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To Be Successful In 2013 Create a Business Plan And Do An Estimate

Posted by Shawn McCadden on Tue, Jan 22,2013 @ 06:00 AM

To Be Successful In 2013 Create a Business Plan And Do An Estimate

Business plan for a remodeler



For me, when I still owned my remodeling business, getting ready for business growth meant I would first need to do two things; make a plan and create a budget. 



Contractor business planCreate your plan

First was to create a plan for what I wanted to do and how I would do it.  I considered what projects I would specialize in, who I would work for, where I wanted to work, and how I would market my business so the right people would find me.  I determined how many employees I would need as the business grew and what skills they would need now and later so I could delegate some of my current responsibilities and include the money needed to do so in my selling prices.  After determining the how, I needed to predict how much.

A business budget is kind of like a project estimate

The first budget I created was very simple.  By looking at the end of year profit and loss report, the financial history of my business from the previous year, I was able to list the majority of the expense categories I would need to consider to predict the costs of my new plan.  For anything I wasn’t sure about, I would call my accountant or another remodeler I knew at my NARI Chapter for advice.  Just like a remodeling project estimate, I listed the related expenses and then got current prices for each of them.

The Numbers Game

Creating that first budget for my plan to grow the business seemed very overwhelming.  After all, I had never done one before.  Looking back, the hardest part about doing it was actually sitting down to do it.  

Business budget for remodelers and contractorsOnce I had become clear on the financial definitions and formulas used, the budget actually went together fairly easily.   I admit it was very time consuming that first time.  However, because I kept notes on how I had determined certain expenses and where I got the information, the second budget I did was a breeze.  I did not have to completely recreate or try to remember the entire thought process.

Planning and budgeting assumptions

As a result of living through the experience, I developed four simple assumptions, in addition to keeping notes, which helped organize the way I looked at the process.  They should be completed in the following order as well.

  1. Commit to making a real profit, establish how much, and think of it as an expense that must be paid.  You only need a budget if you plan to make a profit.  
  2. Be clear on how you will define and separate direct and indirect costs.   Once you identify which is which, recast your current accounting software's account list.   This requires moving misplaced accounts and costs to their proper locations as either cost of goods sold or overhead expenses.
  3. Look at the big picture.  Consider your annual budget as just one project, like a whole house project that takes a year to complete.  Use your profit and loss report for the previous year as a start to estimate the coming year’s budget. Then start making adjustments for each account to reflect any price changes and or your new plans for the coming year.
  4. Be sure all of your direct costs will somehow show up in your individual project estimates.   Pay particular attention to labor costs, equipment purchases and repair, and general miscellaneous supplies.  Make sure the hourly labor cost you use is burdened over and above the wage you pay employees to include all labor-related expenses and benefits.  If you own and repair your equipment, and or you use assorted hardware and supplies that do not end up as line items in your estimate, establish a percentage to add to your estimated direct costs so you will cover and include these costs before you add your markup.

remodeler markup


Using this simple process year after year, I came to learn how important it was to my business’ success that I planned ahead for what I wanted to accomplish.  With a plan in hand, and a budget for what it would cost, I had the confidence and motivation I needed to make success a planned reality.  I also had full confidence in asking for the real price I needed to sell each project.


Topics: Business Financials, Financial Related Topics, Earning More Money, Estimating Considerations, Business Planning

Payment Schedules That Create And Protect Cash Flow

Posted by Shawn McCadden on Sun, Jan 06,2013 @ 06:00 AM

A Simple Strategy For Payment Schedules That Create And Protect Cash Flow

Poor cash flow


Contractors are forever complaining that they don’t have adequate cash flow when producing projects.  More times than not they blame this on their customers, citing that the customer is holding back or delaying progress payments.   If a contractor keeps working without getting paid he or she has no one to blame but themselves.

Consider these questions. 

Will Delta Airlines let you pay after you land?  Will Dell Computer let you pay for a custom computer after it’s built?   Of course they won’t!  So why do contractors find themselves financing projects for their customers and then end up waiting and even begging for their money?

Protect your cash flow before you sell the job!

