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Think Twice Before You Use Subs or 1099’s Who Can’t Speak English

Posted by Shawn McCadden on Wed, Feb 24,2016 @ 01:10 PM

Think Twice Before You Use Subs or 1099’s Who Can’t Speak English; Here’s 2 Simple Reasons Why

Subs who don't speak EnglishThe government has recently been cracking down on improper classification of workers as subcontractors.  Understanding the difference, at least in the eyes of the government, can help a remodeler avoid challenges as well as the fines and penalties that come with misclassification.  I recently became aware of an additional consideration as a result of reading an article in Remodeling magazine titled “Se Habla Ingles + No = No Deal? Get Real!”   After reading the article, but particularly the reader comments, that new consideration jumped out at me.  Using subcontractors and or 1099 workers who do not speak English can put your remodeling business at risk in at least two costly ways.

Two simple ways the language barrier can put your remodeling or construction business at risk

#1: Customer service can be compromised leading to loss of repeat work and referrals.  

Let’s face facts here; if a worker cannot speak English there will definitely be communication challenges.  This is clearly demonstrated by the comment left at the article I mentioned above.  The comment was by Perry, an actual consumer who personally experienced the challenges and disappointments caused both by the workers who could not adequately understand English as well as the business that hired them:

“It's difficult to quantify or fully explain in this comment the magnitude of problems we've had on our current job, but approximately half the problems can be traced directly back to a communication problem with the workers at the site.  I witnessed our job supervisor explaining what was needed (in as good a Spanish as he could muster), the worker acknowledging his understanding, and hours later when the completed work is inspected, it's clear the worker did not understand exactly what was needed.  This has happened repeatedly, with some of the mistakes far more costly than others.”


Stressed remodeling customersWhen a customer experiences what Perry speaks to its not likely the contractor performing the work will ever get future business or referrals from the disappointed customer.  Remember, quality is not just determined by the final outcome.  Quality is also determined by the experience the consumer has as the product is being delivered.


#2: Risk of the government deciding they are employees

Contractors should be using fixed scope contracts with subcontractors.  Subcontractor agreements should detail the work to be completed, the expected outcome, when it has to be completed and include a fixed price for the services performed.  If a subcontractor and or his/her workers cannot read a written work order due to a language barrier someone outside the subcontractor’s business will have to explain what is to be done and how it is to be done to the subcontractor.   And in the absence of the subcontractor at the jobsite someone will need to explain and direct that sub’s employees.    This type of relationship with a sub and or the sub’s employees demonstrates control by the business that hired the subcontractor.

Independent contractor oremployee questions
The IRS will consider a worker to be an employee unless independent contractor status is clearly indicated by the relationship between the worker and a remodeling business.   The way the IRS sees it an employee is a worker who performs services at the direction of an employer.  Subcontractors are considered to be in business for themselves and work under their own direction.  So simply stated anyone who performs services for a remodeler is an employee if the remodeler can and or does control what will be done and how it will be done.  Explaining things to a worker and orally directing how and in what order to perform their work therefore makes the worker an employee.

The fines and penalties for misclassification can ruin your business

As I pointed out in a previous blog post the determination by the government of misclassification of workers can be caused by many reasons.  Plus when it happens the government assumes you to be guilty until you prove your innocence.   If you cannot create a written subcontractor agreement, in the Penalties for construction worker misclassificationlanguage of the subs you work with which details the scope of work they are to perform independently, you and or your business will be forced to orally direct the work of the subs.  Once you do that the government no longer classifies them as subs, but rather as employees.  That is therefore misclassification.   According to an article at workcompcentral, in Tennessee a company by the name of Aguilar Carpentry was caught misclassifying workers and was fined $73,000In another article posted to a CT contractor was fined $20,240 for misclassification. Those fine amounts would put most remodelers out of business.


