Tool #8 - Stop Giving Money Away
Every dollar counts. Every penny wasted is precious and can add
up to thousands of dollars at the end of the year. So what are you
to do? Maximizing your profit must be a top priority right along
with getting your projects completed. Taking a little time focusing
on increasing your net profit will boost your bottom line and allow
you to make a lot more money. When you're too busy working, don't
forget to take enough time to focus on your finances, financial
tools and business strategies, which will make you more money.
Consider implementing these tips and tools to grow your bank
Accurate general conditions!
Estimating accurate general conditions for projects can be a
simple task when the estimator is accountable to get it right. Most
estimators use unit prices, which are rarely checked against the
actual final job costs. For example, creating a budget for
temporary toilets seems easy. An eight month job should cost eight
times $100 per month = $800. But when the field superintendent sees
there are 40 men on the job, more than one toilet and more than one
servicing a week is required, this might increase the actual job
cost by as much as $200 per month. These extra costs will add up to
lots of lost cash.
The estimator's job is to calculate an accurate bid of what it
will cost to build each project. After every job he must look at
the actual job costs and see if he miscalculated any items. Before
he prices the next job, he should get with the project manager or
superintendent to determine what will be required to run the
project he is currently bidding.
Take a hard look to determine if you are charging the right
• Project manager, superintendent, and their vehicles
• Project photos, signs, as-built drawings, etc.
• Temporary facilities, trailers, toilets, sanitation, etc.
• Temporary utilities, electricity, power poles, water, phones,
• Temporary fencing, gates, barricades, site lighting, heating,
• Safety, first aid, shoring, access roads, security guards,
Water quality control, dust control, etc.
• Trash, cleanup, window washing, final punch-list, etc.
Charge for all the changes on change orders!
If you had 10 dollars for every extra work item your company,
project manager, field superintendent or foreman did without a
signed change order before the work was performed, could you have
retired several years ago? When your customer asks for extra work,
why is it so hard to get it in writing? Everyone knows the contract
requires signatures on change orders prior to starting extra work.
But when you postpone getting a formal approval for extra work
until days, weeks or months after the event occurred, you have no
leverage. And when you have no leverage, your customer is in a
great position to negotiate the final price with you, change their
mind, or decide the work wasn't really extra and should have been
included in the original contract.
Present a complete cost breakdown for every proposed change
order your customer requests in advance of starting the work. Use a
standardized format and cost template to make sure you include
everything the additional work actually costs. Every time extra
work is performed, the followings costs occur:
• Project management to process the paperwork
• Supervision to supervise the work
• Accounting to process the payment
• General condition costs as the job will take longer:
• Trailer, toilets, water and utilities
• Power and power poles
• Trucks and equipment
• Small tools, ladders, bins, etc.
• Small items, nuts, bolts, hardware, etc.
• Temporary fencing, protection, barricades, etc.
• Liability insurance
• Overhead and profit
Don't short change your company by not asking for everything you
deserve. I see most change order requests presented as labor,
materials and hard costs plus a markup without extra soft costs for
the many items listed above. If your company does $3,000,000 in
annual sales of which $300,000 is performed as change orders or on
a cost plus basis, not charging for everything you spend can cost
you as much as $30,000 or more per year in lost revenue for things
that you actually had to pay for.
Making money is not easy in construction. Look for every
advantage you have to boost your net profit margin. Take the time
to implement these tools and send me an email of the other tools
you use to increase your net numbers. See you at the bank!
George Hedley is a licensed professional
business coach, popular professional speaker and author of "Get
Your Business to Work!" available at his online bookstore. He works
with contractors to build profitable growing companies. To request
your free copy of "Profit 101 For Contractors," sign up for his
free monthly e-newsletter, hire Hedley to speak, be part of his
ongoing BIZCOACH program, or take a class at Hardhat BIZSCHOOL
online university, visit
www.hardhatpresentations.com or email