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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

Software Expert's Advice For Owners Seeking Contractor Business Software

Posted by Shawn McCadden on Thu, Dec 18,2014 @ 06:00 AM

Software Expert Offers Advice For Owners Seeking Contractor Business Software


Software for contractors

 

I recently did an interview with Forrest Burnson, the research expert at Software Advice, a company that reviews remodeling software and connect buyers with software vendors.  Here are my questions and Forest’s answers.   I hope you find them helpful.

 

Question #1:

Lots of contractors I work with and others I speak to are looking for an all-in-one solution for their residential remodeling businesses.   So far they and I have not found one that is really “All-in-one”.   Are there any true “All-in-one” systems out there for the $2M and less remodeling contractor?  If not, why not and what can business owners do?
 
Answer:
It's true that traditionally, there haven't been many "all-in-one" systems targeted toward small home building/remodeling firms. However in recent years we have seen a number of offerings pop up for this industry segment, and the older legacy vendors are also starting to target smaller firms. Now, the issue is whether these newer, cheaper offerings will have longevity in the market. There's always the chance of acquisition or the vendor going under, which might be a good argument to stick with systems that offer subscription pricing as opposed to a significant upfront investment.
 

Question #2:

Can you offer some advice and guidance to business owners who want to look into and qualify the appropriateness of software for their business needs?  Maybe offer a best way to get started?
 

Purposes for construction business software


Answer:
Well, I do have to plug our service here at Software Advice—we offer free phone consultations to prospective software buyers to help them find the best system for their needs. Always, always, always demo a system before making the commitment—and get people on your team to demo it too, if they're going to be working with it.


Question #3:

Many old school business owners are hesitant to consider cloud based programs, citing their concerns for access and security.   Can you offer some pro/con advice for business owners trying to decide between using desktop and cloud applications?

 

Contractor preferences for construction software
 
Answer:
While both offer their advantages and disadvantages, the trend is definitely toward the cloud. In the construction industry especially, there are so many benefits to the cloud—mobile access, more streamlined collaborative processes, typically better document control, etc. I do think there is a misconception that the cloud is not as secure—if the proper procedures are being followed, it's no more risky than a traditional on-premise system. That said, it can take more diligence to ensure that a cloud system is as close to 100 percent secure as possible (no system will ever be 100 percent secure). Lastly, in terms of cost, cloud systems will generally be cheaper in the long-run as you will have to invest less in hardware. 

 

Choosing the Right Tools and Technology for Your Construction Company

 

Question #4:

My experience shows that almost every remodeling business owner reinvents the wheel of doing business; therefore every one of them has a different business model to support.  This can make it difficult to find a software to support how they already do business.  Plus, setting up the software to support the business can be challenging because most owners of smaller businesses couldn’t explain in a logical order how they do business, it just happens.  Can you offer your thoughts on this reality as it relates to choosing software and getting help setting it up so it is actually ready to use?
 
Answer:
The way you describe how small businesses operate is pretty spot-on—there's going to be a certain 'method to their madness' as they grow, with ad-hoc solutions becoming their modus operandi. So there is a little give-and-take; no matter what, you will have to conform some of your business processes to jive with the software system you've deployed. That said, some of the more complex systems can be quite flexible, and the vendor will typically work with the client to customize the system to fit their needs. Those systems tend to be costlier, so again, it's a give-and-take situation.

 



Forrest-wrResearcher Bio: Forrest Burnson is a Market Research Associate at Software Advice, where he covers the construction, inventory management and supply chain markets. He graduated in 2011 from the University of the South with a degree in political science and French studies. In 2013, he graduated from the University of Texas with a master’s degree in journalism. During his second year of graduate school, Forrest was a fellow for News21.
Prior to joining Software Advice, he was a writer and researcher for Global Water Intelligence. He has also written for a number of other outlets, including the Texas Tribune, the Austin Business Journal, Market News International and the Austin American-Statesman.



