Risk and reward are no joke.
Today’s video is about What Warren Buffett and Construction Have in Common, watch it by clicking here or continue with this quick read.
Successful people tend to risk a small amount of money for a high amount of reward.
When anyone starts a business there’s a lot of risk.
There’s a lot at stake.
So it’s always best to risk as little as possible when you’re starting out. That doesn’t mean taking NO risk, it means trying to mitigate the level of risk as much as possible.
As things develop the investment strategy tends to change.
As your business grows and develops your risk tolerance also grows.
So you can take more risks because your business isn’t as vulnerable.
If you look at investors, all of the wealthiest people put a lot of money into the stock market… BUT at very little risk.
These people are more concerned about the downside than making a lot of money.
Warren Buffett has TWO RULES. RULE ONE: DON’T LOSE MONEY
RULE TWO: REFER TO RULE ONE.
These rules are important because they allude to managing the downside.
How do you do this?
Well, you invest a lot into something with a low amount of risk.
YOU DON’T invest in things that are seen as high risk.
If you apply this to construction you need to ask
- Am I willing to risk my company?
- Are you prepared to sign contracts just to secure the project?
If you are just starting out and don’t have a lot to lose this may be worth doing… However, if you are an established company the risk is probably too high.
It may sound counterintuitive BUT
Sometimes it’s better to turn down work.
Some jobs and some contracts are TOO RISKY.
As your business grows, select projects that are within your risk tolerance.
How do you manage your downside?
You need to look at these factors:
- Assess the risk of your clients (Have they had any default? Have they gone to court? Why did they go to court? Is there evidence of non-payment? Are there rumours of insolvency?)
- Assess the risk of the contract (Are the clauses risky? Are they unwilling to negotiate?)
It’s always riskier to be a construction subcontractor but you can get better at analysing the level of risk.
We want you to be the MOST SUCCESSFUL you can possibly be. That’s why we put together content with tips and advice that is tried and tested.
For more contractual advice, Quantum Contract Solutions is here to guide and assist you through everything contract related. Let’s reduce risk in your contracts and save time and money, just click this link to get our FREE case study to show you how clients just like you are doing it.