Still unsure about your relationship with sub? Here are three possible options

For a quick answer perhaps just take the quiz Remodeling Magazine recently offered titled:  "Take the Quiz: Are You Misclassifying Your Subcontractor?"  Answer the questions honestly and then see if the government would call them subs or employees.  

see all ma csl class dtaes and locationsIf you want help from the IRS and you have a lot of time to wait you can use IRS Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding.   The completed form can be filed with the IRS by either the business or the worker. The IRS will review the facts and circumstances and officially determine the worker’s status.  Unfortunately it can take at least six months to get a determination.  Additionally, often times because determining factors used by the government are not always objective, the determination may not binding.



Topics: New Business Realities, Legal Related, Subcontractor Considerations, Government Regulations, Definitions

Five Things I Wish the Remodeling Industry Would Change In 2016

Posted by Shawn McCadden on Tue, Feb 02,2016 @ 09:59 AM

Five Things I Wish the Remodeling Industry Would Change In 2016, But won’t

Remodeling industry changesThe majority of remodeling contractors who participate in the remodeling industry are holding the industry back from becoming much more professional and successful.   Remodelers forever complain about what they perceive the government and even consumers do to them to make running a business and earning a profit difficult. However in many ways remodelers are their own worse enemies, creating problems for themselves and the industry by both their actions as well as their lack of action.   Below are just five things I wish all remodelers and the industry would change, but won’t.  

Before you check out my list keep this in mind.  If you’re a remodeler and you eliminate and or address most of these things in your business you will stand out as different.  You will also be more successful, be at much less risk and can also make much more money.


#1: Stop calling them estimates, they are not estimates

Home owners ask for estimates. In most cases they don’t want a guess, they want a fixed price. Next time a consumer asks for an estimate give them one right away; “That will cost somewhere between an arm and a leg depending on your final product selections”. Then help them discover what it will really take to help them assemble a fixed price for a fixed scope of work that meets their needs. Then let them know how your professional services can help them do so; and what you charge for those services. One way to explain it is your estimates are free, you charge to help develop solutions… (Check out this Design/Build Agreement)


#2: Calling Employees Lead Carpenters when they are not

Waht is a lead carpenter

Although most remodelers really don’t know what a true lead carpenter is many claim they have several on staff.   If you don’t believe me read this job description first, then ask a few to define the difference between a carpenter and a lead carpenter.  Giving the title to an employee who is not a true lead carpenter does a disservice to the employee and misleads consumers. It’s like passing off roof cement as a flashing. It’s just not right to do so if you are really a roofer. Becoming a Lead Carpenter is an accomplishment, let’s reserve the title for those who have earned it.

#3: Claiming to be Design/Builders when they are not

Like Yoda said; “Do or do not, there is no try”. You either are a Design/Builder or you are not. If you allow others to bid on and or build from your plans you are not a Design/Builder; that is something else. Decide what you are or will be. There is a big difference between Design/Build and design-bid. (Design/Build definition) Remember, in a bid situation it’s often the biggest loser who wins! If you hate bidding become a real Design/Builder. That’s what motivated me to become a Design/Builder when I had my business.

#4: Guessing at what markup to use

Surveys of the industry as well as my own experience show that at least 85% of remodeling contractors have no idea how to figure out what markup to use.   Our industry even has a name for this; “The Wild Ass Guess”. Sadly, many remodelers are even under the false impression that markup and margin mean the same thing! What does it say about an industry when so many of its business owners are ignorant about what they need to charge to be successful and profitable? (The Five Biggest Financial Related Mistakes Contractors Make)


#5: Tolerating illegally operating business

Number of illegal contractorsThere are probably more than one million remodeling businesses in the United States if you include those without payroll.   Sadly, I bet fewer than 20% operate completely legal. That’s probably why so many remodelers find some way to rationalize why they tolerate other illegal businesses; “People who live in glass houses shouldn’t throw stones”. Here is just a partial checklist you can use to self-assess: RRP, OSHA, permits, using 1099 workers, taking cash, proper licensing…   Need I go on?  (10 Steps To Building A Successful Construction Company)


What about you?   What would you like to see change in the remodeling industry? Please offer your perspectives by posting a comment, or two.


Topics: New Business Realities, Future of the Remodeling Industry, Differentiating your Business, Definitions

What’s the Difference Between a Production Manager and a Production Supervisor?

