Solutions You Need With Care You Deserve
Building Capital -
Published: 9-22-09
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In this Issue:
Tapping into the Expertise of Outsiders
When Every Dollar Counts The economic downturn has only heightened the need for contractors to look for ways to save money and increase revenues. A top-to-bottom review of your operations may reveal some surprising areas where significant savings can be found. Manage Equipment Use More Efficiently Fuel is probably a major expense for you, especially if you are involved in road, bridge, and other types of heavy construction. You can reduce fuel consumption by monitoring equipment idle times and managing fuel efficiency. Remote asset management technology uses GPS hardware attached to each piece of field equipment to send data via a server or cell tower to a desktop computer in your main office. Your office staff gets real-time data on the equipments precise location, run times, idle times, and speed. Armed with this information, you can see how much fuel is being used and take steps to establish procedures that reduce idling times. Reducing idle times for equipment not only saves fuel, it often translates into increased job site productivity. Using remote asset management technology can also save money on maintenance. For example, the system can automate the process of monitoring equipment maintenance schedules and help in scheduling timely maintenance on heavy equipment. Better scheduling reduces wear and tear and helps prevent equipment breakdowns. Charge for Every Change Order Tracking and charging for every change order lowers your cost of doing business. For every change your customer asks for, break down the costs and present the estimate before you begin any work. For each change order, use a standardized cost template. Be sure to capture all extra costs, including:
Record every change order in a log created for this purpose. Change orders should be identified by serial number, subject, and date received. Obtain the signatures of all parties involved before work begins.
Improve Material Handling You can improve productivity by reducing the unnecessary handling of materials on the job. Implementing a measurement program that allows you to determine how many times material is double handled on a job is a critical first step in this process. Once you have the data, specific situations and conditions that create a high likelihood that material, supplies, and equipment will be double handled should be easier to identify. Consider preparing a map of your job sites and designating specific locations for storing materials where they will be safe from theft or damage. It makes sense to locate these sites as close as possible to where the bulk of the projects work is being done and only move materials and equipment from the storage locations to places on the site where they will be used immediately. Keeping Good Project Records Makes Sense Contractors can take a variety of steps to minimize cost overruns, keep a project on schedule, and reduce the potential for litigation. One of the most effective is to keep detailed and timely records that cover every aspect of a project from start to finish. Here is an overview of the most important records you should keep for every project. Project History Recording, classifying, and saving all correspondence related to a project will allow you to follow up on a projects history from start to finish. Set up separate files for correspondence to and from the owner, the architect, subcontractors, and so on. In addition, create separate files that relate to any changes in the initial specifications and plans. Do not neglect to date incoming correspondence and to sign, date, and number all outgoing correspondence related to requested changes. The same goes for any correspondence sent by fax or e-mail. A comprehensive paper trail like this can prove invaluable if any disputes should arise over change orders or payment for change orders. Project Schedule Typically, as the contractor, you create and deliver a schedule that outlines how your firm intends to accomplish its work within the contract performance period. Sometimes, an owner/developer creates the schedule. Either way, you have to periodically update the schedule to show your progress on the project. A project schedule can also help you identify potential trouble spots well before they impact your bottom line. In addition, you can use the schedule to help with forecasting how best to allocate your employees and your equipment. Detailed Job Site Log Require your project manager or superintendent to maintain detailed daily records of the projects progress as well as records of any specific conditions that may have a bearing on the projects planned performance. Apart from their value as a project management tool, you can use these records to identify problems, which, if left unchecked, could threaten the progress and profitability of future projects. Change Order Log This is another key piece of documentation youll need. Creating a paper trail that is as comprehensive as possible will be helpful if any disputes arise. Records of Meetings By scheduling regular meetings, phone calls, and reports to your customers, youll be able to minimize any confusion and potential disputes. You can use this time with your customers to discuss:
Project Costs You need a way to track project costs through every phase of the construction process and identify where costs are running over budget. An effective and efficient cost accounting system that allows you to track all direct and indirect costs related to each project is the best way to achieve this goal. Some of the more common breakdowns of work activities include trade/specialties, phases, or activities noted in the project schedule. Costs should be identified by type (materials, labor, equipment, subcontracted labor, etc.). Keeping your accounting records up to date as a project progresses will give you the financial information you need to make decisions. If you would like some assistance in developing the systems and the procedures that allow you to maximize your resources, please contact us. Developments in Tax and Business Towns Mandating ENERGY STAR as Code Heres a trend worth watching if you are a homebuilder: Some municipalities are requiring that every new home built in their communities be ENERGY STAR compliant. (ENERGY STAR is a joint program of the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Energy.) Reactions to the requirement are mixed, with some homebuilders associations supporting the measure and others opposing it on the grounds of cost. Employment-tax Audits Coming Your Way Contractors should be aware that the IRS plans to launch a new audit program targeted at federal employment-tax returns. While the IRS intends to examine all lines on the returns, it says that it will focus on fringe benefits, reimbursed expenses, the classification of workers (employee versus independent contractor), and officer compensation. Buy New and Save Taxes Contractors who have plans to buy a vehicle this year for business use could save taxes if they buy a new vehicle instead of a used one. The maximum first-year deduction for depreciation or Section 179 expensing for a business-use-only new luxury car purchased in 2009 is $10,960, compared to $2,960 for a used vehicle. The maximum write-off for a new light truck or van is $11,060, whereas its $3,060 for a used vehicle. Controlling Risk in Long-term Contracts Long-term contracts can be lucrative for contractors, but sureties can be nervous about the many risks associated with such commitments. Contractors can take a variety of steps to protect their businesses and reassure sureties when assuming the risks of long-term contracts. Subcontractor or Supplier Default What happens to your firm and to the project if a subcontractor doesnt pay a vendor You waste valuable time and resources trying to sort out payment issues and terms. Joint check payments with the subcontractor are a way to reduce risk on those occasions when large amounts of construction supplies or equipment for the project must be purchased. As always, the best way to mitigate risk with subcontractors or suppliers is to perform an in-depth review of their background and their performance history. If that review identifies any red flags, then you should be very careful about working long term with them. Rise in the Cost of Materials The prices of timber, cement, asphalt, and other construction materials all fluctuate depending on a variety of local, national, and global market conditions. Very large contractors attempt to protect themselves from these fluctuations by hedging. Smaller contractors have fewer options and less flexibility. However, if you are a smaller contractor, you can engage in a form of hedging by agreeing to pay suppliers a locked-in price for products and materials up front. You pay the agreed-on price irrespective of whether the price of the materials rises or falls. Outside Events Before accepting a long-term contract, consider the projects location. Weigh whether a proposed projects location has the potential to create unforeseen and potentially costly problems related to oversight and control. What may initially appear to be a very profitable project may end up actually costing you money. Take a pass on a project if it is so far from your home base that you may not be able to keep adequate tabs on its progress. Tapping into the Expertise of Outsiders Many contractors recognize that they need to spend time thinking about the big picture -- the growth, direction, and management of their companies. Unfortunately, they are either too caught up in the day-to-day work of running their businesses or too uncertain about their strategic planning skills to give important issues the attention they deserve. If you find yourself in a similar position, perhaps you need some outside help. The insights and perspectives of a group of individuals not directly involved in the day-to-day operations of your business can help you see things in a different light. These outsiders can offer valuable advice on a range of important issues. You may want to look into tapping the expertise of a semi-formal group of advisors or an advisory board of directors. Sources of Help You can use your own contacts in the community or ask for the assistance of professional advisors when seeking the names of suitable potential candidates for your board. Very often, the best candidates can be found among members of your local business community, successful professionals, community leaders, entrepreneurs, and academics. Types of Advice Only you know what issues are significant for the long-term financial health of your contracting firm. Still, an advisory board should be able to help you with a strategic business plan, an analysis of your management teams strengths and weaknesses, and the identification of any improvements that should be made to your overall operational systems. An effective board can help you streamline business standards and procedures as well as assist you with issues related to compensation, best practices, budget planning, cash flow, and overhead. As experienced financial professionals with a strong understanding of business and the construction industry, were prepared to help you position your firm for success. Please call us for advice and assistance. |
