Unrealistic growth refers to an expansion in volume, work type, or work regions that is faster than resources allow. Its prominence among causes of contractor failure illustrates the necessity of a strong “infrastructure” (project management, accounting systems and estimating) as a contractor contemplates expansion of any type. A common sign of unrealistic growth is a sudden increase in the backlog before adequate project management resources are in place. In a typical case of dangerously accelerated growth, a project manager who was responsible for four projects may become responsible for eight. Like-wise, estimators who must address a sudden increase in pending bids sometimes find that lead time to prepare for bids is cut in half.

Performance issues—closely re-lated to unrealistic growth—involve the adverse effects of inexperience that are felt most sharply when a contractor expands too rapidly. Taking on a project of unaccustomed scope, type, or complexity creates a steep learning curve, requiring new subcontractor relationships, project management techniques, or record-keeping systems. As contractors confront the learning curve, they will certainly make mistakes. Wise contractors are prepared to manage those mistakes.

Character issues relate to problems that distract key personnel from the business (e.g. divorce, death in the family, substance abuse or emotional problems). One common issue of this sort involves the lack of an adequate business continuity plan in the event of the owner’s death. Without a continuity plan, the company encounters two challenges. First, if the purchase of the owner’s stock is not properly structured, significant financial resources may have to be diverted from the company in order to purchase the owner’s stock from the estate. Second, with the owner’s death, the company may suddenly lack the management talent to continue operations. Difficulties away from the job site are often the cause of a business failure.

Accounting issues involve the failure to maintain solid accounting and financial management systems that accurately track cost and billing information on a timely basis. Many facets of an operation rely on sound cost data, from profit-and-loss computation to thorough preparation of change-order requests. Indicators of a weak financial management system include tight cash flow, slow accounts receivable turnover, or profit fade. A key component of a strong accounting system is a certified public accountant that specializes in accounting for construction firms.

Management issues relate to insufficient or incapable personnel at the upper management or project level. Indicators of poor management include profit fade, failure to complete projects on time and high claim activity. A successful contracting business ultimately depends on coordination among its multiple departments as well as with its subcontractors, suppliers, and other interested parties in order to achieve a common goal—successful completion of the project.

The wide array of failure factors identified by the study suggests that to succeed, a successful contractor continuously must juggle all the issues mentioned herein, including those of staffing, work volume, project management, accounting systems, continuity planning, owner relationships and coordination with subcontractors and suppliers. Because detail and organization are key to dealing with all these challenges, a sound business plan is vital. It sets forth the organization’s primary goals and objectives, providing guidance for the decisions regarding the day-to-day management of business and addressing contingencies for project delays, a business plan gives the organization direction to face the inevitable challenges of the industry.

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