How is it possible for your trade business to survive in the construction industry when builders want jobs built cheaper but the wages you’ve got to pay your guys are ever increasing?
The construction industry is changing. Margins for builders are getting smaller but wage levels are increasing. Gone are the days when you made money easily, went home stress free, content and got a good night’s sleep.
Imagine you’ve priced a job, and the builder wants it done cheaper, so you take it on with really tight margins.
The way you have always done it seems to be;
- You start with a big bucket of money
- As the job progresses you keep taking money out of that bucket, with no real tracking system, hoping to dear god that you have something left at the end
- Maybe a few years ago, there would be a nice little number left in the bottom. But with the tight margins, increased wage rates and builders wanting more management staff, top quality and finished on time, the old ways simply don’t leave you with any money in the bucket any more
- The result after this happens a few times is that your left feeling like there is no way to survive.
Does this sound like you? Has the reduction in margins and increased wage rates, left you working longer hours than ever before, losing sleep and anxious about the future of your businesses? Is this affecting you personally? Are you feeling a constant uncomfortable feeling in the belly worrying how you will survive?
If the fear of not making money, not being able to pay the bills and keep your business afloat is causing you stress, you are most likely facing two questions :-
- Do I simply close the doors?
or;
- Can I innovate and make change?
I believe you can innovate and make change.
The Problem
The problem, and what causes the painful feeling like you can’t survive is simply ‘a lack of financial tracking’. It’s the ‘unknown’, the ‘uncertainty’ of profits and losses on jobs. Or put another way - not having a way to understand the cost of work at any stage in the job. This causes a constant feeling of fear that you ‘don’t know where you’re at’. Leaving you waking up early always worrying how your jobs are tracking, and how you will survive.
- The old way was to hope you were going to make money, and hope to survive
- The new way is know you will make money, or if there is a problem you will know and be able to fix it, and ultimately survive.
So, if you’re not able to pinpoint exact costs to your business at any stage in the jobs then you need to address your financial tracking systems, so you can survive the changing industry.
The Solution
The solution is actually quite simple - implement some financial tracking measures.
Let’s look at the highest risk factors first, labor costs us the most by far and is pretty much the only thing you need to have your full focus on tracking.
Example on cost of labor:
Under the new Plumbers Union EBA (includes on-costs, insurances, etc) it now costs over $100 per hour to employ a certified plumber on commercial sites. Imagine 5 plumbers, low productivity or lost hours with no tracking and before you know it you’ve lost over $4,000 in just one day (based on 8 hours per day per man).
The risks to your business are huge! Financial tracking of all factors in your business is crucial but tracking labor is key in allowing your business to not only compete but survive the increasingly competitive market.
Materials are nearly always covered in price guides from your supplier, so they are nowhere near as important. You nearly always know where you at with your materials.
So, we’ve identified a potential problem to your business.
Below I’ve identified the key framework to allow you to start to financially track your labor hours in your business. You will know exactly where you are at, at any time, at any stage, in your job. You will be able to manage your financial situation as required, eliminate unnecessary stress from your business, sleep at night and most importantly survive.
I call this the “seamless system”;
Step 1 – Create Cost Codes
Code your estimating template to provide a seamless transition throughout your job.
Estimating codes should follow through your budgets from estimating to you actuals to ensure that you can compare ‘actuals’ to ‘budget’ at any stage in your project. I.e. B3 budget/estimate needs to compare directly to B3 actual. (ie. Level 1, budget 50 hours compared to actual Level 1 hours, 35, saving 15 hours).
Sounds complicated buts it’s actually about applying consistent coding throughout your business. Feel free to call me if you want more info.
Step 2 - Create targets and set goals
With the codes you have created you can now review your budget from your ‘estimate’ and ‘target man hours’ to create a ‘TARGET BUDGET’. You can use this to show any increase in margin and most importantly it will allow you to set ‘target man hours’ goals for your team.
I.e. give your team in the field a target to hit. Reasonable targets to hit = increased productivity. No targets = lost money.
Step 3 - Use financial software
It makes sense to simplify the process. Use financial software that actually works for you. It’s the new age now and we all need to use some sort of financial software. Input the target budget into the financial software.
Step 4 – Get the TARGET BUDGET man hours to your team in the field so they know their goals.
Web functioning/software can provide your team the tools to access job data on their ipads in the field, real time. They can literally walk around site and look at labor hours’ available, work out how long they have to complete each section of the job and take steps to ensure they meet job targets.
Step 5 – Get ACTUALS!
Use timesheet software within your financial package to provide ACTUALS for your jobs. All coding consistent = financial clarity on our job at the push of a button.
Step 6 - Get the complicated financial data displayed in an easy to read way.
Within the appropriate software ACTUAL hours are compared to TARGET BUDGET hours. This can be displayed in a dashboard on your ipad, showing red / green lights and dials for how you’re job is tracking. Your will know exactly how you’re tracking, real time, at the push of a button – no guessing! Below is a screenshot of the type of dashboard you will see.