Posted by Shawn McCadden on Tue, Jan 12,2016 @ 05:30 AM

What’s the Difference Between a Production Manager and a Production Supervisor?

differences between a production manager and a production supervisorAs a remodeling contractor seeks to grow his or her business past a million dollars it’s important to bring someone on to help with getting the work done. Without doing so the business owner can quickly become overwhelmed wearing too many hats.   At this stage in business it’s important to decide whether you want to hire a Production Supervisor or a Production Manager. Before making the decision be clear on the difference between the two and how you should decide.


What is a Production Supervisor?

A Production Supervisor supervises the work to be completed as well as the employees and other workers doing the work.   The key word here is supervises.  

With a Production Supervisor on-staff employees performing the work typically have little authority to make decisions about how the work will be done, who will do what, and in what sequence the work should be performed.   All of those decisions are typically left up to the Production Supervisor.

what is a production supervisorWhen subcontractors become involved in the work they too will be supervised by the Production Supervisor. They will be required to contact the supervisor for project information, onsite decisions and to discuss solutions when challenges and or discrepancies occur at the jobsite.

If the home owner has questions, wants to make changes, and or is upset about something they too would typically be referred to the Production Supervisor.

This method of production management works well if your business relies heavily on subcontractors and or only hires carpenters with little or no project management experience. You might want to think of the production supervisor as sort of a baby sitter of both the job as well as the workforce used to complete the work. If you decide on using a production supervisor be sure to hire employees who are OK with being supervised all the time and are not interested in career advancement.


What is a Production Manager?

Unlike a Production Supervisor a Production Manager manages the work and the workers involved in completing projects. The key word here is manages.

With a Production Manager on-staff employees working on the job should have the skills and or be trained to independently follow written work orders. They should also have the skills to make on-the-job decisions about how the work will be done, what equipment is needed, when to order materials to maintain efficiency and what to do when common challenges and discrepancies occur. To facilitate this ability many remodeling companies hire or create real lead carpenters.

When subcontractors become involved in the work they are typically managed by the on-site project foreman or the Lead Carpenter. Onsite decisions and discussion about challenges or discrepancies with their contracted work descriptions are commonly solved right at the job site. This can be very cost effective because the Lead Carpenter or foreman is already at the jobsite, saving hours of commuting time and other related costs for the Production Manager.

what is a Production ManagerIf the home owner has questions, wants to make changes, and or is upset about something, again those things are typically handled right at the jobsite. The Lead Carpenter can reach out to the Production Manager for things outside of his expertise or authority.

This method of production management only works well if your business hires and or trains field staff to take on project management responsibilities. You might want to think of the Production Manager as the Production Mentor.  In addition to organizing project schedules and securing the right resources so site employees can be successful, the production manager is also typically responsible to mentor the company’s field staff so he or she isn’t required to supervise at the job site. If you decide on using a Production Manager be sure to hire employees who have the cognitive ability and desire to learn project management skills.


Related articles:

Topics: Team Building, Business Growth, Production Considerations, Leadership, Definitions

What’s a “Triple Trigger” — Can You Answer That Question?

Posted by Shawn McCadden on Sun, Jan 13,2013 @ 06:00 AM

Tom Messier, Mason and Mason Insurance

Guest Blogger: Thomas Messier, CIC.  Tom is Vice President of Construction Industry Services at Mason and Mason Insurance Agency, Inc. in Whitman MA.  He speaks frequently to construction industry groups about insurance related topics. Tom is a Certified Insurance Counselor, and is a graduate of St. Michael’s College.

Note: To help better understand this article you might want to first read Tom’s previous post titled: Does Your Liability Policy Have the Right ‘Coverage Trigger’?


What’s a “Triple Trigger” — Can You Or Your Insurance Agent Answer That Question?

The Set Up

Building Collapse


Let’s say five years ago you completed work on a commercial construction project. Then last month you received notice that part of the structure collapsed and that your client is filing a claim against your firm for the needed repairs, plus loss of use of the structure during the rebuilding. Their complaint is that your original work was done improperly and the stress cracks had been noticed soon after completion. “It was only a matter of time,” alleges the complaint, “before this collapse happened.”