On February 26th, as part of a six workshop program, I’ll be leading a strategic estimating and proposal creation workshop for contractors titled: Know What You’re Selling Before You Sell It!”   One of the topics I’ll be covering in that workshop is how to write a project payment schedule that creates and protects cash flow.  I’ll also be explaining how that same payment schedule, if explain correctly to a prospect, will help a contractor sell the job.

Shawn Mccadden Seminar

Below is a brief summary of how to do it and what I will be sharing more about with the attendees.   The attendees will then be encouraged to try the strategy when estimating and selling their next project.  They can then come to the free lunch and learn session scheduled before each next workshop for help with any questions or challenges they experience implementing the new strategy.


10 Steps to create and protect cash flow:

  1. Estimate all tasks in critical path order (same order you would actually build the project)
  2. Group tasks to establish easily definable (for the contractor and the property owner) project and payment milestones
  3. Add up all direct costs the business will incur between milestones and include overhead and profit
  4. Establish payment amounts based on the total cost of the milestone (Including overhead and profit) plus add some money to each to maintain frontloading for safety (you’ll make up for the frontloading when establishing the final payment)
  5. Word payment schedules so each payment will be due prior to the start of each milestone
  6. Protecting cash flowCollect the money needed to finance all of a milestone’s tasks before you start it (don’t be Wimpy on this!)
  7. Get a significant amount of the outstanding balance at the second to last payment
  8. Make sure the project cannot be used for its intended purpose until after the second to last payment is received.
  9. Make the final payment due on “Substantial Completion”
  10. Make sure the final payment is far less than your expected net profit but a comfortable amount for your prospect


Topics: Business Financials, Contracts, Success Strategies, Financial Related Topics, Cash Flow

Purpose of Accounting and Financial Management For Contractors

Posted by Shawn McCadden on Wed, Dec 26,2012 @ 06:00 AM

Purpose of Accounting and Financial Management For Contractors

Financial Management For Contractors


A fundamental goal of any growing business is to maximize and protect the profits.  By understanding the profit process - that is how to define it, create it, and measure it - a business owner or manager will come to better understand how fragile profits can be and the importance financial management plays in protecting it.   For many Remodelers first getting into the business, myself included, financial management skills were not necessarily part of our educational background.   However, our lack of knowledge on the subject would be a weak excuse to give our family for not being financially successful.

Try This Self Quiz To See If A Properly Setup Financial System Can Help You

Profitability is ultimately the responsibility of the business owner

Accounting For ContractorsThere is way too much to learn about accounting and financing to cover or explain in this short blog article.  I suppose that is why it is actually a career for some people.  That’s why there are accountants, business consultants and financial advisors. For a business owner though, understanding and overseeing the process are the bare minimums.  The ultimate success and profitability of your company is typically not left to someone else; it’s the owner’s responsibility.  In order to identify what business owners need to do, I find have found it helpful to show my consulting and coaching clients a path for how it should happen. 


A simple path could be as follows

      1. Make a plan for what you want to do and how you expect to do it.
      2. Create a realistic budget for your plan so you will know what it will cost in total and how it breaks down into direct costs, indirect costs and profit.
      3. Determine the markup percentage to add to your estimated costs, and what gross profit margin that represents so you will know if you’re on track as you complete projects.
      4. Estimate your projects using qualified information for pricing assumptions, and then do job costing to track your actual results.
      5. Use financial reports to monitor your actual gross margin, overhead costs and profitability.
      6. Take advantage of the information you collect to make changes to your plan and or to create your next plan.


Is your accountant a historian?

Choosing an accountantWith much to be learned, be sure you find the right accountant to partner with.  Do you want a historian who will collect your information and report to the government what happened while you were working?   Or, do you want a proactive partner helping you to create and protect your profits?  I tell my clients to seek referrals for someone who can answer their many questions and perhaps helps them create and understand the accounting reports needed to track business performance. 


Keep in mind this harsh truth...

If you still have a historian, it’s not his or her fault!

Topics: Business Financials, Success Strategies, Financial Related Topics, Estimating Considerations

Self Quiz To See If A Properly Setup Financial System Can Help You:

Posted by Shawn McCadden on Thu, Dec 13,2012 @ 06:00 AM

Contractors: Try This Self Quiz To See If A Properly Setup Financial System Can Help You:

Properly Setup Financial System for remodelers



Unfortunately, the facts show that about 85% of residential construction business have no idea what it costs to be in business and cannot properly and accurately track where they are making and or losing money.  If only these contractors had and would use a properly setup financial system they would reduce a lot of the stress related to owning and running a construction or remodeling business.


