It’s 2006. The books are closed on another year, and many building service contractors are welcoming the new year with optimism that hasn’t been there for quite awhile. In fact, a recent survey of Contracting Profits readers indicates 62 percent of respondents believe 2006 will be a “strong” year for their business, and another 27 percent believe it will be “good.”

Why the happy outlook? For starters, the economy is looking decent — not too overheated, not heading into another recession. Most economic experts agree the economy will see at least modest growth in 2006. Unemployment is down, holiday sales were strong and the stock market is steady.

The Conference Board’s Leading Economic Indicators, which gauge future economic prospects, had a .5 percent uptick in its most recent reporting period. Consumer expectations, unemployment, manufacturer output for consumer goods and stock prices all improved.

One major indicator of a solid economy is staffing. Employment giant Manpower Inc., Milwaukee, reports employers are growing their workforces at a consistent, not overly exuberant pace:

“U.S. businesses are not aggressively seeking to increase staff levels as they enter the new year. Instead, they are looking back over the past several quarters and are concluding that hiring is still on target with their operational needs,” said Jeffrey A. Joerres, chairman and CEO of Manpower in a press release.

Of the 16,000 U.S. employers surveyed, 23 percent anticipate an increase in hiring activity for the first quarter of 2006, while only 10 percent expect to decrease staff levels. Sixty-one percent of employers surveyed foresee no change in hiring plans, while 6 percent are unsure of their staffing needs.

Soft spots?
However, not everyone agrees that the labor market is a harbinger of good things to come. The Conference Boards reports that one key factor, help-wanted advertising, is lagging in several regions of the United States, especially the South. Ken Golstein, a labor economist at the Conference Board, says in a release that this represents a loss of economic momentum. On the other hand, he says when post-Hurricane Katrina rebuilding efforts kick into high gear, the overall labor market will improve as well.

Other potential soft spots in the 2006 economy could include energy process and rising interest rates, says Florida State University professor James Gwartney in an article on the University’s Web site.

“Neither increasing supply nor decreasing demand of gasoline can be done quickly, and any action that the Federal Reserve takes to lower short-term interest rates could actually increase inflation and, subsequently, long-term interest rates,” he says in the article. “An increased rate of inflation, which is already expected to be around 3 percent in 2006, would cause lenders to raise the long-term interest rates even more in order to cover their own increased costs.”

Unfortunately for building service contractors, they see any relief from high insurance premiums, either.

“The average [insurance] forecast calls for an increase in net written premiums of 4.7 percent in 2006, up from an estimated 2.5 percent in 2005,” according to a report by the Insurance Information Institute (www.iii.org). “The spike in premium growth in 2006 is a direct result of analyst expectations that record catastrophe losses in 2005, totaling some $57 billion, have severely crimped capacity and caused insurers to reassess risk in catastrophe-prone regions of the Unites States. Analysts also expect that demand for insurance and reinsurance will increase even while supply is falling.”

Some analysts also believe that increases in property insurance costs due to losses from Hurricanes Katrina and Rita will spill over into liability and workers’ compensation lines.

BSCs: Optimism all around
Even though the official economic data are relatively unchanged from the last two to three years, building service contractors are finally cheery about their business prospects after several years of uncertainty and doubt.

“The industry as a whole will be slightly up based on more companies and institutions finding that it is cheaper to hire cleaning companies than have the burden of employees and benefits, which increase every year,” predicts Gregg Jones, president, Advanced Facility Systems Group, Inc., Columbia, Md.

“2006 will be great!” says Vivienne Lloyd, owner of Time Creators Inc. in Denver. “Time Creators is small and last year I was jack of all trades. This year I am more in control of my business. I hired supervisors so now I spend my time growing my business. I have a plan for major expansion in 2006.”

Why such optimism, even though the data indicate more muted growth? This could be due in part to the economic improvements of the last few years finally benefiting BSCs, but in many cases, contractors aren’t just reacting to market conditions or waiting for overall economic improvement to lift them up as well. Instead, they are being pro-active and searching out the best ways to grow their businesses.