Now What?

Insurance for contractorsIgnoring for the moment the fine points of litigation, which Liability insurance company should you notify? Your current carrier? The one who had your policy at the time of the construction? Or both of those, plus every policy you’ve had during the past five years?

Although the correct answer will depend on the nature of the claim and the exact cause of the collapse, the best response at this point would be “all of the above.”


Policy Details Are Very Important

Contractor Insurance PolicyBecause Liability policies usually state specifically that they cover damage occurring during the policy period only, you’ll need to ask when the damage actually “occurred.” At the time of original construction — during the time the cracks allegedly appeared and continued to worsen — or on the day the actual collapse took place?

Many courts, when faced with similar situations, have ruled that all three apply.  This is what’s called the “Triple Trigger”.  The courts held that because the damage had been occurring continuously since the first day of construction, every policy since then should provide a defense.   And, if you’re found liable, you’ll have to pay a part of the claim as well.

The Good News

If you’ve been dealing with reputable and skilled insurance providers and your policy has been continuous and reviewed regularly in a constantly changing marketplace, the coverage will be there for you regardless of the “trigger” applied by the courts.

Bottom Line

If you have an experienced and recognized construction insurance specialist helping you, you’ll sleep better at night knowing an expert is watching out for you, even if you’re not fully sure of what you have to watch out for!

Topics: Business Planning, Definitions, Insurance Considerations

Does Your Liability Policy Have the Right ‘Coverage Trigger’?

Posted by Shawn McCadden on Tue, Jan 08,2013 @ 06:00 AM

Tom Messier, Mason and Mason Insurance


Guest Blogger: Thomas Messier, CIC.  Tom is Vice President of Construction Industry Services at Mason and Mason Insurance Agency, Inc. in Whitman MA.  He speaks frequently to construction industry groups about insurance related topics. Tom is a Certified Insurance Counselor, and is a graduate of St. Michael’s College.


Does Your Construction Liability Insurance Policy Have the Right ‘Coverage Trigger’?

Roof Collapse


What Is An Insurance "Coverage Trigger"?

A “coverage trigger” is an event that causes your Liability policy to pay a claim. There are two basic types of “triggers”: occurrence and claims made.



What is an Occurrence Trigger?

An “occurrence” trigger means that the policy will cover any injury or damage during the policy period. For example, if a roof that you installed four years ago collapsed last week, injuring five people, the occurrence trigger will apply and the policy will pay. It doesn’t matter when the roof was built or when the claim was filed – only when the actual injury took place.

What is a Claims Made Trigger?

A “claims-made” trigger, as the name suggests, focuses on the date the actual claim is made. Underwriting and rating provisions might limit how far into your past the policy provides coverage. However, the key question is: “did the claim come in during the policy period?” If so, a “claims-made” Liability policy will pay. Using the example of the collapsing roof, it doesn’t matter when the roof was built or when the event took place, the trigger won’t apply until the claim is filed.

Construction Insurance ClaimIf this claim is made during the current policy period, your insurance company will pay it. However, suppose the claim isn’t made for several weeks, and by the time it arrives, your current coverage has expired and you’re into a new policy period? In this case, the “claims-made” policy will pay the claim, since it was made during the new period.

Maintaining Coverage Is Key

One type of trigger isn’t necessarily better than the other. However, it’s almost always wise to keep the current type in order to provide relatively seamless coverage.


Make Sure Your Insurance Agent Is Able To Offer The Right Advice

Questions to ask your insurance provider if your a contractor:

  • What is Claims Made Liability Insurance Coverage?
  • What is Occurrence Liability Insurance Coverage?
  • Which one is right for my business and why?

If you’re offered a Liability policy that offers broader coverage or more attractive pricing – but has a different trigger than your current insurance – consult with a construction insurance specialist before you make a decision. The only way to be sure you get the protection you need at a fair price is to consider all possible underwriting considerations and how the change in coverage trigger might affect your liability needs.

Watch for Tom's next guest blog where he'll discuss what a "Triple Trigger" is and why you should care about what it is.

Topics: Business Planning, Definitions, Insurance Considerations

Employee Bonuses Vs. Profit Sharing; What’s The Difference?

