When the economy and construction is booming, contractors may be able to get away with less-than-perfect management practices and financial controls. However, since the major housing correction about 10 years ago, plumbing contractors and businesses of all sizes have had to adjust and pay more attention to the internal side of their operations, especially key financial factors. However, we all get busy sometimes and need a quick refresher. Here are a few key tips contractors can use to use to review and run your business operations more efficiently and successfully.
Estimate Jobs Accurately
For many projects, contractors must submit bids well in advance of the anticipated start date. However, the actual cost of materials, labor, permits, and other factors can change before the job is completed-and sometimes even before it starts.
Today, accurate estimating is more important than ever. Otherwise, you can underbid on a job and wind up losing money and profit in the end. While everyone today is anxious to win a job, there’s no point in sending out bids so low you can’t make a profit on the work.
Handle change orders quickly
Here’s another area where contractors can get yourselves into trouble unless you estimate your costs accurately and communicate the situation to your customer. Determine the extra costs and get the customer to approve the change order quickly. That’s the best way to be sure you don’t end up eating those costs.
Stay on top of billing and collections
In leaner times like this, customers can start falling behind on their payments. Tracking your account receivables and the incoming cash flow is essential in order to identify collection problems and take corrective action before it’s too late.
In fact, contractors are advised to strive to be ahead in their billing on progress payments – just in case the customer runs into a problem. That means billing a littler more than your incurred costs plus a share of the profit you expect to recognize from the job.
If payments do fall behind, be polite but persistent in your collection activities. Keep the lines of communication open and try to work with your customer to bring in at least a partial payment, if possible. If you call every one – two days with a gentle approach not in anger or force, you might be paid before another vendor who sits back quietly.
Pay your own bills on time
By regularly paying your bills on time, you may be able to negotiate better terms with your vendors or receive advance notice on special sales or inventory closeouts on materials you buy. In fact, if you have been doing this, have you asked your sales or supply contact for a discount or special? Maybe it’s time to leverage your loyalty and partnership.
Review each project’s financial results
Get into the habit of reviewing the actual financial results of every project after completion. Look at the original budget, the impact of any change orders and the actual costs. If the profit on the job was less than expected, try to determine the cause. And if there was a flaw in the estimating or budgeting process, the time to update the figures is before submitting the next bid, not afterward. You don’t always need to add a higher price on your next bid, many times you will find internal processes, using new technology, or using new installation processes or products that vastly reduce your expenses to make a higher profit.
Reduce your risks
Review your insurance policies with your agent on a regular basis and keep your coverage up to date. The number of construction-related lawsuits continues to grow and you need to protect your business. If you hire and subcontractors on projects, be sure to verify that they are bonded and insured to limit your own potential liability. In addition, setting your own safety procedures can vastly reduce your worker’s compensation claims and insurance rate by a substantial amount. This means you can use that extra cash flow as pure profit or allow you to earn more jobs with the ability to submit lower bids with the insurance savings. Having a quality safety policy and procedure in place is vital to your business but very few contractors take advantage of this opportunity.
Plan training activities that boost morale while adding to the company’s base of skills. People generally work harder for a business when they feel the company is taking care of them. Keeping your employees up-to-date on installation techniques, new products and skills will give you an advantage over your competitors. Think long term and remember that market conditions are always changing.
Manage your overhead
Take a close look at your financial spreadsheet and analyze those monthly costs. There may be ways to cut your utility bills, reduce monthly bank fees, revamp your business cell phone plan, or your inventory procedures.
Think seriously about reducing any costs you can. Good cost-containment measures can make or break a business in leaner times.