In the construction industry, cash flow is king! It is a daily responsibility for any contracting company. Profit margins are always razor-thin in this industry, which means you need to do everything you can to increase your production and maximize profits. That means projecting job costs, identifying problem areas before they arise, running labor analysis, and constantly measuring productivity. Here are a few tips that will help. Continue reading
The ability to deliver quality work in your trade doesn’t guarantee your business will profit. You could be the best carpenter, plumber, electrician, etc. in the entire world, but still go out of business if you aren’t managing your jobs properly. So many excellent contractors miss this very point, which is why construction businesses have such a low survival rate. Continue reading
Any contractor knows that successful project management hinges on labor. That’s not to say that smart material purchases and inventory control don’t also play a role in job profitability. However, unproductive labor will always kill profit, which is why knowing your real-time labor costs can improve your bottom line. Continue reading
A great writer once said, “Beginnings are always messy,” and this is often true in the construction industry. Some of our most trying events happen at the beginning of a new project, which can make the whole project messy from day one. However, with the proper plan, potential pitfalls can usually be avoided. Continue reading
To appreciate how construction firms can make a greater profit on projects, you first need to recognize that one of the most common way to lose money is with unproductive labor. Downtime, overtime and reworking a project will kill profits – and oftentimes, morale. Continue reading
In the construction industry, cash flow is essential to staying viable in a competitive market. Even some of the most profitable construction firms have gone out of business because of poor cash flow management.
Perhaps the reason cash flow is so difficult in construction is that by the time a job is awarded, significant resources have already been invested into it – from the time spent on the lengthy bidding process, to manpower on the job site, to purchasing materials and renting equipment. Often, these expense are incurred months before ever seeing a payment. Continue reading
Most contractors start out having the owner act as the project manager on jobs, which makes it easy to oversee a job and make sure nothing is going terribly wrong. With success and growth, the “owner as PM” model starts to become unrealistic, and deadly mistakes start to crop up. Some problems are minor, but some are deadly to your bottom line. Here are the deadliest mistakes, and how to avoid them:
3. Using a Cost-to-Cost Method for Work-in-Progress Reports
If you’ve incurred $50,000 in costs on a $100,000 bid item, does that mean the item is 50% complete? Not necessarily. Yet many contractors make this mistaken assumption, leading bonding companies and bankers to be on the lookout for it. The amount of cost incurred often has nothing to do with how far along a job is. Sharp contractors know that unexpected costs arise, so measuring their percent complete by cost is probably the worst method.
Avoid this mistake by using units in place or an estimate of hours needed to complete, or anything other than cost when you’re drafting a work-in-progress report. Once you know the estimated percentage of completion, you can recalculated the estimate by adding actual costs to date to the projected cost derived by your informed estimate. With projected costs, you can know what your profit is likely to be when the job is complete.
2. Not Knowing Where You Stand on a Job
If you’re a project manager and you don’t know where you stand on a job, you may be under the false assumption that all is well, your job is on track, and you’re making money. Your estimator has a responsibility to give you a break down of the hours and units used in his estimate so that you can project the hours to complete. For example, if the estimate is to complete 1000 square feet in 500 hours and you’ve completed 500 square feet in 300 hours, you could be running 20% behind schedule and not even know it. If you use projected job cost calculations, you will know the status of your jobs before the end, when it would be too late to do anything about it.
1. Not Using Projected Job Cost Estimates
You’ve probably realized at this point that there’s a common thread in these deadly mistakes – job cost estimates. The importance of job cost estimates cannot be overstated. If you’re calculating your profit and loss without an accurate job cost estimate, your profit projection is just plain wrong. If you’re going to know anything about what your profits will be by the end of a job, you need to use projected job cost estimates.
To learn more about projected job costs and what other deadly mistakes you should avoid, check out 9 Deadly Job Cost Mistakes by Bob Mattlin, CPA, founder and owner of ComputerEase. You can request a free copy of the ebook on the ComputerEase website!