Posted by Shawn McCadden on Sun, Dec 02,2012 @ 06:00 AM

Employee Bonuses Vs. Profit Sharing; What’s The Difference?

Christmas bonus




Every year a good number of businesses give their employees bonuses right around the first of the year, often right at Christmas time.   Other companies offer profit sharing, typically distributed around the beginning of the New Year, but after the business has had time to review their accounting and access true profits for the previous year.  It’s important for both businesses and employees to understand the difference between the two.  


Let’s define and look at some of the differences between a bonus and profit sharing. 

Employee Bonus:

Bonus vs profit sharingBonuses are compensation for employees for work performed; they are paid in addition to salary or wages.   Often business owners give out bonuses without any structured plan or objective method for determining the amount or even how the bonus can actually be earned.  Although typically given out around Christmas time, bonuses can be given out any time of the year.  

Bonuses are typically used and are a good way to recognize special efforts or performance by individual employees.   For example if an employee comes up with a good idea that saves the company a lot of money and or time, that employee might be given a monetary bonus as a reward.   The amount of the bonus is typically left up to the employer, but can also be based on some type of pre-established formula where the employee gets a certain percentage of the actual savings.

Bonuses are considered compensation if (per the IRS) they "arise out of an employment relationship or are associated with the performance of services." Bonuses are considered taxable to the employee and are considered an expense of doing business.  In most cases, bonuses are a tax benefit to the employer.

Profit Sharing

Profit sharing plan for remodelersProfit Sharing is an arrangement between an employer and an employee in which the employer shares part of its profits with the employee. The key difference between a bonus and profit sharing is that there must be profit before any is shared with the employee.  

As payment under a profit sharing plan, employees can be given stocks or bonds, or cash (cash profit sharing plan).  If the profit-sharing dollars are part of an employee's retirement plan (deferred profit sharing plan), they are received at retirement rather than now, and depending on the retirement plan they may be tax-deductible. There can be eligibility requirements for profit-sharing plans.  For example, the employee may be required to work for the company for a certain period of time before he or she can partake in profit-sharing.

Three Good and One Bad Reason to Offer Profit Sharing Rather Than Bonuses



Other Business Considerations:

Taxes on remodelersKeep in mind that depending on how a bonus or profit sharing is distributed the employer may incur additional costs over and above the dollar amount given to the individual employee.   Depending on the employment relationship the company has with the employee, the business may incur the expense of payroll related taxes, liability insurance and/or workers compensation insurance on the dollars paid to employees.   Its best to consult with your accountant regarding the total cost of offering a bonus or profit sharing plan before discussing with or offering either to employees.

Also, it’s a good idea to let employees know they too may have to pay payroll and income taxes on any bonuses or profit sharing they receive.

Need help?

If you’re looking to start a bonus or profit sharing plan at your remodeling business give me a call or shoot me an email.   I can help you develop a plan that works for your business as well as your employees.  Businesses that share profits often earn more profit as a result!



Topics: Profit Sharing, Success Strategies, Financial Related Topics, Retirement Planning, Definitions

Help Your Clients Prepare For and Deal With Remodeling Fatigue

Posted by Shawn McCadden on Wed, Oct 31,2012 @ 11:14 AM

Help Your Clients Prepare For and Deal With Remodeling Fatigue

Living through remodeling


Even if everything has been going well so far on the project, after about 6 weeks your clients are likely to experience what I call remodeling fatigue.   They’re just sick and tired of the disruption to their home, their normal family schedule and their lives. And, if they’re not aware of remodeling fatigue, it could happen to them and affect your team well before the typical six week mark.

Living through the experience of remodeling your home is not easy.  As creatures of habit its only human nature that remodeling customers get worn out and worn down by the normal remodeling process.  If you have ever remodeled your own home you and your family have probably already experienced this condition.  However there are several ways you can help customers get prepared for, delay and deal with the onset of remodeling fatigue.   A page on your website and or a blog about this topic can help you advice prospects and clients about this condition.


