How to stay relevant in a changing industry
By Donna Caswell and Samantha Zurita
With technological advancements like 3D printing and drone usage making their way into construction plans, it’s easy to be swept away by the promise they often provide: a bigger, stronger, and more “current” business. But the backend is just as, if not more, important to the bottom line—the right construction management tools can streamline, help organize, and complete tasks more efficiently. The key to success is to use technology along with time-proven systems and procedures to stay focused on financial goals.
ACCURATE TIMEKEEPING
To be competitive with labor costs and rates, precise time-tracking across the board is needed. Whether employees fill out timecards by hand or use electronic timecards on a hand-held device, it’s crucial that time be recorded daily. When timecards are filled out at the end of the week or pay period, accuracy suffers and so does the business. With accurate labor hours, you can properly estimate the job, schedule employee time, and bill your clients. To enforce daily timekeeping, determine who oversees collecting, reviewing, and approving the timecards, and hold them accountable. Make it easy for employees to give you the information you need. Consider putting a legend or cheat sheet at the jobsite or on the timecards so that everyone knows which job and cost code (cost category) their time should be coded to.
DEVELOPING A SYSTEM
Once an estimate for a job is created, ensure that it is used properly to create an appropriate budget. The job budget used in your accounting system to post expenses should align with the budget created in the estimating process. Make sure the budget is in your accounting system before the project begins, even if it’s a conceptual budget at first.
Additionally, develop a system for coding the expenses on a regular basis, as the most current and up-to-date information is needed to manage jobs successfully. As you may receive accounts payable invoices from multiple sources, a system to ensure that invoices aren’t duplicated or overpaid is important. Purchase orders help streamline efforts, ensure costs are applied to the correct cost code and provide warning if the cost exceeds the PO amount. Concurrently, a good system for tracking subcontracts is needed as well. Combining the use of POs and a good subcontract control system allows for the ability to better anticipate job costs.
Last, change orders are where many contractors lose money. Communicating with clients on how change orders will be handled helps set the right expectations, and so having a system for documenting and getting change orders approved before starting work on the change is essential. If you already use and maintain a good change order system, consider yourself ahead of the game.
Fortunately, existing software platforms, like that of Sage 100 Contractor, combine a lot of those capabilities into one package—including that of estimate and budget creation, progress billings, purchase orders, change orders, and work in progress adjustments.
BILL OFTEN AND ON TIME
If the phrase “cash is king” rings true, how do you keep money coming in throughout the length of the project to comfortably cover payroll, job expenses, and overhead? Most contractors have found the answer to be consistent and timely billing. Generally, the more frequently you bill, the better your cash flow; as such, you may be able to negotiate a bi-weekly billing rather than the typical monthly billing. Regardless of the billing cycle, make sure you bill on time and follow up on receivables; the older the receivables, the less likely you are to collect.
REVIEW, ANALYZE, USE REPORTS
Now that you have accurate data, what do you do with it? Reading and understanding job cost and profitability reports is an important part of building a solid financial foundation. It’s recommended to produce these reports on a weekly or bi-weekly basis. If you keep your accounts payable current, right after processing payroll is the perfect time to run your job reports. If you wait until a job is complete or too far along in the process, there won’t be any time to make any changes. As soon as the job is complete, study your reports to determine what went well and where you need to make changes next time—analyzing these job reports is crucial in helping you estimate and bid future jobs to achieve your desired profit margins.
CLOSING THOUGHT
Overall, no matter how quickly technology changes, and no matter what software you use, building a solid foundation of systems and procedures is crucial—it allows for time and budget accuracy, proper reporting and, importantly, the ability to plan for future budgeting.
About the authors:
Donna Caswell (AKA Donna Walsh), president of On Track Business Management, Inc. has been helping contractors for more than 30 years streamline their businesses, increase profitability, and achieve their goals.
Samantha Zurita, operations manager of On Track Business Management Inc., is a master at learning and implementing new software programs in alignment with company and client systems and procedures. www.on-trackinc.com
Modern Contractor Solutions, January 2020
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