More from recipro helping the Small Business Contractor. We’ve brought you a series on the pitfalls and benchmarks for starting your own business and how to make sure it’s profitable. This week we are going to talk about poor cost accounting
Got the markup thing down cold? You may still be losing money because your estimates are out of date. The culprit is poor job-cost accounting — or maybe none at all. If you never compare an estimate with the actual cost to build the job, then you’re flying blind and probably making the same pricing mistakes over and over. Once again, labour is the biggest problem area, particularly for company owners who no longer bang nails. The longer they’ve been out of the field, the more they underestimate how long a project will take to build. But even production managers and lead carpenters who are on site all day often omit or underestimate down time — for example, time spent loading, unloading, and moving materials and equipment, or time spent assembling and disassembling staging. They may also underestimate time they themselves spend supervising subs. And almost every estimator forgets the golden rule: Work expands to fill available time. The crew that you estimated would need six hours to complete a task are going to be paid for a full eight-hour day, no matter what. The solution is to require employees to fill out a time sheet every day, noting not only the number of hours they spend on each job, but also what they were doing. Then, when the job is done, compare labour hours and material invoices to your estimate. If there are big discrepancies, find out why before you make the same mistake in the next estimate. Be sure to check who actually performed the work. Sometimes the actual cost is out of whack with the estimate because a more expensive employee did the work. Keep in mind also that when you’re estimating, it’s easy to forget that delays create down time and that not all material orders are complete, undamaged, and 100% correct.
Salient advice. Although you can serious cut costs by checking the free materials available on the http://builderscrap.com website.