Dust doorHelp them get mentally prepared:   Let them know what to expect they will live through while the construction is under way.  Tell them about things that might affect them like the noise, the dust, shutting off their water, change orders and the decisions that come with final selections and unanticipated challenges.  Just as a doctor would do with patients regarding medications, a good remodeler will warn clients that it is likely there might be side effects experienced during the remodeling process.   By doing so clients can recognize the warning signs so they will be able to mentally and physically adjust.  Also, my experience was that by discussing these realities in advance, the fatigue might not set in as early, or at least would not be as significant, as early, as it might be if my team had not warned them.


Remodeling fatigueHelp them get physically prepared: Living through the remodeling process can be much easier with some preparation.  For example, remind customers they will not be able to cook while you remodel their kitchen.   Suggest they consider cooking and freezing easy to microwave meals and or collect take out menus before you start their kitchen renovation.   Some remodelers have told me they actually provide their clients recipe books and or a collection of local restaurant menus to help with this.   If you are renovating their only bathroom as part of a project, ask how they plan to deal without a toilet for a few days or more.  They may not have even thought about such realities.  Maybe you or they can even set up temporary spaces to tide them over until they get their homes and their lives back.


online reviews for remodelers

Earning good online customer reviews and referrals for new projects has more to do with the experience your team provides customers than the work they perform.  If you manage their expectations you’re more likely to exceed them and delay the onset of remodeling fatigue.



Topics: Project Meetings, Success Strategies, Differentiating your Business, Production Considerations, Definitions

How Remodelers and Their Customers Can Both Make Money Being Green

Posted by Shawn McCadden on Fri, Sep 28,2012 @ 06:00 AM

Direct Marketing and Analysis

Guest Blogger: Jason Dickerson is a freelance writer for Direct Marketing and Analysis who focuses on ways people can make their home's more energy efficient and green.  When Jason isn't writing he enjoys mountain biking and spending time with his wife Marissa.

How Remodelers and Their Customers Can Both Make Money Being Green

Green energy remodeling



So you have a client that has decided to remodel their home. Considering that they’ve decided to make a serious investment in their home, it’s easy to suggest that they should also think about investing in something that can pay them dividends.

The value of adding green energy infrastructure to a home is threefold. Not only will residents save money in the long run by decreasing the amount of energy they purchase from their retailer, they’ll be helping reduce America’s dependence on foreign energy, and they might even make money by selling the energy they don’t consume to others.
Here in Texas, there are plenty of energy retailers that offer special plans for homeowners with green energy technologies installed on their property. If your clients need to find out which retailers have the best offers, tell them to visit to explore their options.

What is green energy?

Green energy is a big buzzword in politics these days, but it’s rare that someone actually explains what it is. Green energy generally refers to energy produced through means that are not dependent on fossil fuels. Instead, renewable resources drive the production of energy. Some of the most recognizable forms of green energy are hydroelectric energy, wind energy and solar energy.

Hydroelectric energy

Hydroelectric energyHydroelectric energy is one of the most developed forms of green energy across the country. For generations, American engineers have been developing dams for many of our nation’s rivers. Once a river has been dammed, engineers can control how much water passes through at any given time. As that water flows, it rotates a series of turbines thus creating energy.
Unfortunately, if you don’t live close to a major water source, this form of green energy probably isn’t available to you, and it’s definitely not something a single homeowner can implement on their own property. That said, hydroelectric energy is collectively one of the largest sources of renewable energy in the country.

Wind energy

Wind energy In order to turn wind into electricity, a new type of windmill has been developed. Often these windmills are installed in large groups referred to as wind farms. All throughout West Texas, there are thousands of new windmills that have been built over the past decade, and wind-generated power is becoming an increasingly substantial source of energy for the Texas grid.

Individual homeowners can harness the wind to produce energy on a small scale, or if they’d rather not make that sort of an investment, many energy retailers offer products that are comprised of energy derived solely from wind farms in Texas. Either way, utilizing wind energy is one of the most effective ways for Texans to support green energy.

Solar energy

solar energy remodelingHarnessing the energy of the sun’s rays requires the use of solar panel technology. While solar panels were once extremely pricey, prices have come down as technology has advanced. Now, many people in sunny regions, including many areas of Texas, are installing their own personal solar arrays in order to capitalize on the most abundant energy resource in our solar system.