Here are my simple questions for those of you who don’t have an adequate Financial System:

Not sleeping well due to money issues and is it affecting your ability to do your job and have a life?

Properly Setup Financial System for contractors

Would you rather go to bed at night wondering if you’re screwed, or knowing that you’re screwed?

what it costs to be in business as a contractorTake this self quiz to see if a properly set up financial system would benefit you and your business:

  • Do you know if you will make a profit this year? 
  • Do you know how much money will pass through your company at any given time?  
  • Do you always have enough money to pay monthly bills on time or meet payroll (cash flow)?  
  • Do you know whether you are buying rather than selling projects? 
  • Do you know how and when to predict increasing costs of doing business?
  • Do you know what your options are for smart business growth?
  • Are you confident about making it through the current recession?
  • Will you and your business be ready to thrive when the economy turns around and the volume of work picks up?

How did you do?

If you answered no to one or more of these questions, you are definitely not alone.  For many Construction Business Owners financial management skills are not necessarily part of their educational background.  Plus, have you ever tried to get an accountant to explain this stuff to you? 

A properly designed and setup finacial system would give you the ability to answer yes to all of the above.


what it costs to be in business as a contractor


What are you waiting for?

If you do not have the financial system you and your business needs, ask yourself why.   If you need help setting one up, get the help you need.   If you want to work with someone who can explain things to you in a simple way, help you understand your options and get your system set up; contact me today to discuss your needs.


Topics: Business Financials, Financial Related Topics, Earning More Money, Keeping More Money, Business Planning, Self Quizes

Five Great Books for Remodeling Business Owners

Posted by Shawn McCadden on Sun, Dec 09,2012 @ 06:00 AM

Five Great Books for Remodeling Business Owners

Good books for remodelers

 I have always loved reading to learn about new subjects.  When I was first in business as a remodeler I read a lot of articles in trade magazines.  They offered great ideas, best practices and sample paperwork or forms I could put to use right away.   However, right about the time I sold my business I also started reading books on business related topics.   After reading a handful of titles I came to the realization that the articles in the magazines were helpful and offered individual solutions for a variety of typical business challenges, but the books I was reading offered much broader and more comprehensive views about big picture business strategies and opportunities. 

In many ways the books I read helped me understand how I had grown my business, what made me and my business more successful than many other remodelers and their businesses, and they helped me better understand why my business had salable value beyond just the value of the hard assets.  I quickly came to the realization that, had I read those books much earlier in my career, perhaps I could have increased the level of success I enjoyed.   I also came to realize that I would have dramatically reduced the time it took to build my business had I read those same books when I first started my business.  

Good Good books for remodelersThe books in the list I offer below fall into the top five books I think remodelers should read if they want to grow a successful business and reduce the total time it takes to do so.   More importantly, these books can help remodelers avoid the frustrations, wasted time and wasted money that come with the trial and error approach of going it alone as a business owner.   Even if you still can’t build the business you want on your own after reading these books, you will definitely know what help you will need to get there


“The E-Myth Contractor” by Michael Gerber

EMyth Contractor



This is one of several E-Myth books by Gerber.  They are all worth reading, but if you’re a contractor this one gets right to the point about what you need to do to build a contracting business that runs without you needing to do everything yourself and be there every minute of the day so things get done.   If you ever want to sell your remodeling business, or at least be able to take an extended vacation, make sure you grab this book.


“Good to Great” by Jim Collins

Good to Great



Many business owners are happy having good businesses.  Others decide that their businesses, when compared to other businesses, fall into the good category; a term sometimes referred to as relative success.   If you want more than just a good business Collins and his team has done the research to figure out how it’s done.  He offers some great strategies to consider as well as some great examples of companies and their leaders who made the jump from good to great.  He also shares the importance of and the type of leadership required to achieve greatness.


