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Getting Your Remodeling Business Ready to Produce More Work

Posted by Shawn McCadden on Sun, Apr 01,2018 @ 05:15 AM

Getting Your Remodeling Business Ready to Produce More Work

Remodeler estimating systemGrowth in consumer spending on remodeling during 2018, and beyond, is expected to skyrocket.  This means that remodelers will have the opportunity to grow their businesses, and if done well; will make a lot of money.   But is your business ready for the work?  If you are already working too hard for too many hours will increasing volume just end up with you in divorce court and or on blood pressure medicine?   Below I offer a vision, and some suggestions, for what you can do to be ready.  If you already allowed yourself to get in too deep, then perhaps my suggestions can help you create a plan to get things running better than you had ever imagined.

It all starts with estimating.

Estimating might as well be the center of the universe for remodeling contractors.  Using a defined process and key information, your production team can conquer that universe.  If you grow your business without an advanced estimating system you risk dropping into a financial black hole. Your estimating should not only help provide a profitable selling price, it should also create, document, and organize the information your production team needs to build independently, without constantly bothering you or your salespeople.  Done well, it should also help you predict your cash flow needs, and therefore your payment schedules. This way every job finances itself using your clients' money to pay bills on time, not yours.  Successful estimating will also help your production team identify and schedule all the resources needed to complete the project weeks, or even months, before they are actually needed at the job site.

A real estimating system includes job costing.

First, an estimate is not Remodler job costingwhat you give to a prospective client. That is called a price.  The estimate is really the contractor's best guess on what the project will cost their business to complete before overhead and profit are added.   That's right, it’s just a guess.  To continuously improve the accuracy of that guess, particularly as your business is exposed to new products and construction methods, or brings on new untested employees, job costing will be the only way to reduce the risks of estimating.  Imagine going six months or a whole year before realizing you were using inaccurate information.  Imagine the benefits of offering profit sharing if your team brings jobs in on budget.  But, what if your budgets are never adequate and there are no profits to share, and when your employees ask why you can't tell them?

This all requires a well set up financial system.

Remodeler financial systemEven if you are a good estimator and you never miss any of the sticks and bricks, if you do not know which labor rate and markup to use you may be buying jobs instead of selling them. Without a well thought out list of estimating and matching time card work categories (sometimes referred to as phases), you will never know how well your team did compared to your estimated labor assumptions in specific areas.  Also, without the right time card categories, how will you know and or confirm how many non-billable hours of pay you will need to add to, and cover, inside the burden labor rate you assume and charge for their billable hours?  

There are plenty of things to work on as you grow a remodeling business.  However, if you don't get the estimating of your jobs right growing your business will just help you lose money faster.

 

Don't Underestimate Your Estimating System Workshop LEARN MORE

If you would like to learn more about improving estimating at your remodeling business consider attending one of our estimating workshops typically offered in Massachusetts.   You can even get MA CSL Credits by attending.  Shawn McCadden can also come to your group, company, remodeler education conference, or remodeler trade association to conduct the workshop.  For more information contact Shawn today.   

 

 

 

Topics: Business Financials, Job Costing Considerations, Profit Sharing, Estimating, Business Growth, Financial Related Topics, Estimating Considerations, Breaking $1Million

How to Raise Your Markup: The Short 7 Step No BS Answer

Posted by Shawn McCadden on Wed, Feb 17,2016 @ 11:21 AM

How to Raise Your Markup: The Short 7 Step No BS Answer

How to raise your contractor markupOK, I’m sick and tired of the foo-foo fluffy BS answers some magazines and bloggers put out there to answer how contractors can raise their markup.  All the BS answers I see offered by others never call these contractors out on their ignorance. Without knowing what markup they actually need to use how would a contractor who is “slowly raising” his markup know when he has finally hit the right markup? It drives me crazy!   If you are ready for the no BS answers read on…

I have observed that the most common reason contractors can’t or won’t raise their markups is because they have no idea what markup they actually need to use. Yes, the hard truth is they are ignorant to how profits are built into their pricing and how to determine what markup they actually need to use. Due to their ignorance they have to guess and therefore completely lack any confidence in the prices they quote to consumers.

