When asked, most construction company owners envision their perfect business, and you can bet that nearly all of them will have a different perspective. While many will declare that making a profit is their top priority, digging deeper, profit is not what owners really want. Profit is required to create what they really want. Profit is merely a tool for achieving something greater. What business owners truly desire is to build equity, generate lasting wealth, and enjoy the freedom of a business that operates efficiently without their constant oversight. Equity and wealth are the outcome of consistently making a profit, retaining it, and using it to seek other business opportunities, create passive ongoing income, own investments such as real estate rental properties, and grow net worth. Sadly, less than ten percent of contractors build enough wealth to retire comfortably at age 65.
UNDERSTANDING PROFIT AND ITS PURPOSE
Profit serves as the foundation for building equity and wealth. It’s the result of effective business practices and acts as the capital needed for expanding opportunities, creating passive income streams, investing in assets such as rental properties, and ultimately increasing net worth.
Consider CEOs of Fortune 500 companies; their performance impacts not only their companies but also the shareholders and the economy at large. Every week, business news covers whether these companies generate profits, increase revenues, or see fluctuations in their stock prices. These executives focus intently on driving up their stock value, knowing that a higher stock price equates to increased company valuation. When your company makes a profit, the equity created can be reinvested back into your company, used to seek new business opportunities, or distributed back to the stockholders as dividends. When companies don’t make a real profit, or when all of the profits are distributed to owners, your company is not able to grow, expand, or seek new business ventures.
THE DEFINITION OF WEALTH
Profit creates equity which allows for building wealth. Wealth is not solely defined by financial metrics; rather, it encompasses a holistic view that includes investments, financial security, family stability, time, freedom, peace of mind, and overall satisfaction. True wealth arises from a financially healthy business, one that consistently generates positive cash flow and growing profits. When your business flourishes financially, you gain the freedom to design a life that reflects your interests and aspirations.
Wealth is created from assets that make money without you doing much hands-on work. Wealth-building assets create regular positive cash-flow, go up in value over time, reduce debt, and are passive instead of needing constant attention and supervision. Wealth building is built through owning income-generating assets that require minimal ongoing management.
Investment properties, for example, can provide a positive monthly cashflow with little hands-on involvement. Consider multi-family units or commercial real estate, which can generate net income without demanding your constant oversight by hiring a professional property manager to handle the day to day. Wealth building real estate assets can include joint venture projects with customers, your own building and yard, buying an old property to fix up, owning a residential duplex, or buying rental houses at great prices. Furthermore, investing in stocks of successful companies can expand your asset portfolio and bolster wealth. Financial success allows you to enjoy and design your life to do and get what you want. Wealth allows you to make choices how to spend your time and money. No wealth will keep you stressed out and constantly working to make ends meet.
RETHINKING YOUR BUSINESS PURPOSE
Reflect on what drives your business decisions and the ultimate objectives you wish to achieve. Your purpose is to build a business that fits your vision, not just to construct buildings or fulfill contracts. The right purpose is to give the business owner what he or she wants. The core mission should revolve around generating profits, building equity, and recognizing wealth-generating opportunities while reaping the rewards of business ownership.
After two decades in commercial contracting, I finally recognized the disparity between my workload and the profits enjoyed by my clients, who were actively engaged in wealth-building endeavors. My firm generated significant revenue, but our profit margins were narrow, often between two to four percent. I endured lots of stress and took extreme risks building projects for customers who made millions of dollars owning and developing real estate. I started realizing that while our construction company did most of the work, our customers made most of the money. Why? Because I was in the profit business and my customers were in the wealth building business. This realization propelled me to pivot my business model toward recognizing and pursuing equity and wealth-generating opportunities plus being a contractor.
GET IN THE “OPPORTUNITY BUSINESS”
Finally, I made a decision to change our business model and get into the “Opportunity Business” seeking equity and wealth-building opportunities Transitioning into the “Opportunity Business” mentality, I began to seek real estate investment and development alongside our general contracting operations. We had expertise in construction and therefore it was time to leverage that knowledge to acquire a stake in the development process and associated profits. This meant allocating at least 25 percent of my efforts to pursuing wealth-building projects.
WEALTH-BUILDING MACHINE
Evaluate your business operations and consider how to transform your company into a wealth-building machine. While building the projects you handle well, dedicate a significant portion of your time to seeking and creating investment opportunities. Start small. My initial investment was humble: a $5,000 down payment on a distressed residential duplex. I dedicated time to renovations, which increased its appraised value. This allowed me to refinance, freeing up capital to invest in more properties. This strategy led me to acquire multiple assets over the years, compounding my wealth significantly. A thoughtful approach to real estate investment can lay the groundwork for lasting wealth. As you build your portfolio, your perspective shifts. You start prioritizing your own financial future rather than only laboring to expand someone else’s business.
The crucial step is to act! Don’t delay your journey toward building wealth. There’s never a perfect time to start this process. Aim to invest in at least one wealth-building asset each year. I am grateful for the early start I gained; thirty years later, my properties have appreciated substantially, equating to thousands in annual passive income that supports both me and my partners. Reimagining your construction business is not just about constructing buildings; it’s about constructing your financial future. Embrace the transformation from a profit-seeking enterprise to a wealth-building powerhouse.
about the author
George Hedley CPBC is a certified professional construction business coach, consultant, and speaker. He shows contractors how to double their profits, grow, get organized, and get their company to work like a machine! He is the author of Get Your Construction Business To Always Make A Profit! available on Amazon.com. To talk, start a personalized BIZ-BUILDER program, or get his free e-newsletter, email gh@hardhatbizcoach.com. Visit his YouTube channel to watch his videos. To download online courses or get his contractor templates, visit www.constructionbusinesscoaching.com.