Stop That Financial Leak
I’m sure you remember the story of the little Dutch boy who put his finger into a leaking hole in the dike, saving his village from washing away in a flood. This is a parallel example of what would happen to your company if you didn’t stop a financial leak - you could be wiped out of this competitive construction business.
Most people will call a plumber when they have a leak. Who does the plumber call when he has a leak? Fortunately, the plumber knows how to stop his leak, but he may not detect the problem or realize the consequences. We call this a “hole in the bucket,” which relates to a loss of income or profit. Plugging the hole in a money bucket is always considered good business, but in today’s challenging economy, it means survival.
Companies can overcome these costly leaks with ample cash flow when business is booming. Your bottom-line profit picture clearly shows you how much money is in your “bucket” but it doesn’t tell you how much should be there.
These leaks occur with estimation, documentation, billing and collection of money. Not as catastrophic, but still potentially costly, is where and how you spend that money.
Let’s begin with GYM (get your money) leaks:
1. Do not submit a bid on a project without knowing everything in those plans, specifications, alternates and addenda! Millions of dollars are wasted every day because a contractor did not spend enough time reading all of the bid documents. If you don’t include it in your bid, you won’t get it in your contract.
- If you think you cannot afford the extra time to read and
question critical information, you simply need to review how much an omission
cost you on a previous project.
- A note anywhere on any page of the plans or in any other section of
the specs is immoral but legally your responsibility to furnish.
- Any design mistake that you do not question before you bid will require you to furnish the most expensive solution. That’s why we get requests for information and written addenda.
2. When you are the successful low bidder, your next possible hole in the bucket is negotiating a fair and equitable contract. You should always include your scope of work and also exclusions.
- Establish due dates for monthly draws and payment date.
Insist on a 6 percent per month late payment penalty. Avoid any type of “pay
when paid” clause that could prevent you from getting paid. Eliminate retention
clauses and include an arbitration clause to settle any differences without
excessive legal fees.
- Request payment for stored materials and on-time payment for extras and change orders when they occur and not at the end of the project.
Your next obligation is to comply with all submittals, insurances and legal requirements. Maintain the agreed-upon schedule and bill monthly per your agreement. When you do not receive your payment on time, call immediately to ensure the customer’s commitment.
Policing these collection procedures should plug any possible leaks for getting your money.
The Jobsite Waste HoleWhat about some of the most common holes in your bucket related to business expenses, jobsite waste and spending money? Here again, there was ample cash flow to overcome these types of costly leaks when business was booming.
At the top of this list is jobsite waste!
All of these jobsite responsibilities should be carefully policed on every jobsite visit by your project manager or general superintendent. You also need to carefully monitor everything sent back to your office to assure timeliness and accuracy.
Any one of these jobsite leaks could break the dam and destroy your company.
Office And Overhead LeaksLet’s look at some of the possible leaks in your office and overhead management that are costly but not nearly as catastrophic.
Detecting and plugging all of these leaks is very critical in a struggling economy. It is also common sense not to waste your money when business is booming. Some may call it economizing, practicing thrift or even being stingy.
I call it “competitive construction.”