 

OK, no more BS.

If you want to make a predictable profit as a contractor here is the short and sweet no-BS plan.  

  1. Recognize you have no clue what to charge to be profitable and make a commitment to stop using the WAG Method (Wild Ass Guess)
  2. Learn how the financial game works so you will know what needs to be considered and how to figure out what to charge. If you have never been able to do this on your own, consider the definition of insanity and take a different route.
  3. Do the work and due diligence required to calculate the markup you need to use to be profitable, to live the life style you deserve, and to be able to retire some day (before your body gives out or you die). Knowing this number will be business and life changing.
  4. Accurately estimate your direct costs to build projects and then use the markup you calculated to establish the profitable price you need to sell at.
  5. Tell prospects your price and stick to it with confidence.
  6. If you don’t know how to sell, other than by dropping your price, get real sales training. Remember, profits are earned during the sales process and protected during production. If you are trying to make money in production it’s probably because you’re not a business manager, you’re a carpenter.
  7. If the people in your current market won’t pay what it takes for you to run a real business find a new market to work in.

Done! No more BS.

how contractors can raise their markup

She took control of the bull.  But, will you do it?

 

Need help? Here are a few options:

Option #3, Take a class: Attend this full day class in Auburn MA on April 14th, 2016 (Note: sign up for just day 1 unless you also need your MA CSL Credits)
Option #4, Ignore and or deny your ignorance....

 

 

Topics: Business Financials, Margin and Markup, Financial Related Topics, Earning More Money, Keeping More Money

Comparing Contractor Markups Can Be Pointless and Very Risky

Posted by Shawn McCadden on Sun, Jun 21,2015 @ 07:00 AM

Comparing Contractor Markups Can Be Pointless and Very Risky

What contractor markup to useMany remodelers determine their pricing structure by copying what other businesses do rather than figure out what markup their business actually needs to use. Comparing or copying markups or margins is pointless and very risky without knowing how they were determined.   The decision about what costs or expenses go above or below the gross profit line can be different at different remodeling companies.   Therefore the markup each company will need to use to cover overhead costs and planned net profit will be different. Let me explain and clarify.

 

Sample Contractor Profit and LossFirst, here are the terms you need to know

Above the line = direct project costs (materials, labor -including burdens, subs and equipment costs)

Below the line = overhead related expenses

Indirect costs = overhead expenses plus net profit added together

 

Here is the simple mathematical formula for determining your markup

The businesses’ total indirect costs divided by the expected direct costs for an anticipated volume of work equals the required markup % to add to estimated direct costs.

This assumes profit is a required expense of doing business!

 

Let’s do an example:

The setup:
Assuming a remodeler is running a $900,000.00 a year business with the following above and below the line expenses:
$300,000.00 (Of indirect cost: overhead + net profit) ÷ $600,000.00 (Of direct cost: materials, labor and subs) = 50% markup

Proving the math works:
So, $600,000.00 of estimate direct job costs marked up by 50% = $900,000.00 (Provides a sell price that includes $300,000.00 of gross profit to cover the indirect costs of overhead and net profit)

Therefore:
One contractor can put something like vehicle expenses or worker’s compensation insurance related to field staff above the line.   Another might put the same items below the line. These two contractors may get to the same exact selling price but will be using different markups to get there.

 

Other important considerations to be aware of

How contractors decide what markup to useIt also important to know that fewer than 20% of remodelers actually know the true costs of being in business.  That means that 80% or more are using what has been referred to as the WAG or “Wild Ass Guess” method when it comes to deciding what markup they use to price the projects they sell. I call that “Contractor Roulette”

If that isn’t shocking enough for you keep in mind that about 9 out of 10 remodelers go out of business within ten years. Your chances of copying a successful remodeler’s markup are therefore about one out of ten. And the odds of copying the wrong markup get even greater if you don't know how, or even if, that remodeler actually calculated his required markup or did the WAG.

