the employee standards linked to the profit and sales plan of the company must be clear to the reporting employee. Managers become a resource to their employer and to the people they manage, as long as they have critical measurements available in a timely and accurate process with proactive communications of great work, problems, or potential problems provided to the company. Standards and results make the company work. Attaining “accountability” does not mean there are no problems. In construction, there are potential problems every day. Accountability mitigates problems and their effect on profit and sales. Accountability creates an open process of preventing the same mistake being made over and over again. Accountability saves the cost of those problems due to someone not knowing, not being sure sure, or not wanting to say that the problem was a problem.

Over the 30 years or so of managing and advising businesses the most critical basic issue is cash flow. Managing it requires it to be a “war plan”, meaning that it must be a ruthless (meaning completely focused) process of planning beyond the simple budgetary forecast.

I’ve seen large companies with accumulated equities show profits and they were invariably “comfortable” in making a profit. However when viewed as just how much discounting on payables, interest income, the lack of normal debt funding of business impacts profit, the profit is often a result of the strength of the balance sheet, not operations. Operating issues and operating return are missed because the value of cash is not considered. This is typically a second or third generation issue, and a substantial “mask” to a well managed enterprise. The banks, accountants, and managers become inured in the “book profit” and are not motivated to excel in the operations. Losses are absorbed with less notice in the cushion of cash created by the strong equity balance sheet. How did it change? The value of cash became a line item cost, and every planning meeting and cash forecast listed a return on the value of equity/cash. The managers no longer had a “free ride”.

Companies in trouble become paralyzed with robbing from “Peter” to pay “Paul” sending a message to their vendors, banks, and sometimes customers that they are out of control. The focus becomes one of making payroll or paying for a delivery of materials to complete a phase of a job to get a check only to commence the same routine again. I’ve called it the “cork screw effect“. They keep turning the same process over and over again thinking that they’re getting something out of it, but in reality they are screwing themselves deeper into a hole of insolvency.

A recent client in this situation had the resolve to change this process. Within six month they were completely out of their problems, even though they had been in bank work out, had a negative equity, no owner had ever made $100k or more in salary, and over the past 2 years had a decline in sales of 40% - they were effectively bankrupt. It changed by focusing on a rolling 8 week cash planning process. End one week, add the eighth week. No hope, just reality to meet the business obligation of profitability. Operations were set to make a profit on each customer job. Meetings were held weekly to review the cash forecast, the ongoing jobs, sales leads and estimates awaiting response. Actions were taken each week to address every issue. The same team that had failed now succeeded. Commitments were made at a level that they could be met to condition banks and vendors “something had changed…the company was in control”. Within six months they had a new bank, a new line, and vendor credit, and were profitable every month after the initial changes began.

Knowing why you make money, what you should make, and a ruthless focus in managing cash and profit to that end nearly always creates the results you want and need.