If one of your clients is interested in pursuing a green energy solution during the remodeling process, be sure to suggest they install their own solar array. Solar energy in particular can really pay off in the long run, especially when homeowners elect to sell the energy they do not use to other consumers on the grid.

If a client is interested in adding a solar array to their home, but isn’t sure if they can afford it, there are still options for them to consider. Some energy providers in Texas subsidize solar arrays, by offering to lease them to homeowners.

Green energy and remodeling go hand in hand

Green remodeling


Considering how volatile the energy market has been in Texas over the past few years, it’s easy to make the case to many clients that green energy infrastructure is a worthwhile investment. Consider adding green energy installation to your skillset in order to capitalize on the current trends in the market!


Topics: Success Strategies, Differentiating your Business, Earning More Money, Guest Blogs, Definitions

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

Designer or Decorator – Know and Manage the Difference

Posted by Shawn McCadden on Tue, Jun 12,2012 @ 05:00 AM

Designer or Decorator – Know and Manage the Difference

Reva Kussmaul, remodel coach

 Guest Blogger: Reva Kussmaul, owner of Remodel411.  Reva began her practice as a remodeling coach in 1998.  Reva believes that remodeling should be a 50/50 relationship and if it wasn’t cultivated as such - nightmares can occur.  According to Reva, those nightmares are typically caused by a gap in communication and it could come from either side.  For Reva it became quite obvious that someone who knew about and cared about both sides was a missing piece to the puzzle of remodeling nightmares.   So, she decided that both homeowners and contractors could use a coach when it came to their relationship - the remodeling relationship that is.  In this guest blog Reva talks about the difference between an designer and a decorator.  Check out her book: Remodel 411: Secrets to a Successful Remodeling Relationship





Designer or decorator, whats the difference


Contractors & Homeowners:  There is a distinct difference between someone who chooses pretty things for the home (see the definition for decorator below) and someone who knows what choosing pretty as well as designing for the building/installation of pretty is (see definition of designer below).

Designer:  A person who plans the form, look, or workings of something before its being made or built; a creator, planner, inventor; maker, architect, builder.

Decorator:  A person who decorates, in particular a person whose job is to decorate the interior of someone's home, by choosing colors, carpets and furnishings.


Many decorators call themselves designers and they are far from it

I’ve worked with them, so I know.  Now, I’m not making them wrong for what they do, I’m saying how they define themselves is incorrect.

Perhaps it’s easier to sell one’s services if called a designer as opposed to a decorator - maybe more money can be charged?!  However, there is a very important difference.  When a decorator, who sometimes has no true knowledge about building, has a plan B with possible change orders for “unforeseens”, etc.; the project suffers UNLESS they have consulted with the contractor and are willing to refer to their expertise.  Then, we have what is called “a team” and an experience is created.

Design/Builders can offer the full service option

This is also part of the remodeling relationship I write about in Remodel 411: Secrets to a Successful Remodeling Relationship. My advice to homeowners - choose a design-build firm that is full-service and if you feel a need to have someone help you decorate with pretty, simply ask if their company is staffed for that service as well.  Save yourself time, money as well as emotional fall-out.  In the long run, this is what will create a great remodeling relationship.

difference between a decorator and a designerMy suggestion to design/build firms is to have a decorator either on staff or one you’ve built a good relationship with available to you, that is willing to work in conjunction with the designer and/or contractor as far as the pretty aspect of such things as tile lay-out, mirror and sconce placement goes.  This is where creating a team comes into play.  When all parties are able to communicate clearly with one another and work together everyone wins.  That’s the whole point - everyone does what they’re good at, has a good time and works together so more business is forth-coming.

It’s about clear communication and teamwork

A great team, which includes quality craftsmanship, is what creates a win/win experience for all involved. It’s not about anyone being right or wrong, it’s about creating an amazing experience.


Topics: Guest Blogs, Plans and Specifications, Opinions from Design/Builders, Definitions, Design Options, Working with Design Professionals