 

So here’s the bottom line regarding markup

You need to do the math or you won't know whether you are buying or selling jobs! Your ultimate success hinges on knowing the true costs of being in business and how to profitably price the work you sell.

 

Contractor markupsSo, what about you and your business?

The choice is yours. You can get the help you need to figure out what you need to charge for your work so you can be successful. Or, you can continue using the Wild Ass Guess Method and go to bed every night wondering if and when you will join the 90% who go out of business.

 

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 one on one 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. I’d be happy to chat with you to see if I can help.

If you would prefer working as part of a peer group to learn about this and other business management topics check out our upcoming Construction Business Owner Education and Peer Group Program beginning this September.

 

 

Other related articles:

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

10 Causes of Construction Business Owner Financial Anxiety

Don't Put Your Business at Risk by Guessing At What Markup to Use

Don’t Confuse Bad Cash Flow with Under-Pricing

The Five Biggest Financial Mistakes Contractors Make

 

Topics: Business Financials, Margin and Markup, Financial Related Topics

Great Way Contractors Can Make Sure Payroll Taxes Get Paid On Time

Posted by Shawn McCadden on Mon, May 18,2015 @ 06:00 AM

Great Way Contractors Can Make Sure Payroll Taxes Get Paid On Time

Payroll tax payment reminderPayroll is complicated enough without having to worry about when to make payments and when to file which form to which government entity. I have many clients who are comfortable creating paychecks, but are nervous about missing payroll tax payments or filing forms late. A client recently asked if I couldn’t find a simple way to have reminders that would prompt him to do whatever had to be done. To help I created a simple “in your face” payroll reminder.

Since he uses QuickBooks, my first thought was to use the Reminders or To Do functions. However, he leaves his computer running and QuickBooks open, and these only pop up when you open the company file. Then I considered putting an Excel spreadsheet or Word document on his laptop desktop so he could just open it up. But that required him to make a habit of opening it up to see if anything was due. As we stared at his laptop desktop, he said, “What I really want is something right here” (gesturing to the screen). And that provided the solution!

 

Here's what I did, you can easily do it yourself

I created a calendar in Excel, including all the various due dates for payments and forms, being careful to make the proportions similar to the laptop display proportions. I also included dates for making federal and state estimated income tax payments. The next step was to convert to a graphic file format. This can be done easily by simply printing and then scanning the calendar.

 

Simple Payroll Tax payment reminder 

How contracors can make payroll tax payments on timeHow to get it on your desktop

The final step is to save the scanned image to a convenient location, and then right-click the file and choose Set as Desktop background.

Now, whenever you turn on your computer, or minimize your work, the list of due dates will be in your face!

 


 

Melanie_Portrait-wr
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 co-author of A Simple Guide to Turning a Profit as a Contractor.    For payroll and other QuickBooks related questions and challenges including how to capture burden in labor reports you can email Melanie to discuss what you need and schedule time to get the solutions you need.


Topics: Business Financials, Financial Related Topics, Government Regulations, QuickBooks Related, Taxes

How Long Does It Take Before A New Construction Business Sees A Profit?

Posted by Shawn McCadden on Thu, Jan 29,2015 @ 06:00 AM

How Long Does It Take Before A New Construction Business Sees A Profit?

Creating a profitable construction companyI came across a great question asked by a group member while participating on LinkedIn. I replied to the question on LinkedIn, but also thought it would make for great info to share with other contractors who might be asking the same question.

 

Here is the question:

I'm sure we all have heard, "It takes a business 3 to 5 years before it profits." Does this apply for our industry? How long should it take when you start your own business before you start to see a profit?

 

Here is my expanded answer

Great question. Thanks for asking it. The answer depends on how you define profit.   Many factors can be considered.   Let me offer a few here.

 

What you charge will be a significant factor

Being profitable does have a lot to do with knowing what you need to charge so you can and will earn a profit. If a business is guessing at their rates earning a profit is a guess as well. Probably more like a HUGE RISK!