“The Great Game of Business” by Jack Stack

Great Game of Business


 If you would like to have an open books business that involves all employees in the creation of and sharing of company profits you should definitely read this book before you do so and well before you start creating your plan.  Not only does Stack share strategies for doing so, he lets you know the challenges to expect, how to get ready for them and how to identify employees who will never go along with the changes.  He also shares a process to use to help educate employees about business financials relative to their job positions, how profits are earned and how they can measure their individual contributions in ways that are real for them.  As I mention in my blog about profit sharing, businesses that share profits often earn more profit as a result!


“Selling the Invisible” by Harry Beckwith

Selling the Invisible


Back before the September 11th attacks my remodeling business was humming and qualified leads came in faster than we needed them.  Then, after the attacks and up through February, we had only sold about $15,000 worth of new work.   I had to do something to get the business back on track.   That’s when I found “Selling the Invisible” and it changed forever they way I looked at and did marketing.   In his book Beckwick discusses the difference between the “outside perception” people gain of your business from traditional marketing and the difference a business can enjoy if its marketing projects the “inside reality” customers who do business with you come to know.  Customers spend way more money to get something they consider different.  If your business has an inside reality that really differentiates your business from the competition you will not regret reading this book.


“Managing for Excellence” by David L. Bradford and Allan R. Cohen

Managing for Excellence


There are all kinds of books available on the subject of business leadership and I’ve read at least a handful of them during my career.   In my opinion this is the best book on leadership that I know of.  If you looking to not only be a great leader yourself, but also create a whole team of leaders at your remodeling business this is the book that best describes how.  As a word of caution; if you’re afraid that one of your employees might become a better leader than you, don’t bother getting this book.  As you will learn in the book, the only way you can become a great business leader and create a great business is to create other leaders who can replace you.  If you want to sell your business someday you need to read this book.


Topics: Business Financials, Profit Sharing, Success Strategies, Differentiating your Business, Financial Related Topics, Earning More Money, Marketing, Business Planning, Leadership, Books for Contractors

Make Sure To Pay All The Taxes You Can This Year. Really?

Posted by Shawn McCadden on Tue, Nov 20,2012 @ 06:00 AM

Remodelers, Make Sure To Pay All The Taxes You Can This Year.  Really?

Falling off the cliff


The holiday season is now upon us.  For small business owners, in addition to celebrating the holidays with family and friends, it’s also the time of year to start making plans and doing budgeting for next year.  To increase your after taxes net profits next year you might want to consider paying more taxes this year.  Here is why.


At the end of September I posted a blog about the impending Fiscal Cliff.  In that blog I pointed out several ways the Fiscal Cliff decisions might affect remodeling businesses.  I also pointed out that how our country’s leadership ultimately decides to deal with the pending changes would depend quite a bit on who won the presidential election.  The election is over and President Obama will be our leader for the next four years.   With that in mind I suggest small business owners re-read that blog post and look into the list of possible tax changes that are now more likely to occur with President Obama remaining in office.

(Click here for a pretty good Fiscal Cliff summary by NPR)


Higher taxes for remodelersA Few Ways You Might Be Affected:

The House Committee on Small Business has offered a chart on its web site to show the potential changes and affects on small businesses if the current Bush Era Tax Cuts are not extended.   Remodelers could be hit really hard because many of them are organized as “pass-through” entities, where their business gains or losses are reflected on their individual tax returns. Several that could really affect the after tax profitability for remodelers includes:

  • An increase in capital gains from 15% to 20% (33% increase!)

  • An increase in tax rates on business dividends received by individuals will be treated as ordinary income (higher rates) rather than as capital gains, currently 15%.

  • Tax rates in the top four brackets will be increased to (from current rate): 39.6% (35%), 36% (33%), 31% (28%), 28% (25%)

  • Small businesses with undistributed taxable income will no longer be taxed at the current rate on dividends (currently 15%), but rather will be taxed at the highest individual tax rate (up to 39.6%).

What To Do:

So, to limit your tax liability I suggest remodelers speak with their accountant ASAP to fully understand how the potential changes and ultimately any actual changes will affect you and your business.   Remember, profits can be used to reinvest back into your business, but you must pay tax on those profits first, leaving only the remaining profit available to invest.   The same holds true if you were planning to use business profits for other personal purposes such as paying for your children’s’ college education or buying a new home or RV.  Back when I owned my remodeling business my accountant helped me strategize how to claim certain revenues and profits in one year versus the other depending on my effective tax rate for each respective year.  By doing so in one year I saved over $20,000.00 the next year!


