0131: How High Profit Jobs Send Contractors Into Bankruptcy

This Podcast Is Episode Number 0131 And It Will Be About How High Profit Jobs Send Contractors Into Bankruptcy

You have what appears to be a high profit job and now you are thinking you have it made and I hope you are right!

The problem is high profit jobs have a way of turning into low or no profit jobs and in some cases they can bankrupt your construction company because you bid the project using whatever model you are accustomed to using and in the end you wind up with cash flow problems.

Construction company owners who understand Construction Psychology and the need for Business Process Management (BPM) System also know the importance of being process dependent, not people dependent. One will bankrupt you and the other will make you wealthy.

A lot of problems can be traced back to the "Halo Effect" which happens when a contractor thinks "We are so good at (fill in the blank) we should expand into (fill in the blank). They have the attitude "I am going after Moby Dick in a row boat with tartar sauce!"

The most common situation is when a residential remodel contractor who has built a reputation and a substantial company generating profits of 15% or more decides to start building custom homes. Or the opposite a home builder who decides to branch out into residential remodeling.

The processes, tools, equipment, materials, skills and invoicing procedures required to modify a home with people living in it are completely different from building a house from the ground up.

New construction workers are more like cave men with a brute force mentality. Every problem has one answer "Brute Force". If something doesn't fit or will not work the way they want it to they use more brute force until it does.

The same goes with managing sub-contractors and suppliers. I know because I spent a few years being one of them and in my 20's it was great fun!

The home builder bids a residential remodel project using the same square foot costs they have always used in building houses and discovers quickly the true meaning of "Hidden Costs".

These costs arrive in the form of dry rot, cracked foundations, broken plumbing, bad wiring, worn out HVAC and other unpleasant surprises.

Homeowners living in the house while the remodel is happening and do not ever want to be without water, lights, heat and privacy and they don't have a clue how much debris, dust and noise is involved in a remodel.

When it comes to change orders that is something most home builders do not understand. They don't have a process for tracking them let alone pricing and getting paid for doing them. Homeowners want to believe everything is included in the original contract price including the little extras they think of along the way.

Most trade contractors and subcontractors who work on residential remodel projects do understand change orders and they know how to apply pressure to the builder to get paid. Too often this is the main reason home builders go bankrupt is cash flow issues.

The processes, tools, equipment, materials, skills and invoicing procedures required to build a house from the ground up are completely different from modify a home with people living in it.

Residential remodel construction workers are more like cowboys herding cats.

They understand brute force will not work but patience, planning and being respectful does. I spent a few years in residential remodeling and it did not take long to learn that new construction behavior does not work in residential remodeling.

The remodel contractor uses a form of "Cost Plus" or "Not To Exceed" to provide the homeowner with scope of work and a contract price the bank needs in order to finance the construction.

That process can work for a residential remodel because the house is already in place which helps define the size and scope of the project.

The size and scope of the homeowner's dream house is limited only by what the building codes will allow.

When the labor, material, other costs and subcontractor bills start piling up the remodel contractor asks for a construction draw and is told the bank needs a Pay Application filled out and submitted.

Then it will take a while for the bank inspector to review the project and approve the draw.

This is when the remodel contractor figures out they are providing all the labor, material, other costs and subcontractor expense up front and getting paid only when and if the building inspectors, architect, bank and the client agree to the draw request.

The Solution

In order for your construction company to survive and thrive in any economy you must pick a niche market and develop your Strategic Business Process Management System (BPM) with definite written goals of what you want to accomplish and how much money you want to earn from it.

Once you have picked your construction specialty stick with it no matter what and in the end you will have the best chance of making a lot of money and retiring wealthy. All contractors who try to do the right thing deserve to be wealthy because they bring value to other people's lives.

If you need a construction accounting services who understands you and your industry we would like the opportunity to chat with you. We can be reached at 206-361-3950 or by email sharie@fasteasyaccounting.com

I trust this podcast helps you understand that outsourcing your contractors bookkeeping services to us is about more than just “doing the bookkeeping”; it is about taking holistic approach to your entire construction company and helping support you as a contractor and as a person.

We understand the good, bad and the ugly about owning and operating construction companies because we have had several of them and we sincerely care about you and your construction company!

That is all I have for now and if you have listened this far please do me the honor of commenting and rating podcast www.FastEasyAccounting.com/podcast Tell me what you liked, did not like, tell it as you see it because your feedback is crucial and I thank you in advance.

I trust this will be of value to you and your feedback is always welcome at www.FastEasyAccounting.com/podcast

This is one more example of how Fast Easy Accounting is helping construction company owners across the USA including Alaska and Hawaii put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that and a lot more valuable to construction contractors like you so stop missing out and call Sharie 206-361-3950 or email sharie@fasteasyaccounting.com

Thinking About Outsourcing Your Contractors Bookkeeping Services?

Click On The Link Below:

www.FastEasyAccounting.com/hs

Need Help Now?

Call Sharie 206-361-3950

sharie@fasteasyaccounting.com

In closing, I want to caution you that we may or may not be a good fit for your contracting company. This guide will help you learn what to look for in outsourced construction accounting.

Thank you very much and I hope you understand we really do care about you and all contractors regardless of whether or not you ever hire our services.
Bye for now until our next episode here on the Contractors Success MAP Podcast.

Warm Regards,

Randal DeHart | Contractors Accountant