Also, consider that investments you make in your business for the tools, equipment and other larger and long term use stuff are just that; investments.   The cost of those items, at least for tax purposes, is not typically assumed to be cost covered in one year of doing business, but rather the cost is typically spread out over several years. The idea is that these items are "invested in" using profits so they will eventually help provide more income and profits than they originally cost.

To summarize, the more you charge the more profits you can earn and therefore the faster you can pay off your investments and show a profit.

 

Profit is not measured only by how much you have left in the bank at the end of the year

How can I have earned a profit if I have no moneyAlso consider, as a business owner you may personally be measuring your profitability including the costs of any investments for a one year period. As a result may not see a profit in the bank at the end of the year.  However the money spent on those investments is still considered profit for business and tax purposes. This is the case because when filing your taxes the government sees these investment type purchases as assets paid for with profits.  To get tax deductions for these assets you are allowed to depreciate the assets over time to reduce their value and take tax deductions for them over several years or more. Essentially, for tax purposes, the government measures your profit by combining the money you earned and still have; along with the assets you bought using any profits, as your total taxable net profit. Also, any money your business paid out to you the owner as profit distributions over the year will be considered part of your business’ total taxable net income.

These are a few reasons why a lot of business owners have to report profits earned but may not have any money left in the bank to cover the taxes on those profits. When this happens a lot of contractors view their businesses as not having earned any profit. I suggest as the business owner you can view it any way you want, but the government will still be taxing you and or your business.

 

Make sure you give enough attention to these important tax considerations

tax_pie_chart-wrAgain, great question to ask. I hope this article helps.   Being a business owner means you have to understand how to manage and protect the profits you earn, but at the same time manage how you will be taxed on that same money.   By not knowing or ignoring these considerations you can be working hard to make money while profits that could have stayed with you are going out the door to the government as taxes. That said there are a lot of great reasons to have a proactive accountant helping you and your business instead of a historian type accountant who only files your taxes for you when everything is already said and done for the year.

Now, go on out there and generate some profits so you have to pay even more taxes next year!

But, don’t pay any more than you have to!

 

Contracor tax savings considerationsNeed more help with understanding business financial considerations?

If you are in the Massachusetts or Southern New Hampshire areas consider joining our Peer Group Program scheduled to begin in March 2015.

Otherwise contact Shawn to discuss how his one-on-one coaching and mentoring can help you make and keep more money.

Topics: Business Financials, Starting a Business, Business Growth, Financial Related Topics, Keeping More Money

Financial System Considerations for Remodelers Looking To Break $1Million

Posted by Shawn McCadden on Mon, Jan 19,2015 @ 06:00 AM

Financial System Considerations for Remodelers Looking To Break $1Million

Financial reports for contractorsGrowing a remodeling business past $1Million a year of installed sales comes with new costs and expenses as the number of employees and overhead related activities naturally increase.   Just like estimating the cost of a remodeling project, the business owner will need a practical plan for growing the business and an accurate estimate of the costs related to growing it.   Then just like a remodeling project the business needs a way to measure how well things are actually going against the plan and budget.  

Without the ability to measure as the business grows the owner will experience a lot of financial anxiety.

Here is a list of several important financial system related items the business should put in place before growing past that $1million threshold.  Remember, this is supposed to be what I refer to in the second article in this series of articles as the Take-Off Stage.  Either the business properly prepares to take off and grow profitably or it risks disorganized chaos and lots of frustration attending the Lumberyard School of Hard Knocks.

 

Create a Financial System Strategy:

Identify what the business needs to measure and how it will be measured.  This is important because the business must have apples to apples ability for comparing estimated job costs and overhead expenses to actual cost and expenses.   Without a well thought out and accurate chart of accounts in place job cost reports will be misleading and estimated gross profit margins for sold jobs will not be comparable to the profit and loss reports the system creates.  I bet most of you don't job cost your actual labor costs for each employee using the same burdened labor cost strategy employed when estimating those labor costs.