For instance, Dan Draper, president and CEO of Nationwide Janitorial in South Bend, Ind., expects to double his company’s monthly revenue by the end of 2006. This will be due in no small part to changing the way he thought about the hiring process.

“What we’d done is what everyone else always did: ‘OK, we need an operations manager.’ We looked for an operations manager in the industry,” he says. “We did that unsuccessfully a dozen times. Then, it dawned on me: a manager is a manager. If I hire a manager, it doesn’t matter what industry he came from. I can teach him enough about the business that he can manage it. If I have someone who isn’t a good manager, it might take me years to teach them to be a good manager. I hired an [administrations] manager and an [operations] manager who had no experience in our industry; within a few months they were the best managers I ever had.”

Draper also is going into 2006 with a new facility in an industrial park. It’s difficult for potential workers without cars to get to the new building, which Draper believes should translate into a better caliber of applicant, and workers who will reliably be able to get to the job site.

Lloyd also has had difficulty finding and keeping good workers. So, she’s introduced English classes and retention bonuses. Going into 2006, she’s looking for outside help for her staffing challenges.

“Time Creators is negotiating a partnership with company who provides similar service,” Lloyd says. “We plan to benefit by using the same labor source and human resource management.”

Other companies are branching out into new niches, or strengthening their presence in existing-but-underserved markets, in order to reap more profits in 2006. Advanced Facility Systems Group, Columbia, Md., is one such business. Although the company does specialize in janitorial work, it also offers basic repair and maintenance, final construction cleaning and concrete-floor sealing. It also offers software for other cleaning and maintenance organizations to manage their operations.

“If a company sits idle hoping to clean only offices, I think it will be a tough year,” Jones says. “Our Environmental Service Software is one [area] of large focus and development for 2006. We will be doing more marketing towards hospitals and large universities. We have seen great results in the use of this software with hospitals such as Broward General that can now accurately determine how many [full-time equivalents] they need and what each employee will be doing daily and where.”

Don’t rest on your laurels
Regardless of what 2006 brings, Jones reminds BSCs that they can’t rely on past, or even present, successes to carry them forward.

“What works for a company one year, might not the next,” says Jones. “Smaller companies need to continue to evaluate the market and their accounts to determine how they can best make money. It may mean channeling efforts into new areas that may require additional training and new equipment. We have to flex our services based on our expertise and where we can make money.”

Optimism is a good thing, but it is no substitute for innovation and a proactive approach to business. Building service contractors who channel their optimism into solid strategies for growth and profits will stand the best chance of meeting their expectations in the new year.

2005: A Year in Transition

Gregg Jones, President of Advanced Facility Systems Group inc. in Columbia, Md., believes his company will see improvement in 2006, because 2005 was largely a year of rebuilding and learning hard lessons.

“We had been heavily involved with the large retail chains,” he says. “Just a few chains helped us grow the business, but in the same token it increased our risk at becoming dependent on these chains. We lost our largest customer after eight years to a national cleaning company to the tune of $50 per month per location without a chance of matching their offer.

“We had been there longer and had ranked second nationally for quality of work,” he adds. “The things that made our company successful were taken away from us such as relationships, control and the ability to effectively and efficiently manage accounts. The national cleaning company had us running around with our heads chopped off.”

Advanced took the stores back as a subcontractor at a 25 percent price reduction, but used the opportunity to re-arrange its accounts to improve profitability.

“We spent most of 2005 adding new profitable accounts and getting rid of the low margin, high maintenance sub-contracted accounts,” he says. “Our gross numbers may be up slightly for 2005, but our profit margins have steadily increased each month throughout the year.”

Jones is optimistic about his company’s prospects for the coming year.

”We have to work harder and complete more work for the same money but we are back in charge of our company again with a growing list of customers that we manage and a marketing plan that is exciting and energizing,” he says. “The goal for 2006 is to work smarter and harder in the high profit sectors.”




POSTED ON: 1/1/2006