A critical benchmark of good financial health is keeping your actual job costs within 2% of projected job costs. This requires the close cooperation of all departments and the willingness to follow these essential guidelines:
Develop rock-solid definitions of job costs versus overhead costs. Be absolutely consistent in how you record and track these in every financial report, from job-specific reports to company profit and loss (P&L) statements.
Produce accurate and timely job cost reports at least weekly for large projects and immediately following small jobs. Compare actual costs to budgeted costs and adjust as needed.
Integrate job cost reporting with your company-wide accounting system. Both should be accurate and consistent.
Bill promptly and precisely. Slow or sloppy billing can curb your ability to make full collections at the end of the job.
Perform job “autopsies” as a team. Encourage employees to identify where the company might have lost money and where it might improve.
Sales and Estimating
Give prospective clients realistic budget ranges, rather than those you can't meet or that pressure you to reduce prices.
Manage time wisely. Never feel rushed to sell or to assemble an estimate or contract without giving proper consideration.
Give allowances only when you absolutely must. Actual costs generally exceed allowances, so encourage or require clients to finalize all decisions before you begin work.
Base sales commissions on gross profit, not gross sales price. This method protects you when there are overruns and encourages salespeople to be accurate and accountable.
Require everyone who sells for the company to use the same estimating system.
Have a second person double-check every estimate. This is particularly critical when there are consistent overruns.
Bring production staff into the estimating process. Have them give input on the plans, specs, and estimates before presenting anything to the client.
Get actual prices from subcontractors on jobs of any reasonable size.
In your contracts, include a clause allowing you to pass along significant and unexpected changes in the price of lumber or other heavily used commodities.
In your contracts, include a 5% to 15% contingency allowance.
Have a second person double-check blueprints for accurate measurements and completion.
Include important job specification information in blueprints.
Standardize frequently used construction procedures. Field personnel will get better and faster with each project, and you'll minimize the problems associated with guesswork.
Specify the allowable hours and expenses for field staff, and share this information with supervisors so they can monitor performance.
Document all change orders — and charge enough for them.
Reduce supply runs to an absolute rock-bottom minimum.
Manage subcontractors so that they work efficiently and cost you less. Have at least two subs in each major specialty, so that they keep their pencils sharp when they give you prices.
—Linda Case, CRA, is founder of Remodelers Advantage Inc., in Laurel, Md., a company providing business solutions through a network of experts and peers. 301.490.5620; email@example.com;www.remodelersadvantage.com.