Why a $10 Million Contractor Went Out of Business
This year, I had nearly the same conversation with two different contractors. Same advice, both times. Only one of them took it. Today, the other is out of business.
Here's what happened.
A Business That Looked Healthy
The first contractor was thriving, right up until sales slowed down. A few big projects were wrapping up, his pipeline was thinning out, and cash was getting tight.
He wasn't panicking. If he could just hang on for a few months, he told me, new jobs would land and he'd be back on track. He had deals on the horizon and was working to close a loan to bridge the gap.
But I saw a much bigger problem.
Where the Money Actually Went
On paper, his company looked big. He was doing around $10 million a year.
But that's top-line revenue. After direct job costs, that left him with about 20% to run the entire business side of things. That slice had to cover his office, his staff, his overhead, all of it.
And he was spending like a company ten times his size.
That's the trap I call the Revenue Illusion: mistaking the size of your revenue for the size of your business. The $10 million felt like a big company. But he really had $2 million company.
Try it for Yourself
He Couldn't See It
As much as he heard what I told him, he kept spending and operating like a company 10 times its actual size. The overhead never came down.
The loan wouldn't have fixed that. It would have just funded the problem a little longer.
Today, that business is gone.
The Contractor Who Listened
The second contractor was in a strikingly similar spot. The difference was that he was willing to change how he ran things.
We built a realistic overhead target, and worked it into every bid he put out.
Today, he's making it work with less, staying out of heavy debt, and chasing jobs that are profitable enough to fund the growth he's after.
The Takeaway
Revenue shows how much work passed through the company. Only the full picture shows whether the company actually works.
