November 9, 2021 | by Pete Denholm
If you’re running a successful building contractor business, you know how much time it can take to handle the bookkeeping for multiple projects — and to analyze your profitability on each job to make sure you stay successful.
With the nation facing a housing shortage of more than five million homes, building contractors should be at full capacity for the foreseeable future. That places a premium on operating efficiently.
If you want to spend more time managing projects and less time managing your bookkeeping and back-office tasks, here are three tips that can be game-changers.
1. Streamline Bill Paying
Still using paper checks? In contractor businesses, including homebuilding specialists, you might use hundreds of checks each month. That's a lot of time spent writing and recording checks, then putting them in envelopes and mailing them. (Not to mention the cost of postage.)
There's simply no reason to keep doing it that way. Bill-paying apps allow you to review your bills online and then pay with a click.
If you can't figure out which app is best for your business or you're not sure how to make the transition, an outsourced bookkeeping services provider can help. As one successful homebuilder put it, "We write about 500 [checks] per job. Based on my experience, I knew it could get overwhelming to do it properly. So outsourcing made a lot of sense."
2. Find Out How Profitable Each Project Is
As a building contractor, you've probably experienced the frustration of making a smaller profit on a particular project than you'd anticipated. You may also have experienced the pleasant surprise of making more than you expected.
Neither of those outcomes was a result of pure chance. Once you learn to analyze your financial data to determine the profitability of each project, you can be more selective about the ones you bid on — and more aware of how to operate more efficiently.
Start by drilling down into the numbers to learn precisely why a project was more or less profitable than expected. Basic yardsticks include:
Cost of goods sold (COGS): There are two basic types of costs on each contracting job: direct and indirect. Many direct costs, including construction materials like lumber and concrete, are tangible. Others, including your employees' wages or the cost of independent contractors (or subcontractors), are intangible. Still others, like the costs of tools and vehicles that are used for multiple projects, along with things like insurance and payroll taxes, are indirect costs (and can be either tangible or intangible).
Only a portion of those indirect costs can be billed to any one job. It's vital to thoroughly and accurately categorize both direct and indirect costs on a per-project basis to determine profitability. For example, if you invested $5,000 in a piece of equipment and billed the entire cost to a job that was in progress at the time of purchase — and none of that cost to subsequent projects that also required that piece of equipment — you'll get a distorted sense of each project's overall profitability.
Gross profit margin: When people talk about "margins," they usually mean "gross profit margin." For a contracting job, the gross profit margin is the pre-tax earnings that are left after you subtract COGS and certain other costs, including overhead, from whatever you charged for the project, expressed as a percentage.
Gross profit margins can vary widely in the construction business, but tend to run higher for remodeling projects than new home construction. Again, an outsourced bookkeeping services provider can help you gather accurate financial intelligence regarding both COGS and gross profit margin — and interpret the results to make your business more profitable.
3. Get Your Apps to Work Together
There's an old saying in the construction trade: Measure twice, cut once. But you can turn that around when it comes to using online tools: Input once, benefit twice.
What does that mean? Well, if you're using apps for both project/construction management and bookkeeping, you can save time and gain additional efficiency by linking those apps. Any data you enter in one app automatically syncs with the other, saving you from having to enter the information twice. It also eliminates inconsistencies or gaps in your data.
If you enlist the services of an outsourced bookkeeping services provider, chances are they'll already be using an online bookkeeping app. (If they aren't — keep looking.) Moreover, they'll know how to integrate your project/construction management app with their bookkeeping software so you don't have to figure it out for yourself.
Putting It All Together
Once you've taken the three steps outlined here, you'll be amazed at how much less time you spend managing bookkeeping and back-office tasks — and how much more time you spend making your building contractor business more profitable.
At Supporting Strategies, our experienced, U.S.-based professionals use secure, best-of-breed technology and a proven process to provide a full suite of bookkeeping and controller services. Are you ready to learn how you can move your business forward? Contact Supporting Strategies today.
Managing Director Pete Denholm, Supporting Strategies | Northeast Florida, provides bookkeeping and controller services to growing businesses.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
Supporting Strategies is not a CPA firm.