 

Topics: Technology for Remodelers, Software Related

As Construction Recovers, Look at Business Operation Tools

Posted by Shawn McCadden on Tue, Dec 09,2014 @ 06:00 AM

As Construction Recovers, Look at Business Operation Tools

Business tools for contractors

 

 

The construction industry that drives so much of the contracting business is steadily gaining throughout the nation. U.S. News & World Report reports that new home construction grew almost 22 percent in 2014. Moreover, builders themselves are optimistic, according to the National Association of Home Builders, which reports its members have seen an increase in "serious buyers."

 

This is great news for the contracting business. But with the recovery still a bit fragile and lenders reluctant to release loans, smart contractors need to be able to respond to work requests quickly. This means working smarter, including the work that runs the business. Luckily, there are tools that can let them focus on their craft and leave the business end in responsible hands, too.

 

Outsource Complex Financial Tasks

Mountain_of_pitch_book_binders-wrLots of small businesses, including many contractors, outsource accounting services like payroll and tax preparation. This is a smart move; tools like QuickBooks and NetSuite are constantly improving their services and lowering their costs. Even better, they are hosted online—in the cloud—so they can be accessed from any secure Internet site, reports Forbes. Online accounting services are very good choices for new firms and small ones that do not have a large enough accounting infrastructure to handle all functions and future growth. They're also heavily focused on security and maintaining backups of their own clients' data.

What about revenue management? This is not part of standard accounting services like QuickBooks. But managing your revenue is how your company stays afloat and can perform tasks like payroll and paying your own suppliers.

Customer management firms like Chargify have filled this important gap, providing clients from businesses of all sizes with online, cloud-based services that include:

  • Accepting payments from several sources, including ACE, eChecks, PayPal, and credit cards.

  • Issuing refunds.

  • Emails to customers that handle electronic invoices and receipts, payment reminders, and upcoming credit card expiration dates.

  • Coupons and discount redemption.


Best of all, these online services guarantee their accuracy and post solid customer ratings.

 

Go Online for Business and Legal Filings

Online legal services for contractors

Most contractors are small businesses but still have to file the same paperwork as the big guys. Unlike the big guys, they don't have in house attorneys and generally don't have time to run downtown to talk to a lawyer about filing for a business license or how to get a federal EIN.

Online legal services can help with the routine legal issues that don't involve the courts. Services like Legal Zoom and RocketLawyer provide small business owners with information and assistance that can help them understand how to address common legal topics that often arise in the course of business, such as:

  • Whether to file as an LLC, partnership, or S-corporation.

  • Steps to take to ensure corporate compliance.

  • Debt collection advice.

Subscribers also get access to common legal forms like employment contracts, cease-and-desist templates, and nondisclosure agreements. On call lawyers are available to answer general questions around the clock.

 

Go Online for Office Software

Perhaps the biggest online industry is office products like word processing and spreadsheets.

Small businesses used to shell out a lot of money for office software and then spend more on antivirus software, backup systems, and of course upgrades. They don't have to do this anymore with online services from well-known companies like Google and Microsoft.

To get Google's free online office products, just open a free Google account which includes the famous Gmail email service and more free services:

  • Online drive that stores virtually any kind of document uploaded to it.

  • Word processing.

  • Spreadsheet.

  • Presentation slide.

  • Forms.

  • Drawing tool.

If you or your office staff can't live without Microsoft Office, the online Office 365 delivers the full suite of Microsoft products, including online meeting services, upgrades, and security. Prices start at $12.50/month.

 

Ruth_Ann-wr

 

Guest Blogger: Ruth Ann Monti is the founder of TimeStorm Communications, which provides original content, copywriting, social media and marketing services for entrepreneurs and small business. She lives with her son and two dogs in sunny Scottsdale, AZ.

