The Business Of Independent Service Provider Contracting

Should Contractors Band Together To "Work It Out"?

Posted by Jeff Walczak on Nov 5, 2017 2:50:39 PM

Take a look around.

Do you see the number of contractors around you dwindling?Decreasing Contractors.jpg

How many contractors do you see today, vs. how many there used to be 2, 5 and 10 years ago.

It's plain to see the number of contractors is shrinking, while the number of trucks grows

This results in fewer, but larger operations.

Think this is a coincidence?

It's not.

As you seek answers from FXG on how you will achieve scale, contiguous service areas and overlap, you are being told you need to "work it out" with those around you. Well that's great, but how are you supposed to do so if you have limited resources?

There is a way, but you'll need to ask yourself some questions first.

To Be Or Not To Be?

We know that, in the current environment, pretty much every one of you haveiStock-870160388.jpg contemplated staying vs. selling.

If you think you want to stay, you must decide why you are doing what you are doing, or what the purpose of running your business is.

If running your business provides you with the means to satisfy your purpose, then you would likely want to stay and survive. If so, it is probably going to mean you need to get bigger.

You'll need to become a big fish who is eating smaller fish.

If you want to be a big fish, we think that it is a very exciting time to become one. The future is extremely bright if you'd like to grow your business into a substantial entity.

How To Become A Big Fish, If You're A Little One Now

The easy way to grow your business is to buy up the operations around you that give you overlap and make you contiguous. But, not all of us are lucky enough to haveiStock-470995838.jpg the capital needed to grow your business like this.

So, most folks conclude that if they do not have access to growth capital, that they need to get out.

But, it doesn't have to be like this.

There is another way.

There is a growing trend where contractors are forming new business entities that include each other as shareholders of a new corporation, formed by merging their separate operations together.

Another way to say it is they are merging.

This way, you all can leverage what you already have, and then be able to swim with the bigger fishes!

Ideally, you'll want to merge with others where the resulting combined operation will be contiguous. You'll also want to get together with operations that mirror you and have the home or ground you lack.

Doing these things will make your parent company happy, in addition to allowing you to take advantage of some economies of scale.

Sounds Good, But What About The Problems?

The first and most obvious problem is that of leadership.

Who is going to be in charge?

iStock-522723658.jpgGetting several entrepreneurs together will definitely create conflict. In order to get by this, you'll have to agree to hire or promote 1 person as the operations manager. Keep in mind, it should NOT be one of the new partners.

Once you all can agree on doing this, the rest gets a little easier.

Closely related to the leadership issue is that of the strong personalities that are going to be combined in this arrangement. It can be done, but there are some steps to take to get there.

First, make sure you can get along with your fellow shareholders BEFORE you enter into the partnership. If you know you can't get along with the contractor adjacent to your service area or the one that mirrors you, then save yourself some time and look for others to merge with.

Next, create a way that all the partners can communicate with each other that automatically creates documentation of your conversations. There are many tools out there that handle this, as well as in eTruckBiz.

Lastly, clearly and thoroughly define the different ways that partners can exit the partnership. A process for predetermined partner buy-outs is a must here.

If you can get by these things, then a successful contractor merger is a real possibility.

The Secret Ingredient To Making This Work

We get asked quite often if we have seen these arrangements work.

So do, some don't.iStock-682651418.jpg

The ones that do, understand that it is critical that the partners need to agree on standardizing their administrative and operational functions.

This, is the real nightmare of putting several different operations together.

Instead of wasting countless hours and loads of money trying to come up with all new standard processes and systems, they learn to use the capabilities of eTruckBiz PRO to do just that.

eTruckBiz PRO provides a standard way that you'll meld all of your different business practices and administration together. You'll have a standard way to handle things like payroll, recruiting, creating business and operational measurement metrics, and so much more. You get one central place where the records are kept, along with easy, mobile access, so everybody can check in and see how things are going.

This is the key to not only running the initial merger, but to all the expansion that you'll tackle in the future.

Oh, And One More Secret Thing

Of course, eTruckBiz PRO is a great way to solve this problem. But, in addition to theOne more thing.jpg administration and operational reporting and metrics, you'll get an eTruckBiz PRO Specialist.

This person is an experienced professional who will consult with you and your partners as everything develops. They'll help you build systems and processes that are standard across your new organization.

They will help you monitor progress and help establish goals as things progress.

They will be the glue that binds everyone together.

Their experience will be priceless as they work with your chosen leader to mold and grow your organization.

Percentage Of Ownership

Lastly, there is another issue that will be tricky to get by. You'll have to determine the new entity's value and shares of ownership.

iStock-542715642.jpgThere are several ways to address this subject. The easiest way to is to only merge with like-sized operations, but this may or may not be possible.

Beyond this, there are just too many variations and situations where you'll need some expert advice to try to smooth this problem out.

eTruckBiz's Business Acquisition Consulting can be used to come up with a practical solution that takes into account and uses actual data from each merging business to determine what a fair corporate structure looks like.

This issue can be overcome and always does in the successful mergers we have seen.

So, we know that you all have to decide how you are going to address the future. We just wanted to point out a way that seems to be catching some steam as the transformation of the contractor business model accelerates.

 Feel free to comment on this issue below:

Topics: Business, Business Structure, Business Tools, Investment, Management, Payroll, model, Merge, FedEx Ground, Purchase

Independent Service Provider (ISP) Tips And Advice

Learn From Industry Experts And Successful Contractors

Get valuable, actionable information from our founder and other industry participants that also have a deep understanding of your business and want to help you maximize your opportunity. Keep up with all the issues that affect your business.

  • Stay Informed
  • Find and Implement Other Best Practices
  • Learn Profit Maximizing Strategies
  • Make Running Your Business Easy
  • Create More Time To Do The Things You Want To Do

Subscribe to Receive New Posts

Recent Posts