Find or create a fast and accurate Estimating System:  

Yellow pad estimatingAs the business grows and more employees are added to share the workload the owner must be able to delegate tasks he or she probably did them self as they grew the business.  These delegated activities might include things like product selection, product procurement, production management, and even the responsibility for doing the estimating.   The yellow pad estimating method will not be adequate anymore.  A more advanced estimating system using spreadsheets and or industry specific estimating software will be needed and employees will need to be properly trained to use it.  The right system will speed up the estimating process and provide the information the entire team needs to build projects on their own without the need for constant micromanagement by the estimator, salesperson production manager and or the business owner.    

Create and document an Accounting and Bookkeeping System:

To support the financial system that was designed to best serve the business as it grows, a software system to support it must be setup and put in place.  Keep in mind that financial software like QuickBooks is not a financial system, but rather the tool that will be used to support that system.  Software like QuickBooks can be setup in many different ways.   Setting it up correctly is probably a task far more involved and time consuming than most business owners, bookkeepers and even most accountants are skilled to tackle.  Make sure you use a qualified expert to help you in this area.  Also, the business will need to create and document an administrative system for how financial information will be collected, coded, entered into the system, filed and verified.  This is needed so trained employees can follow the system and the business owner can be confident about the accuracy and timeliness of information when reviewing financial reports.

Growing your business should be profitable and should not be left to luck or chance.  

Financial system for remodelersWithout an accurate financial system in place your business will, unfortunately, be like the majority of other remodeling businesses in our industry.  Over 80% of remodelers have no idea of the true cost of being in business.  These businesses use what is referred to as the WAG method, or "Wild Ass Guess Method” for estimating direct cost and even the markup percentage to use on estimated costs when pricing the jobs they sell.  If that describes you and your business put the things I describe here in this article in place at your business before you seek to take-off past $1Million in remodeling.  Growing your business should be rewarding and profitable.  Entering the unknown without being properly prepared can be costly and may even lead to the demise of your remodeling business.

 

(Note: This is the sixth article in a series of articles written specifically for remodelers who want to successfully break past doing $1M/year in installed sales. Click here to see a list of all the articles in the series that have been published.)

 

 

 

Topics: Business Financials, Estimating, Business Growth, Financial Related Topics, Estimating Considerations, Business Planning, Software Related, Breaking $1Million

7 Reasons Most Contractors Will Never Retire On Their Own Earnings

Posted by Shawn McCadden on Tue, Aug 05,2014 @ 06:00 AM

Seven Reasons Why Most Contractors Will Never Be Able To Retire On Their Own Earnings

Why most contractors can never retire

 

Here is a wakeup call prediction for contractors and for tax payers as well;

Most residential construction business owners will never be able to retire.  They will have to work until they die or are too old to work anymore.  If they don’t or can’t work until they die, then they will have to get on the government dole so they can get housing and food to keep them alive. 

Retirement advice for contractorsThe same is actually true for most Americans.  According to an article on the Money Morning web sitecurrently retired Americans have less than $25,000 or less in savings and investments, and 31% have less than $1,000.  It’s sad to me to think though that construction business owners, after years of owning and running a business, won’t have enough money or investments accumulated so they can support themselves and their significant other during retirement.

Here is another scary fact found in that same Money Morning article.  47%, of current retirees were forced to retire early, mainly because of disabilities, poor health, or the loss of a job and the inability to get a new one.

 

Let me offer just a few reasons why I am so sure most contractors may never be able to retire:

