How to Identify & Buy a Great Residential Contractor
Mar 21, 2024
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Alan Lochridge shares his journey of acquiring a hardscaping contractor, embracing digital marketing, and restructuring for efficiency. He discusses the advantages of project-based revenue, negative cash conversion cycles, and the use of subcontractors. The podcast also explores strategic decision-making, pricing strategies, and challenges in small business ownership.
Efficient cash flow through negative cash conversion cycles and low DSO.
Adapting to operational disruptions and optimizing marketing efforts for growth.
Fostering a culture of accountability and continuous improvement within the company.
Deep dives
Transitioning to Business Ownership
After transitioning from a mid-career consulting role, Alan Lockridge purchased a hard-scraping business in Charlotte, North Carolina. With an average job value of $70,000 in project-based revenue, Alan highlights the strength of his business with efficient cash flow through negative cash conversion cycles and low days sales outstanding (DSO). Using subcontractors for service delivery allows operational flexibility and cash generation, showcasing an 18% margin on $6.5 million in revenue and a focus on cash flow management.
Marketing Enhancements and Operational Efficiency
Upon acquiring the business, Alan focused on enhancing digital marketing and operational efficiency. Implementing a third-party service for website development, social media management, and search engine optimization, he optimally utilized Google ads to drive lead flow. By restructuring project management and reducing rework through improved operational oversight, Alan maintained revenue growth and customer satisfaction despite industry fluctuations.
Navigating Challenges and Investing in Long-Term Growth
During the initial transition, challenges arose with a critical QuickBooks system failure and unexpected staff departures, leading to a brief operational setback. However, Alan overcame these obstacles by swiftly resolving the issues and transitioning to a more efficient remote working model. By investing in enhancing marketing strategies, operational processes, and staff retention, he navigated tough moments to build a foundation for sustainable long-term growth in the business.
Adaptation and Future Strategy
Despite initial challenges, Alan's transition to business ownership focused on adapting to operational disruptions, optimizing marketing efforts, and streamlining internal processes for sustained growth. Looking ahead, Alan aims to expand service offerings, enhance project delivery capabilities, and maintain financial stability in a niche residential construction market, emphasizing strategic investments for continuous business improvement.
Creating a Culture of Accountability and Continuous Improvement
The podcast episode discusses how the business owner fostered a culture of accountability and continuous improvement within the company through core values like extreme ownership and listening care. The business holds weekly meetings to reinforce these values, reflecting on achievements and areas for growth. By maintaining open communication, learning from mistakes, and aligning personal missions with the company's goals, the team operates with transparency and honesty, leading to improved processes and teamwork.
Operational Efficiency through Effective Payment Practices and Subcontracting
The episode highlights the business owner's emphasis on operational efficiency by utilizing effective payment practices and subcontracting. The company's payment model involves upfront deposits, progressive billing, and quick invoicing, leading to a negative cash conversion cycle and low day sales outstanding (DSO). By paying subcontractors fixed rates and ensuring timely payments, the business aligns incentives for productivity while managing cash flow. While subcontracting presents challenges in control and career growth, the strategic approach enhances efficiency and financial stability.