Make Sure You Have The Right Accountant:

Tax rates for remodelersThere nothing worse than the feeling of working really hard to earn a profit only to find out that you could have reduced your total tax burden (and the amount of profit you get to keep) by taking advantage of simple and completely legal tax strategies.   A big lesson for me when I owned my remodeling business was making sure I had the right accountant and financial advice.   Saving money on an accountant’s fees might just cost you far more in taxes than the money you might save if you have chosen your accountant based on price rather than value, strategic advice and timely services. 

My second accountant cost me twice as much as my first.  It was well worth paying the difference because of the money I saved in taxes.  It still is!


Topics: New Business Realities, Business Financials, Success Strategies, Financial Related Topics, Keeping More Money, Business Planning

Two Ways Remodelers Can Predict and Measure Good Cash Flow

Posted by Shawn McCadden on Fri, Sep 14,2012 @ 06:00 AM


Judith Miller




Guest Blogger: Judith Miller has worked with remodelers nearly 30 years; she writes for Remodeling Magazine, facilitates for Remodelers Advantage and consults with remodelers around the country with particular focus on the importance of good financials!  Visit her website at


Two Ways To Predict and Measure Good Cash Flow

In his excellent blog post on cash flow, Shawn mentioned direct costs, overhead and net profit as all potentially contributing to good cash flow.  And, as he so rightly pointed out, the potential for good cash flow begins with accurate pricing for the job.  Shawn also mentioned the importance of working on ‘accrual’ accounting rather than cash.  When you’ve got these important elements of good construction accounting in place, you can lay out a couple metrics which will be useful in understanding cash flow.

First, get all your costs in the right place on the Profit/Loss:

Income = revenue from construction projects

Direct Costs = expenses, including ALL labor (even that production manager who doesn’t keep a time card) AND associated labor burden, related to jobs for which you receive the income.  Don’t include work on your own house or you Mom’s in this category because you’ll skew (and screw) the numbers.

Overhead = all costs it takes to run an office, including a construction office, but not related to jobs – those costs go into Direct.  This includes marketing expenses, rent, office supplies, professional fees, owner and admin salaries and related burden, general insurance – not liability or workers comp which go into Direct.

(List of Typical Accounting Terms and Definitions)


Second, establish a good system for job cost analysis

 A good system for job cost analysis lays out the true estimated cost of the job – no SWAGs or ‘guesstimates’ – and allows you to post costs against the estimate as they are incurred.  Remember that a cost is incurred WHEN THE WORK IS DONE not when the bill is received.


Third, reliable reports are accurate, complete and timely

Prior to calculating these metrics, be sure to review all reports for reliability. 


Now you’re ready to develop these two useful metrics:

slippage1: Slippage/Grippage:  this metric calculates the difference between your estimated gross profit and the produced gross profit.  Slippage is negative, grippage is positive.    This is of critical importance because if you’ve got slippage either your estimating is wrong or your production is not working up to expected efficiency.  And if you’ve got grippage, you might be leaving money on the table from estimating too high.  Control of production allows for profits which can then be managed to ensure good cash flow.
    • The calculation is: Estimated gross profit margin MINUS Produced gross profit margin
    • The goal should be no more than 2 percentage points slippage – or grippage.

slippage vs grippage

AR Turnover2: AR/AP Turnover Net: this metric calculates the difference between the number of days it takes to RECEIVE your cash from customer’s invoices (AR Turnover) and to PAY your customer’s expenses (AP Turnover).  If you receive money from your customers in 10 days and pay your expenses in 15, you’d have 5 days “float” – a good thing!  However, if the reverse is true, you might have to borrow to pay the bills.

The calculation is three part:

 AP/AR Turnover calculation

Once your accounting system is set up correctly, information is entered accurately, timely and consistently, you’ll be able to see where the money comes from, where it goes and how to control the all important cash flow!  This is a set of gears which all work together to produce profits and protects cash!