  1. In many of my seminars I ask contractors to raise their hands if they are on the path they need to be, financially, so they can retire.   It’s rare that 10% of attendees raise their hands.  I also think many assume they will be OK and raise their hands.
  2. Most contractors don’t charge enough to properly run their businesses and pay themselves for their efforts.   They seem satisfied with earning just enough to stay afloat in business and in their personal lives.  In fact, when they take into account the number of hours they work each year, most admit they earn less per hour than most of their employees.  Some even admit they make less per year than their carpenters.  I know a good number of them, probably out of embarrassment; don’t admit their financial short comings.
  3. A good number of construction business owners don’t make enough money to support their families.   In fact for a good number of them, because their wives have jobs and therefore provide the family’s health insurance, they are able to keep their business doors open and pretend everything is just fine. 
  4. Only about 20% of construction business owners know the true cost of being in business.   Of the other 80% a majority may be able to estimate project costs accurately, counting very stick and brick, but then they are guessing on the real break even burdened cost of estimated labor hours and also use the wild ass guess method (WAG) when it comes to the markup they use to cover overhead and profit to price their jobs.
  5. In addition to using the WAG to price jobs, most contractors have no idea how overhead and profit works.   As Melanie Hodgdon points out in her Remodeling magazine article titled “Four Ways Hopeful Thinking Can Ruin You”, many contractors say “Yeah, that job was a mess, but at least I didn’t lose money on it."   The sad reality in this assumption is that the job didn’t cost more than they sold it for, but they didn’t earn any money to cover their overhead and or any profit.  So in reality they did lose money and there will be no profit on that job to save for retirement.
  6. retirement options for contractorsMost construction business owners I speak with haven’t done any retirement planning.  In fact 56% of American workers haven’t bothered to figure how much they’ll need to retire comfortably either. (Source: Employee Benefit Research Institute) How then could these contractors even know how much money they will need to retire and when they can actually retire?   For these contractors I am pretty confident they won’t have what they need.
  7. The last and my final reason (although there are plenty more) most contractors will never be able to retire is because they see themselves as contractors instead of business owners.   It’s a simple fact to recognize that when a business sells at the right price it earns a profit.  But when the business owner straps on his tool belt he is only earning a wage. 

 

So, what should contractors in this position do?

Here is a short list:

  • Retirement planning for contractorsIf earning a wage isn’t earning you enough to retire on, you might want to learn how to become a real business owner.
  • If you are using the WAG method to price jobs you might want to advance your math skills and or find someone who will do the math for you.
  • If you have been selling on price to get work you might want to invest in some professional marketing and sales skills.
  • If you won’t do anything about these challenges you might want to look into how to apply for government assistance now so you’re ready to do so when your body eventually gives out.

 

 

Topics: Financial Related Topics, Earning More Money, Business Planning, Sage Advice, Shawn's Predictions

3 Reasons Contractors Don't Share Financial Info With Employees

Posted by Shawn McCadden on Tue, Jul 15,2014 @ 07:51 AM

3 Reasons Contractors Don't Share Financial Info With Employees

Sharing financial info with employees

 

I recently read an interesting article about how much a business owner should tell their spouse about their company finances.  Two different opinions were shared and explored.   I’m on the side of sharing the info myself, but certainly not everything in detail.

That article got me to thinking about why so few construction and remodeling business owners share financial information with their employees.   First, I’ll offer a few great reasons to do it.  I hope the benefits will motivate more business owners to do so.   Then, I’ll offer my thoughts on why business owners avoid doing so. 

 

3 reasons to share your business financial information with employees:

Construction business owners who keep all the financial information about their businesses to themselves are definitively missing out on several potential benefits.   Simply put, by sharing financial information you can accomplish at least three things that will help lower your financial anxiety and help you make and or keep more money:

    1. Discussing financials with employeesYou can get the opinions and advice of others so you can be more confident in your numbers and using them to make sound business decisions.  Getting insight from others can also help you avoid costly mistakes.
    2. By involving the right employees with the creation and interpretation of business financials you can share the workload required to create them.  This can make getting your financial reports much more timely and therefore improve their accuracy.
    3. By mentoring employees on how to use financial reports you can help them learn to think like a business owner so they too can make sound business decisions.   This is an important and required step if you ever want to remove yourself from the day to day management of your business and or offer a profit sharing plan to employees.

 

So then why do so few owners share their financial information?

