Many contractors are concerned about surviving the current economic conditions. There are many different strategies, but let’s discuss just one approach that can significantly impact the bottom line: focus on finishing the job.
I often joke that if you only had to do 80% of every job, you could make so much more money! Jobs are typically profitable in the first half of the job, and don’t start losing money until the later part of the job. Managing the punch list is difficult, time consuming, and not the most exciting part of the construction process.
Contractors who are inefficient at closing jobs, or do not track all the costs associated with jobs once they are complete are often much less profitable than they think. This is the scenario that I often see:
The job is mostly done, basically done, or almost done. You get busy on the next job. The punch list for the old job has already been created and you want to complete it. But you have to wait for some subcontractors, or some materials, or the client. You want to focus on the next job, the new exciting next job. You know you have to finish the last job, but your attention is not on that job, it’s on keeping your company running, keeping the new job on schedule, finding new work. And besides, you know there was some profit in that last job, so even if you send your crew back a few times, there is money to cover that.
The problem is that you may have determined the profit on the job before it was actually complete. Actually complete means that you will not be spending any more money on the job without additional income from the client. You may have determined the total job costs from your accounting system or kept the numbers in your head. But you then move on.
As you send back your crew, pay additional bills, or spend more of your own time "just wrapping up odds and ends," you can lose track of all these additional dollars. Many bookkeepers will want to keep coding costs to the job as long as those costs are associated with the job. The intention is good and doing this can provide you with an excellent total job cost report after the fact. But after the fact may do you no good. It is only helpful if you review the job again and determine your profit again. Many contractors fail to do that or look at those final-final reports.
As you move forward to the next job, there is a swirling vortex behind you that is sucking more costs out of your company. Unfortunately, there is no income to offset those costs. So while you may be working on the next job that is profitable, that profit is being sucked down that vortex behind you and may be diminishing your old profits faster than you are earning new profits.
To better track these numbers, make sure to set up a procedure to officially close the job. Review the profit at that point. Then all costs that come in after that go to a separate warranty account. And make sure that warranty account is an overhead account. Because where are the dollars to pay for that work? There are none.
As you start tracking these dollars needed to take jobs from "basically done" to "done-done," you may see the source of your shrinking profits. By just focusing on finishing the jobs better, faster, and more efficiently, you should be able to increase your profits. Especially in this slow economy, improving the process to finish jobs can add significant dollars to your bottom line without costing more money or taking away from your core business.