Topics: Business Financials, Job Costing Considerations, Financial Related Topics, Earning More Money, Cash Flow, Guest Blogs, Estimating Considerations, Business Planning, Definitions

How Remodelers Can Make More Money; If They Have Good Cash Flow

Posted by Shawn McCadden on Wed, Jun 27,2012 @ 05:00 AM

How Remodelers Can Make More Money; If They Have Good Cash Flow

Making more money as a remodeler

Making more money as a remodeler


As a remodeling or Design/Build business grows, managing cash flow becomes extremely important, maybe even critical to continued operations. The business owner or manager soon becomes a money manager by default. As this happens, there may be opportunities for the business to earn more money by using the money it already has in a strategic way.


Good cash flow is an assumption of my suggestions

Many Design/Build and remodeling companies put all the money collected from sales in one checking account. The funds are then used to pay for the expenses of producing projects (direct costs) as well as the operational costs of the business (overhead). Typically businesses leave any excess of money (net profit) in the same account as well.  If this is how your business is operating, meaning you actually have excess funds to contribute to profit, you have what can be referred to as good cash flow.  If this isn’t happening already at your business I suggest you stop reading this blog and read this one first.

Accrual accounting can help you predict excess funds

Cash flow for remodelersIf the business’ financial system includes the ability to predict income and expenses on a monthly basis, the cash flow needs for that month can be easily determined in advance. Any excess of cash that would normally remain in the account could also be anticipated and create an opportunity to earn additional profits. In order to actually qualify what is excess cash over and above monthly expenses, the accounting system should be run on an accrual basis, not a cash basis. By using the accrual method of accounting, expenses are recognized as they occur, even if the expense has not yet been paid for. Income is recognized when the customer is billed, even if payment has not yet been received.  Income and expenses are then tracked by the exact day they are to be collected or are due respectively.  By tracking the income and expenses in this way, one can easily predict the money that will be owed at a certain given time as well as how much money will be available to pay for those expenses at the time the expenses become due.

You will need a second account for your money

If your accounting system predicts you will have excess funds, consider opening a second interest-bearing account where any excess monthly funds could be deposited.  The amount of interest this second account could earn depends on how long the money will stay there. Typically, the longer the commitment to leaving the money in the account without having to access it, the higher the interest rate a bank would offer. Interest rates on these account types may seem low, especially in the current market, but over the course of a year a significant amount of money you wouldn’t otherwise earn could be added to your bottom line.

I also suggest that this second account and your primary business account are with the same bank. By working with the same bank, transferring of funds between accounts can be instantaneous. There will be no need to wait for checks to clear between banks. Also, most banks now offer electronic banking using the internet. This can eliminate the need to even leave your office or the job site when making transfers between accounts. On-line banking services can be used to be sure the money is actually available in a “just in time” fashion.

A word of caution!

Networking for remodelersBefore you consider using any of my suggestions, be sure they make sense for you and you understand the legal and or tax implications for you and your business.  I suggest that you always be sure to consult with your accountant, tax adviser and or other appropriate counsel before trying any new strategies, including those described in this blog.

If you have been use this or a similar strategy, be sure to share your experiences in the comment section below.  Other remodelers and Design/Builders looking to earn more money could benefit from what you have to offer!



Topics: Business Financials, Success Strategies, Financial Related Topics, Retirement Planning, Earning More Money, Cash Flow

Benefits of Rethinking Your Estimating and Job Costing Approach

Posted by Shawn McCadden on Tue, Jun 19,2012 @ 05:00 AM

Melanie Hodgdon, Business Systems Management



Guest Blogger: Melanie Hodgdon is a Certified QuickBooks ProAdvisor who has been providing financial analysis and QuickBooks training for contractors since 1994. She’s the author of A Simple Guide to Turning a Profit as a Contractor.  Melanie and Shawn often coordinate their efforts when helping remodelers develop financial systems for their businesses so they serve the contractor, not just their accountant.

Benefits of Rethinking Your Estimating and Job Costing Approach 

What functions should an estimate serve on a fixed/contract price job?

Estimating for remodelers


The cost of the job determines the price of the job, so knowing the costs allows you to generate a sale price.

Job Costing
The estimate can function like a budget for both time and costs.

In order to price and job cost accurately, the estimate needs a lot of detail. If you (oops!) forget to include windows or a toilet, your only choices are (a) go back to the customer, admit your mistake, and hope he accepts the revised price or (b) eat the cost.

Also, sharing a highly detailed estimate with the project’s lead carpenter can help limit questions from the field back to the office.

