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Profit Is Overrated

05/15/24

Ask fifty construction company owners what a perfect business would be like for them and you will probably get forty-nine different answers. Many will say they want to make a profit. Digging deeper, profit is not what owners really want. Profit is required to create what they really want. Business owners actually want to build equity and generate wealth. 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.

Are you the company CEO?

Think of CEOs of Fortune 500 companies. Every week, the newspaper business section reports on their company’s success or failure. Did they make a profit? Did they grow their revenue? Did their stock price go up or down? CEOs of major companies focus on increasing the value of their company’s stock price. As the stock price increases, their company becomes more valuable. 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.

Are you creating wealth?

Profit creates equity which allows for building wealth. Wealth includes investments, money, family, time, freedom, peace of mind, contentment, enjoyment, success, or owning a business that works for you. Wealth creation can be an outcome of a financially successful business that generates a positive cash-flow and increasing profits. Financial success allows you to enjoy and design your life to do and get what you want. Wealth allows you to make choices on how to spend your time and money. Wealth will not keep you stressed out nor constantly working to make ends meet.

Wealth is created from assets that make money without you doing a lot of 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. Owning a multi-tenant apartment or industrial building and renting it is an example of a wealth-building asset. The building creates a net income every month without much effort or work. 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. Assets can also include owning stock in growing and successful public or private companies.

What business are you in?

Think about your priorities and the purpose for your business. The right purpose is to give the business owner what he or she wants. Your business purpose is not to build buildings, erect steel, lay bricks, install pipe, hang drywall, paint projects, or move dirt. You are in business to make a profit, build equity, seek wealth-building opportunities, and enjoy the benefits of business ownership.

After twenty years, a commercial general contractor finally realized why they were in business. Year after year, they worked hard to scrape out a one to three percent pre-tax net profit. They endured a lot of stress and took extreme risks building projects for customers who made millions of dollars owning and developing real estate. They finally started realizing that, while their construction company did most of the work, it was the customers who made most of the money. Why? Because they were in the profit business and their customers were in the wealth-building business.

Get into the opportunity business

Make a decision to change your business model and get into the “Opportunity Business,” seeking equity and wealth-building opportunities. Your construction company can continue as a general contractor AND seek real estate investment and development opportunities. You already knew how to build projects so why can’t you also participate in the overall development process and profits as well? In order to make this happen, you need to decide to work differently and spend at least 25 percent of your time seeking wealth-building opportunities.

Build a wealth-building machine

Think about what you do. How can you convert your construction company from what it currently does into a wealth-building machine? Continue doing what you do well AND dedicate at least 25 percent of your time seeking investments. The owner referred to above started with a small first investment. They put $5,000 down and bought a residential duplex in the low-income part of town. They fixed it up by themself and then raised the rent. This allowed them to get a higher appraised value than what they had purchased the property for. Then, they refinanced it and got a new loan, which generated extra cash. With this, they purchased another duplex and did it again. A year later, they sold these two properties and bought a sixteen-unit apartment. Following a proven formula, they fixed it up, raised the rents and then refinanced it. This generated more cash to reinvest into other assets.

A small start in low- cost residential real estate will allow you to build wealth and start buying, investing, and developing more assets. When you have a few wealth-building properties, you start looking at your business differently. You change your priorities, stop working so many hours building projects for others, and start working on building for your future as well. Getting started is the key. Don’t wait until it’s too late. It will never be the perfect time so make it your goal to seek one wealth-building asset within the next three to six months.

Business - Commercial Construction Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.