Let me also offer three common reasons why many construction business owners can’t or won’t share business related financial information with their employees:

    1. The most common reason is because the business doesn’t have a real financial system that properly separates and tracks costs and expenses.  For these business owners their financial system is really no more than a checkbook showing money coming in and going out.  Without the ability to identify and separate your actual job costs from overhead expenses there is no way your business can get a meaningful profit and loss report.   These business owners don’t share the information because there really is nothing of value worth sharing.   Eventually, once a year for most of these business owners, their accountant gives them the good or bad news when their tax returns are ready to be filed.
    2. Contractor financial helpOften financial information is held back because the business owner is embarrassed that he or she doesn't understand the business finances well enough to explain them or answer questions about them.  This is not good.   Imagine what a great employee will think about his boss and or the business if he discovers the owner is guessing at the financial health and well being of the company.  Think about it.  If you were an inspired and career motivated employee would you want to invest in your career at a business that is in the dark about predicting and measuring profits?
    3. During my years of experience providing financial consulting for construction business owners I have had many owners share with me their concern that if they educate employees about and share company financial information with them it will only serve to help them get ready to leave and start their own businesses.  This could be true.  On the other hand I found by educating my employees most of them figured out they didn’t want all the stress and financial responsibilities that came with being a business owner.   However, those who did leave and started their own businesses where in a much better position to be financially successful.   As a business owner I found personal satisfaction in helping make that possible.

 

Some words of advice

If this articles speaks to what is happening at your business it’s up to you to do something about it.   I definitely recommend you do not consider growing your business in any way, or sharing the information with employees, until you and your business can produce and interpret accurate business financial reports.   To help you see if doing so might be worth it try this self quiz to see if a properly setup financial system can help you and your employees improve business profits and reduce financial anxiety.

Let me know if you want my help.

 

Topics: Business Financials, Employee Advancement, Financial Related Topics, Earning More Money

10 Causes of Construction Business Owner Financial Anxiety

Posted by Shawn McCadden on Mon, Jul 07,2014 @ 06:00 AM

10 Causes of Construction Business Owner Financial Anxiety and What to Do About Them

Causes of Financial Anxiety for contractors

 

Anxiety affects our whole being.  It affects how we feel, how we behave and has very real physical symptoms.   It can be exhausting and debilitating.  Mild anxiety is vague and unsettling.   Contractors with lower total sales volumes might be suffering already from what I call mild financial anxiety.   Then, as the number of dollars going through the business increases, say above $4-500K, a contractor can suffer from severe financial anxiety, which for some business owners can be extremely debilitating.  Not only can it be personally debilitating, it can also have devastating effects on the health of the business.

 

Below is a partial list of causes of financial anxiety for construction business owners.   I see these causes all the time when I work with contractors to eliminate them.  If you already have financial anxiety consider how many of these describe you and your business.   If you plan to grow your business make note of these causes.   You might want to address them before you grow.

 

Causes of financial anxiety

  1. Contractor anxietyNot knowing the true costs of being in business as your business grows and being surprised about the costs when the bills come in.
  2. Not knowing in advance if you will have enough money to pay your bills and or meet payroll when they become due.
  3. Not knowing how much of the money in your checking account is profit and how much is unearned income for work not yet completed.
  4. Not knowing which project types are making money and which are not.
  5. Not knowing how much workers compensation insurance will actually cost you until you get audited.
  6. Not knowing if you made or lost money all year until your accountant does your taxes.
  7. Guessing at what to charge for labor rates.
  8. Guessing at what markup you should use.
  9. Wondering whether you will be selling or buying a job when negotiating price with a prospect.
  10. Fill in your own anxiety trigger(s) here: _______________________________________

 

What contractors can do to eliminate the anxiety

Contractor Financial System

 

 

All of the causes listed above can be solved by creating a true financial system for your business.   With a properly designed construction business financial system, and an accounting software program like QuickBooks to support it, your business can have the ability to:

 

  1. Predict overhead and direct costs
  2. Predetermine your mark-up and labor rates
  3. Track actual expenses against budgeted using the same format as when they were determined
  4. Make apples to apples estimated to actual job cost comparisons
  5. Track revenue and gross profit margins by cost categories (IE: materials, labor, subs, equipment...)
  6. Predict and track actual Workers Compensation exposure
  7. Potentially reduce workers comp costs if your state and or insurance provider allows you to use multiple classifications for the same employee
  8. Track accounts receivable and accounts payable to know in advance if receivables will cover payables
  9. Tell you if you are ahead or behind your customer(s) regarding money collected versus work performed
  10. Track revenue and earned gross profits by profit centers (IE: residential vs. commercial, remodeling vs. new construction...)
  11. Compare produced margins for project types your company performs (IE: kitchens, baths, roofs, decks, handyman...)
  12. Fill in your desired function here: _____________________________________________

 

Get the help you need to do it right!

