Uphill Battle

The demolition industry has not been immune to the recent economic chaos.

As they watch the-day-to-day uncertainties of the nation’s economy, many contractors are facing, many for the first time, the stark reality of just surviving the next 12 to 18 months.

With the downfall of business icons that until recently seemed invincible—companies like AIG, the Big Three auto makers (GM, Chrysler, Ford), Lehman Brothers, Wachovia, National City, Fanny Mae & Freddie Mac—it is not surprising if the average demolition contractor finds himself thinking, "If the nation’s business icons can’t make it, how will my company survive?"

The ability of your business to survive is no different than the survival of any successful business—you must prepare and plan for good and bad times.

The demolition industry has seen its share of the economic uncertainty over the past 12 months. The "free fall" of scrap prices—by 75 to 80 percent from historical highs in a matter of three to four months—trapped many demolition contractors in ongoing contracts that depended on scrap sales to generate significant income to cover operating costs, overhead and profit. In cases like this, the project income evaporated in a period of less than 90 days. Scrap steel prices are based on month-to-month market demands, so work that requires scrap income sales over multiple months is a risk that must be evaluated carefully.

If AIG, GM, Ford, Chrysler and yes even Caterpillar are struggling for sales to just survive, what can you do to ensure the survival of your demolition company?

First of all, remember, your competitors are all going through the same concerns and fears for the survival of their organizations, so do not feel alone.

The key to your survival is to do what GM, Ford and Chrysler were mandated to do by the U.S. Congress—develop a "survival plan" ASAP.

As a business owner, you must have a survival plan for your company. This starts with evaluating your bare minimum operating costs. Like the Big Three, a key to survival is to get lean and retain your existing customers, as well as your brand loyalty, through customer service.

Evaluate your personnel and make the tough decisions. Ask yourself what is the minimum workforce needed to support the sales volume you expect.

Evaluate who your customers have been, keeping in mind the 80/20 rule, which states 20 percent of your customers provide you with 80 percent of your sales dollars. Meet with good customers and reinforce your desire to continue to provide them competitive pricing, safe work practices and personal attention.

Review your equipment requirements and maintain only the minimum equipment you need to perform work for expected sales. Review leases and rentals.

The "800 pound gorillas" in the room facing all demolition contractors in today’s economy is the question, "Where will the sales opportunities come from to support my company?"

The answer may be found in a quote from infamous 1930s bank robber Willie "The Actor" Sutton. When asked "Why do you rob banks?" his response was, "Because that’s where the money is."

Where will the bid opportunities come from in these challenging times? Bid opportunities will come from those sectors of the economy that always seem to have money to spend, including:

Explore new ways to use equipment you own in compatible business, i.e., excavation, equipment rental (trucks, excavators), regulated material handling (requires training for drivers, equipment operators, laborers, supervision), underground utility construction and site clearing work.

To compete in today’s economic climate, existing bidding strategies need to be reviewed and adjusted.

Bidding opportunities generated from public financing require contractors to have bonding capabilities. Firm up your relationships with your bank, insurance and bonding companies to ensure your ability to compete on public projects.

Owners will need to review company owned equipment and labor rates, overhead and profit mark-ups.

Adjusting company owned equipment costs has long been a bidding tool used by demolition contractors to compete for contracts. Equipment costs can exceed 40 percent of total job cost.

The bidding strategy of charging projects "zero" for company-owned equipment is a risky strategy with long term economic implications when it comes time to replace owned equipment.

Labor cost pay adjustments in most cases are limited. However, doing work with less labor is an area that owners must review. More with less is possible—one less laborer on a project can amount to a $300-$400 per project day savings. ($1,500 to $2,000 per week, $75,000 to $100,000 per year.)

Owners can also consider consolidating office support staff duties and responsibilities to reduce overhead costs. Consider a 32-hour work week for support staff.

Consider using rental trucks instead of a company-owned truck with its expense of fuel, tires, insurance, license plates, parts and maintenance. "Moth-balling" company owned trucks is a viable option to directly reduce cost.

When shopping for materials to be used on projects, take the time to solicit multiple supplier pricing. Items including site fencing, backfill, landscaping (top soil, seeding) can add up to significant project cost.

Soliciting multiple subcontractor pricing, using time prior to bid time to prepare bid packages for subcontractor work disciplines include: utility disconnects and re-routing, asbestos abatement, universal waste (bulbs, ballast, CFC’s, hydraulic and gear oils). Competitive subcontractor pricing can lead to cost savings.

Bidding demolition services over the next 12-to-18 months will be a challenge for many marginal demolition service contractors. Prudent demolition contractors will have to make tough business decisions to survive during the trying times which face all American entrepreneurs.

Demolition contractors will have to do more with less, using less equipment, office support, maintenance personnel, project laborer and competitive material and subcontract pricing will be the key to survival. C&DR