 

Topics: Business Financials, Technology for Remodelers, Legal Related, Free Stuff, Business Management, Guest Blogs, Software Related

All I Want For Christmas Is A Real Business Management System Software

Posted by Shawn McCadden on Sat, Dec 14,2013 @ 06:00 AM

All I Want For Christmas Is A Real Business Management System Software

Christmas present for a contractor

 

Its Christmas time and I like to get presents.  Being surprised is always nice.  But when you get what you asked for it can be even better.   If Santa is listening here’s my request:

“I wish that someday the residential construction industry will have a true single solution business management software system”


I know some companies claim to have a full or complete system, but I have yet to find one that really does.  Most handle the front or back end of the business, but I have yet to find one where the front end supports the back end.

 

Santa, please give these specifications to your elves

  • First, the product would be one system, not a bunch of systems and or disparate apps.
  • I’m looking for a system that actually does include everything a remodeling or construction business needs from cradle to grave for each prospect, customer and project. 
  • It needs to be web based so the entire team can have access to it whenever they need to; office and field staff.
  • It would be designed and built by a company that actually understands how a remodeling business should be run, and includes best practices that will be adopted; not adapted by the users.  
  • Business software for contractorsI want to be able to assign tasks and duties to employees, prospects and customers, and I want to be able to track and verify whether things are getting done and done in a timely manner.
  • I want a system that helps me see and know things are under control so I don’t need to always take over control of things.
  • It would include the ability and the requirement to do things like first creating a financial budget.  Then it would use the budget information to calculate and automatically apply the markup the business needs to use to reach its overhead and profit requirements.
  • It would include the ability to create a strategic and measurable marketing strategy including the ability to schedule and assign fulfillment of marketing tactics included in my plan and budget.
  • The system would tell me if the marketing tactics being used are actuality providing the intended ROI. 
  • The system would include a dash board of the key metrics the business needs to keep and eye on to know if things are on track or not;  against the business’ plan for things like budget, marketing goals and sales goals.
  • A system that would help me implement and manage a profit sharing program that is accurate and fair to both the employees and the business.
  • Estimated costs for labor hours added to an estimate will automatically be based on the true burdened labor costs for the business using it, based on that budget that was entered.
  • When time cards are entered into the financial module the actual burdened labor rate of the employee who did the work will be reflected in the job cost reports.
  • Management syatem for remodelersA system that can provide true apples to apples comparison of estimated to actual job costs and estimated to actual overhead costs.
  • One that includes an estimating system that actually generates an accurate materials list I can order with, as well as detailed work orders for employees and subs.
  • One that warns you how much money you will lose, or alternately, how much more volume you need to sell and produce, when sales staff may be tempted to drop the price below what the system says is the recommended selling price.  
  • One that helps make sure my company, my employees and my subs are complying with the RRP Rule and relevant OSHA requirements.
  • It would come with training that goes beyond just how to use the software.  The training I am imagining would include clarity on the “HOW” and the “WHY” the best practices included within the system work and contribute to a successful business.

Santa, If you like my specs so far let me know, I can keep going…


 

Many may say that I’m dreaming, asking for the impossible...

I disagree. 

I truly believe it can be done if the right company and the right experts work together to make it happen.    

Managment Software for contractors

 

So Santa, if you really want to make me happy this Christmas please make sure I find the system under the tree on Christmas morning.   If your elves don’t have the skills or knowledge to put it all together have them give me a call.   I’ve got the specifications and best practices part under control.  If you have elves who can design the software and write the code together we could get it done in time for Christmas next year and make a lot of construction business owners very happy!

 

Feel free to use the comments area below if you want to add to the list.  Only contractors who have been nice though!

 

This is the first blog article in the "All I want for Christmas" series here at the Design/Builders Blog.

If you would like to contribute a guest blog for the Design/Builders Blog email Shawn with your suggest topic.


Topics: Fun Stuff, Business Management, Success Strategies, Business Planning, Software Related