Financial System for contractors

Just as most home owners shouldn’t design and construct their own home, most contractors shouldn’t attempt to design and construct their own financial system.   Without the proper knowledge and experience to do so you could be putting your business and your own personal health through unneeded anxiety.

If you see yourself in what I have described here, get the help you need to improve your business financial system and your health.   Find an expert to help you.  The cost to do so may be far less expensive than the health care bills if you don’t.

Let me know if you want my help.

 

 

 

Topics: Margin and Markup, Success Strategies, Business Growth, Financial Related Topics, Sage Advice

Seven Ways Contractors Can Get Paid Faster

Posted by Shawn McCadden on Sun, Mar 16,2014 @ 06:00 AM

Seven Ways Contractors Can Get Paid Faster 

How Contractors Can Get Paid Faster

 

Wouldn’t it be great if you always had the ability to pay your bills on time? 

Even better if you could pay them early when a discount is offered for doing so?  

To improve cash flow at your construction business consider these seven strategies to help you collect project related payments from your customers much faster.


  1. First, during the sales process, discuss upfront in a businesslike manner your desire to finance the project with their money.   Let them know your cost of doing business, and therefore the cost of their project, will be much higher if you have to finance the job using your business’ line of credit rather than their money to pay for their project as it progresses.  

  2. Collecting construction project payments on timeWhen creating a project’s payment schedule use project milestones to determine when payments will become due.  If when doing your estimate you list your tasks and related costs for each task in critical path order, you can then add up the marked up cost of each milestone’s tasks to make sure the amount collected for each payment will adequately finance each phase of the project.   Then, add a little extra money to create a cushion of safety (front loading).

  3. When writing up those payment schedules make payments due for example “When ready to start drywall” rather than “At start of drywall”.   This way you will have the money you need before you start a phase to pay for that phase.   By using this wording, if you are having problems, you can delay returning to the project if your customer doesn’t give you the money when it’s due.  Be sure to explain how this works to your customers while they are still prospects and before they sign your agreement!

  4. Make it company policy (in your contract) and indicate in your payment schedule that the final payment is due at substantial completion.  This is the point at which the project can be used for its intended purpose.   So even if you are waiting on the customer to provide the kitchen cabinet door pulls as the last item to wrap things up, you can still call the project substantially complete, invoice your customer for the balance due and expect the final payment.

  5. When a construction warranty beginsAlso make it company policy that your contractor’s warranty starts at substantial completion of the project.  Clarify however that no warranty work will be completed until the final project balance has been paid in full.

  6. Make sure you bill your clients as soon as the job is substantially complete.   Experienced contractors have learned that if you take two weeks to bill your customers; they will assume they have at least two more weeks to pay you.

  7. In your contract, and on your invoices, let customers know when interest charges will start on late payments.  If for example they have a 30 day grace period to make payment on a final invoice, and they make their payment late, will the interest due start at the 30 day mark, or start back on the original date of the invoice?   If interest will start at the date of invoicing customers will be more likely to pay within the 30 days grace period.  Again, be sure to explain how this works to your customers while they are still prospects and before they sign your agreement!

 

Being proactive will help contractors collect project payments on time

For some business owners dealing with and or talking about money with clients and prospects is scary.   When I discuss this subject with them many tell me they don’t want to alienate their customers. This certainly can be a valid concern.  However, if you discuss your policies related to making progress and final payments before you let them sign your contract, and you do it in a professional manner and tone, most good customers will toe the line.  There is definitely a difference between being aggressive versus being firm and sincere with purpose.  After all, the best results for the contractor as well as the homeowner come when there is a mutually beneficial relationship.

 

Topics: Contracts, Financial Related Topics, Cash Flow, Customer Relations