But the same high level of detail that can save you when pricing and producing the job can get in your way if you attempt to job cost at that same level of detail. As a QuickBooks ProAdvisor working with literally hundreds of contractors, I have seen two common categories of errors:


Job costing at too high a level of detail can be a problem

Job costing methodsContractors who try to job cost inside QuickBooks at the level of 2x6’s and specific products (Kohler faucet K-13490-CP) produce three problems:

  1. Your project manager and bookkeeper will waste time coding out every little line item on a vendor’s bill.
  2. The more opportunity for choice, the more likelihood of misclassifying things. Highly detailed job cost reports actually have a greater chance of being inaccurate on a category-by-category basis.
  3. Your job cost reports will be so lengthy and complex that you’ll lose the forest for the trees.


Job costing using apples and oranges?

Accurate job costingContractors who continually add job-specific line items in QuickBooks invoices (ex: “repair Jones front porch step”, “Replace damaged shower tile”, “Add backsplash”) produce these two problems:

  1. They create a disconnect between the categories used for estimating (apples) and those use for job costing (oranges), making it virtually impossible to compare common estimated and actual categories
  2. They create an ever-increasing list of job-specific categories inside QuickBooks with single-use history   


How to do it right

Instead, estimate at a high level of detail but create a way to subtotal these into categories that you use consistently, will be relatively simple to code, and will produce reports that allow you to perform a side-by-side comparison of estimated and actual costs.

For those using a customized spreadsheet for estimating, the process might look like this:

Estimating categories for job costing

The summarized categories with costs can then be entered in your accounting software and job costed using the same categories. Doing this will keep your cost categories consistent and provide apples to apples comparison.


Topics: Business Financials, Job Costing Considerations, Success Strategies, Financial Related Topics, Production Considerations, Guest Blogs, Estimating Considerations

How to Cover the Cost of Non-Productive Time in Your Estimates

Posted by Shawn McCadden on Fri, Jun 01,2012 @ 05:00 AM

How to Cover the Cost of Non-Productive Time in Your Remodeling Estimates

covering nonproductive time


As a remodeler you need to know what your labor costs are if you want to price your work properly and for profitability.  Inside estimates, your estimated labor costs for any project must include everything required to compensate and support field employees.  This labor rate is called the burdened cost of labor or your burdened labor rate.   Of course, the total estimated cost is then marked up by a predetermined factor so the selling price also covers your overhead and planned profit.

If you have been guessing at the markup you use, you might want to read this article.


Non-Productive time

Check out the Labor Worksheet below.  An important consideration when determining the burdened cost of labor is the difference between the hourly pay you give an employee and the hours that they actually work producing income. When you add up all of the hours for paid vacations (one week, 40 hours), holidays (five days, 40 hours), paid time while attending training programs or trade events (10 hours total), as well as attending company meetings (2 hours, every other week, or 50 hours annually), where will that money come from if you’re not charging for it in your estimated labor costs? 


Burdened Labor Cost Worksheet

Request a FREE copy of Shawn McCadden’s Burdened Cost of Labor Worksheet


How much is non-productive time costing your business?

Many remodelers I’ve worked with never even realize that they’re making this mistake. With the standard fifty-two weeks in a year and a 40-hour work week, your company pays each full time employee for 2080 hours. The time paid for non-productive hours, as listed above, totals 140 hours, or 3 ½ weeks.   Look at row 54 of the worksheet.  The wages alone to be paid to the employee total $2800.00.   That doesn't even include other related costs paid by the business like payroll taxes,  liability insurance and and workers compensation insurance!


No more guessing!

Deturmining labor rateSo, when you determine the burdened hourly rate to use in your estimates and for job costing you can't be guessing. To get the accurate rate you must divide the total annual cost to compensate and support each employee by the number of hours he or she will be working producing income. For the example above, you must collect enough money in 1940 hours of productive time so you will have enough money to pay the employee for 2080 hours.  Non-productive time and other labor related expenses are easily calculated into a burdened labor rate using a spreadsheet like the one shown above.


Request a FREE copy of Shawn McCadden’s Burdened Cost of Labor Worksheet


Topics: Business Financials, Labor Costs, Financial Related Topics, Production Considerations, Estimating Considerations