The success or failure of any construction job is based on profit. Profit margins are razor-thin in construction. Job costing helps you project job expenses to identify problems before they impact profit. Can work be completed with the money and budget available? What are the risk factors on the job? What do you need to do to be successful? 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
The construction industry is a difficult one – full of strategic planning, tight deadlines, demanding customers and lean margins. In some projects, just 2-3 percent can be the difference between profit and loss.
However, construction companies that navigate this industry expertly have learned to surround themselves with others who understand the business – especially their CPA firm. You look for subcontractors who have experience in a particular type of work; your CPA firm shouldn’t be any different. Don’t settle for just any old number-cruncher. To be on target in this business, you need a CPA that understands construction. 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!