Contractors face roadblocks to growth: Intuit survey

BY BOB MIODONSKI OF CONTRACTOR'S STAFF ORLANDO, FLA. Contractors seem to be aware of how to grow their businesses, but only one in five plans to take the necessary steps to achieve that growth, according to the third annual Intuit Construction Industry survey, released Jan. 11 during the International Builders' Show here. "Contractors' priorities in 2006 don't line up perfectly with what they know

BY BOB MIODONSKI
OF CONTRACTOR'S STAFF

ORLANDO, FLA. — Contractors seem to be aware of how to grow their businesses, but only one in five plans to take the necessary steps to achieve that growth, according to the third annual Intuit Construction Industry survey, released Jan. 11 during the International Builders' Show here.

"Contractors' priorities in 2006 don't line up perfectly with what they know they should do in 2006 to grow their companies," said Andrew Morbitzer, marketing director for Intuit Construction Business Solutions.

For example, 71% of the 504 contractors surveyed say that adding more profitable projects is critical for the growth of their company; yet, just 16% plan to add more jobs this year. Increasing their networking and word-of-mouth reputation is seen by 63% of respondents as critical; 11% expect to accomplish it this year. Hiring additional qualified employees is cited by 54% of the contractors; 16% plan to hire these people in 2006.

Integrating their software systems is seen by 45% of respondents as critical to growth; 13% plan to implement that change this year. Adding new services and expanding product lines is mentioned by 41% of contractors as critical; 16% say they will do it.

Contractors getting too involved in the day-to-day operations of their business to take strategic action for growth may explain some of these disparities, Morbitzer speculated. Contractors, however, cite challenges in the marketplace and in their businesses that may limit their ability to act.

The pool of qualified field employees is the largest barrier to growth; 27% of contractors report difficulty in finding experienced staff to work on the jobsite in the past year. The major factor causing that difficulty, more competition in local markets, represents 54% of responses.

Rising material costs and gasoline prices caused most contractors, 74% and 65% respectively, to raise their rates but are not seen as major obstacles to growth, according to the survey.

"Material prices and gas prices didn't affect their growth because contractors were able to pass along rising costs for both to customers," Morbitzer said.

Managing multiple jobs and wasting time with inefficient systems top the list of challenges that contractors face in their own businesses. This was particularly true of contractors ranging in size from $3 million to $25 million in annual revenue. Contractors less than $3 million say that paying bills, billing customers, managing cash transactions and better tracking of job costs against budgets are bigger issues than wasting time with inefficient systems.

Despite the challenges, contractors, expect average construction industry growth of 11% in the next five years, one point down from last year's survey. They estimate their gross profitability per job at 16.5%, one point up year-over-year.

"Contractors are using specialization as a way to growth," Morbitzer said, "more so than we've seen in the past."

Among the areas of specialization cited by contractors are green building (36%), replacement contracting (35%), and assisted-living facilities and disaster restoration (32% each).

Regarding the findings of perhaps most interest to Intuit, the survey divides projected technology purchases in the next three years by type of software among different sizes of contracting firms. For contractors with revenues of less than $3 million, accounting software is expected to be the most popular purchase by more than 40% of this group, followed by estimating software at almost 30%. For contractors from $3 million to $25 million, the priorities are reversed with more expecting to buy estimating software (more than 30%), followed by accounting (about 25%).

For companies of more than $25 million, software for an integrated system will be the biggest seller at almost 30%, followed by accounting (25%) and estimating (almost 20%). The Intuit study reveals that 92% of contractors reported no plans to buy into a franchise in the next three to five years.

The e-mail survey was conducted in December 2005 among general and specialty contractors. More information can be found at www.intuit.com