Over the years, I've tried to find a method of looking at my company's records that could render an accurate picture of our financial profile. I needed answers to several important questions:
What size and type of projects provide the best margins?
What is the average real hourly wage, with labor burden, that we spend on cost-plus projects?
Does most of our gross profit come from our subs, materials, or in-house crews?
The purpose of all this was more than idle self interest. Ultimately, with a good analysis of accurate data, I hoped we could make changes in how the company did business that might significantly improve our bottom line.
The problem with getting these answers was twofold. First, our record keeping had been sloppy. Different activities had been lumped together. Some were coded incorrectly. So we had to change that immediately in order to have enough accurate data to analyze. Second, we had to do business in substantially the same way for a long enough time that the data captured would truly represent our style of work.
We solved the first problem with a good construction accounting program. I use QuickBooks and am meticulous about how I cost each item. When I print out a report, it's broken down into enough detail to have meaning. It takes more time and attention to differentiate "demolition labor," "deck labor," "framing labor," "interior trim labor," and "footing labor" than just lumping them all together as "labor." And it takes more time to enter that information into the computer, especially on the part of the lead carpenter on the job. But it's worth it.
Now we provide the lead carpenters with a printout listing each labor item for their particular project exactly as it will be entered into the computer. They're expected to break down their crew's hours into precisely those categories, daily. A side benefit is that when some activity doesn't fit into one of the categories -- drawn directly from that project's scope of work -- that becomes a red flag signaling a possible change order.
We solved the second problem -- that of performing our work in substantially the same way -- by doing enough cost-plus jobs of roughly the same size over a long enough period of time and in the same manner. In our case, a two-to-five man crew does the demo, framing, and interior and exterior trim, all billed at a standard hourly rate. We sub out the mechanical trades, concrete, and roofing. We excluded projects that didn't fit the mold, such as earlier jobs that I did substantially with my own tools or smaller projects we did as a lump-sum contract.
It took about three years of keeping detailed records before I was able to print out reports that had enough information to guide me in making some decisions regarding the project size, type, and methodology that worked best for us. One of the best features of Quickbooks 2002 is that all of the data can be exported to a spreadsheet that I can organize in several different ways depending on what I'm looking for.
The most important change our company made resulted from finding that the flat hourly rate we charge for our in-house labor contributes as much or more to our bottom line as the contractors' fee we charge. With this in hand, we've begun doing more phases of the project with our own forces. In most cases, we make more money and it still costs the homeowner less than a sub would have charged.
The main thing is that every day we go to work we're producing valuable information that provides a true picture of our company. Taking the time to keep good records and learning to analyze the information they produce can make a big bottom line difference. --Phillip Rosenberg is president of Nashville Structures in Nashville, Tenn.