Insight from a builder who needed to ask himself:
“Am I winning too many home building contracts?”
In August, I was driving to a country town to visit a client for training. With plenty of time to spare, I decided to grab lunch at the local pub at a town on the way. At the table beside me were two people wearing shirts with the company logo. Knowing they belonged in the building industry, I struck up a conversation.
Before long, I learned they were locals in the town. A father and son who had expanded their business the previous year. I asked them what worked well and what they would like to change with their business moving forward. The answer shocked me. Jack (the father) told me, he plans to undertake a double check of all quotes before they sent to clients for signature. He then advised, their accountant had informed him they were only just scraping together a profit for the previous financial year. They were surprised since they were winning almost every job they quoted. They also were now building a few houses concurrently.
Upon investigation with the help of their accountant, they learned at some stage they had deleted a formula in the Excel spreadsheet and they had not been adding profit to their quotes for several months. Due to the fact of having a few jobs on the go at any one time, they had “cash flow”, so did not realise the error of their ways.
Are you winning too many home building contracts? Are you losing more than you should?
Analyse
Important to any business, is awareness of what you do well and what you can improve upon. Whether you are winning too many home building contracts or losing too many home building contracts, here are some tips that may help:
- Ask your client or prospective client why they chose or did not choose you. This helps you to change and continually improve your business and allows you to focus on your marketing if want to attract more business in that area.
- Technology has come a long way in eliminating the human error component. Excel spreadsheets are great, as they allow some complex formulas to speed up your estimating time. However, the downside is, that it is just as easy to delete part or all of a formula when using spreadsheets. This obviously results in incorrect estimation without even realising it.
- Industry specific fully integrated software means that you will see the job costs against the budget for EVERY project in REAL time. No more waiting until the end of the financial year only to have your accountant tell you, all your hours spent estimating, invoicing and building have provided no return on investment.
Create a solid process for project estimates
- Making use of industry specific software will ensure you realise the profit margin on every project.
- Having a standard process will highlight inconsistencies across similar projects.
- Technology allows you to use estimate templates and current pricing at all times. Using an older price with a trumped up profit margin is like crossing your fingers and hoping for the best!!
- Do not use bulk figures in an estimate. Make sure you itemise your process and your labour components. We call this the (El)NiNo. Nothing in – Nothing out.
Furthermore, a bad estimate will lead to poor job cost control. Just as bad processes will lead to a bad estimate. More noteworthy, you will need to wait until the end of the financial year to see if your efforts for the year were worth it.
Establish a Transparent Process for Project Job Cost Management
Project managers have a lot on their plate. The key to improving the financial management of any project is to simplify the process. Providing the project manager with fully integrated (industry specific) software, empowers them to take full control of any project. It also promotes accountability. Training will ensure an understanding of the processes, by all staff involved. In addition, the project manager has knowledge of how to generate reports to track overruns and forecast in REAL time. When a project manager (or any staff member) feels empowered, they will be more successful. Furthermore, they will be more likely to stay for longer periods with the one company. An immeasurable saving of time and cost of training.
In summary
When suddenly your accountant asks “are you winning too many home building contracts?” there are processes and organisational controls which can be put in place to minimise profit margin blowout!!
- Staff– Having an established process in place empowers staff to take ownership of their role and wanting to do more for the business.
- Sub-Contractor– Ensure both staff and sub-contractors are included in the pre-building “scope of works” review. From continually asking subbies to shave margins, relationships become strained.
- Profit Margin– By either forgetting to add to the estimate or using out of date price lists, profit margins decrease. Industry specific fully integrated software can minimise risk and increase profit margin
- Processes– are critical to the success of any project. Create a standard process for the estimate and for your project job costing. In addition, entrust staff through the correct training, to know and understand the process.
- Reporting– Technology is available to establish consistent processes for project management staff, to track over runs and forecast in REAL time, so use it! Profit margin is being depleted when a staff member is being paid for hours of data entry, just so they can export and manipulate that data. Furthermore, the report in this instance is usually “after the event”.
You build a house from the ground up, not from the roof down. Using the correct tool to get your job done will determine the success of a project. Fully integrated (industry specific) software will provide streamlined processes while minimising data entry time. In addition, the right technology will create a reduction in rework caused by human errors. Staff satisfaction and loyalty of sub-contractors will also become “the norm”.
Healthy profit margins on every project will be realised when you keep your finger on the pulse in REAL time.
