By
W. Eric Powers, CPA
Does
your company struggle to make profits? Many construction companies end the
year with net income that is less than 2% of revenues. Aside from generating
more revenue, what can you do to increase your company’s bottom line?
Here
are ten proven strategies that will help you increase your company’s bottom
line:
1.
Establish a marketing plan. Focus on what you do best. Define your
contract mix, customer base, competition, services provided, and your
strengths and weaknesses. Evaluate whether the marketing plan will help you
achieve your goals.
2.
Think cash flow when
negotiating a contract. The contract should
provide for the billing and collection terms. Always negotiate for interest
on retention and that the retention be placed in an escrow account. Define a punch list, with a partial release on retention based upon a formula.
3.
Track the profitability
of your estimators. Put into place a system,
which will track your estimator’s success rate by type of project, size of
job, and customer. Automate the estimating process in order to increase
efficiency and reduce errors.
4.
Utilize a pre-job
meeting checklist. Such a checklist allows
input from field personnel on how certain aspects of the job can be
accomplished more efficiently. It can also identify problem areas and
communicates the profitability targets of the project.
5.
Hold interim jobs review
meetings. Interim job reviews should be held
when a project is 40% and 90% complete. Statistics prove that profitability
is lost at these intervals.
6.
Insist on safety. Strong
safety programs increase productivity and reduce worker’s compensation
costs.
7.
Minimize claim loss with
proper documentation.
Claims are lost by lack
of documentation. Document daily job reports and on-site progress changes.
8.
Create credible
management reports.
Job costs reflected in the
financial statements should include all costs identified in the estimating
process. This facilities actual-to-budget comparisons and overhead rate
computations, and enhances the accuracy of the job cost system.
9.
Hold end-of-job
meetings.
Identify strengths and weaknesses. Separate the weaknesses into controllable and
noncontrollable areas. Analyze jobs by type, dollar amount, actual versus estimated profit, and by
project manager.
10.
Improve your year-end
financial statement presentation by planning the end result.
Sureties
and bankers analyze and make conclusions on the financial position of your
company based upon your financial statements. Bonding capacity, working
capital, lines of credit, and interest rates are the result. Plan to present
your company in the best financial light.
