By Ron Pestone
In contracting as in many things in life, knowing is everything. That’s the power that my book , BOOK OF ELM COMMON SENSE SUBCONTRACTING WITH ELM JOB COSTING. It gives a contractor or a subcontractor the power to increase profits. A contractor or a subcontractor who knows his cost from day one has the most important piece of the profit puzzle.
Andrew Carnegie, the great steel magnate, said it best: “Cut the prices, scoop the market [...] watch the costs, and the profits will follow. Every great business owner from the time of the industrial revolution has know this simple truth.
The major reason that most independent and small contractors fail can be attributed to their not knowing their costs. For example , in the private residential market where many small contractors begin, it’s common practice for homeowners to give their contractor a percentage , sometimes as high as 50%,to start the project. As the project starts and the contractor is financially ahead, he sits on the false assumption that everything is okay. More often than not he doesn’t look at hours spent in relation to the estimate or the percent of the project that’s complete. He just builds. But as the project continues and the money dwindles he eventually finds himself in the position of having to use his own money, suppliers money or payroll tax money to get to the completion of the project. It’s only when the project is nearing completion that reality sets in – this project is going to lose money. A common solution is to quickly sign another project and use the money to finish the old job.
This never would have happened if the contractor had known what his costs were from day one and every day thereafter. If he’d known he could have made all his decisions based on those costs. And at the end of the building project his bank account would have shown a balance instead of being in the red.
In this book, you will also see the titles construction foreman, project manager, project executive, superintendent and owner many times. As your business grows these are the people who are going make everything happen. They are the people who generate the money. But in a small up and coming business, it’s important to remember that every time you see one of these titles, it means you. If all you have is a tool belt and a pickup truck, you the construction company owner fill every one of these roles.