Leslie C. Shiner, MBA —author, speaker, and trainer—has more than twenty years of experience working as a financial and management consultant for the construction industry. She is the owner and principal of The Shiner Group of Mill Valley, California, a consulting firm helping contractors gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A simple Guide to Turning A Profit as a Contractor.” She recently was named one of CEDIA’s Overall Top Instructors. www.ShinerGroup.com
- Posted by Leslie Shiner, MBA on August 24, 2010
Is business starting to pick up for you? Are you considering hiring a new employee? If so, you need to be aware of the HIRE Act. Back in March, President Obama signed the Hiring Incentive to Restore Employment Act (hence the name HIRE Act). It includes tax benefits that you just might be able to use.
If you hire an unemployed worker, your business is exempt from the employers’ share of the Social Security tax. This means that you will not have to pay the 6.2% tax on wages paid from March 19, 2010 through December 31, 2010. If you pay a worker $25 per hour, for 40 hours per week, the savings amounts to $62 per week ($25 x 40 = $1,000 x 6.2% = $62). That’s $62 per week in payroll taxes that you won’t have to pay, ever! (The employee still needs to pay into the fund, so their deductions will not change.)
What’s the catch? Well, you need to hire qualified employees; those are workers who have been unemployed (or employed for less than 40 hours) during the 60-day period, which ends on the date you hire them. Individuals who were self-employed during the 60 days prior to the date of new employment are ineligible for the HIRE act tax credit. Also, the new employee must be an additional employee, meaning that you cannot get the tax credit if you are hiring him or her to replace another employee who was laid off. In plain English, you can’t fire someone, just to hire someone else to get this tax credit.
And the benefit continues; if you keep this employee for at least year, you may be eligible for a general business tax credit in 2011.
While this may all sound like tax gobbledygook, you do not need to know all the details. Just know enough that if business is starting to improve, and you are thinking about hiring, now is the time to check with a tax professional to make sure you are getting all the benefits you can. Sometimes, there is such a thing as ‘free money.’
Leslie Shiner—author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A Simple Guide to Turning a Profit as a Contractor.” Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining. www.shinergroup.com
- Posted by Leslie Shiner, MBA on July 28, 2010
For many of you, your financials are owned by your CPA or tax preparer. You set up your books the way he or she tells you to. Then, once a year, you print out the requested reports and send them to him. That certainly makes his job easier when it comes to tax time. But does it really help you?
Who needs to see what when? Your tax preparer needs to work with your numbers one day a year. You need to work with your number 365 days a year. So why not set them up to meet your needs, and let the tax preparer make changes once per year?
What does this mean for you? First, you might have a car loan. By accounting rules, that means you can only deduct the interest portion of the payments. But your business needs to generate enough cash each month to pay both the interest and principal. Why not deduct the full amount of the payments, and then at the end of the year, let your accountant make the adjustment to correct the books? It certainly will help you see if your gross profit is covering your total overhead, include all the loan payments.
If your company is a sole proprietorship or subchapter S corporation, the owner can pull out money as a draw or distribution. The problem with these types of transactions is that they appear on the Balance Sheet, and not as a deduction against the net profit on the Profit and Loss (P&L) Statement. For example, I saw a company that recorded a net profit of $50,000, but the owner pulled out $70,000. And then the owner wondered why there was no money left in the bank account.
Modify your P&L. Instead, create an ‘other expense’ account for money that, when pulled out of the company, typically ends up on the Balance Sheet. This includes draws/distributions, loan principal payments, income tax payments, etc. As long as it is in a section called ‘other expenses,’ your P&L will show two different net income numbers. First, there is ‘net ordinary income,’ which represents the amount that will be similar to your taxable income. Then the other expenses are deducted with a resulting net income. If your net ordinary income is positive, and your net income is negative, you may be pulling too much cash out of the business to pay down loans or for personal withdrawals.
The question is: who needs to see the numbers and how can you use them to better manage your company? Find a way to create a P&L and job cost reports that are meaningful to you. Use those numbers to manage your business and make sound financial decisions. Then, once a year, let your accounting convert them to the ‘right’ numbers for the tax return.
Leslie Shiner—author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A Simple Guide to Turning a Profit as a Contractor.” Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining. www.ShinerGroup.com
- Posted by Leslie Shiner, MBA on June 22, 2010
While I was speaking at the JLC LIVE Conference a participant came up to me and said he was concerned about his profit – aren’t we all! He said that when he had only a handful of employees he knew he was making good money. But as soon as he started hiring more carpenters and laborers, he stopped making a profit. While the economy was in a slump, he reduced his workforce. But now that the economy is improving, he is concerned that he needs to build his work force again. And he doesn’t want to repeat his mistakes. I assured him that this was a common lament among contractors.
It seems somewhat counterintuitive. If you hire an employee for $25/hour, and bill him out at $55/hour, doesn’t it seem like you should be making good money? Doesn’t it seem that the extra $30/hour that you make on each employee should be enough to cover your costs and put extra money in your pocket?
Consider your costs. Do you remember Pig-Pen, the character in the Peanuts cartoon strip? He was the kid who always had a cloud of dust around him. Your employees are like Pig-Pen. I’m not saying they are dirty, but wherever your employees go, a cloud of costs follow them. These added costs are called labor burden – which represents the additional burden of hiring employees. And they can be quite significant.
Most owners are aware of the standard burdens such as payroll taxes and workers compensation. Another typical burden is liability insurance. The majority of liability insurance policies are based on the total gross payroll. As your payroll grows, so does the cost of your liability policy. Even if your liability policy is based on total revenue, if your revenue grows, you’ll need to hire more employees. Therefore, liability insurance is related to your total payroll and should be considered a burden.
These costs are considered variable costs; they directly relate to your total gross payroll. If payroll goes up 10%, then each of the burdens above will also increase by 10%. But there are other types of labor burdens that are fixed costs; the costs are the same, no matter how much you pay your employees. These include such benefits as health insurance, as well as vacation and holidays.
One thing to consider when looking at these fixed costs is that the cost per hour increases when the total paid hours decrease. Most field crews do not consistently work 40 hours per week. What happens when it rains, or the crew goes home early because the inspector didn’t show up? While you only have to pay an hourly employee a wage when he works, you still have to pay health insurance when he doesn’t work.
Every burden adds to Pig-Pen’s cloud. Think of all the costs that belong to each employee. Does your carpenter have a company vehicle? Or do you reimburse for vehicle expenses if he uses a personal vehicle? Vehicle costs can be significant, including fuel, tolls, repairs, maintenance, fees, insurance and other costs that are often considered overhead. When calculating these costs, the total often falls between $3.50 and $6.00 per hour.
But we’re not done yet. Consider what other benefits you offer, such as a sick pay, dental or vision insurance, pension benefits, etc. Another way to look at this is to consider what happens if you hire another employee. Something as simple as a cell phone should be added to your burden. If you hired another employee, wouldn’t you have to increase your monthly cell phone or data package costs?
Consider efficiency. Now that the cloud of costs attached to your employees is almost as large as the employees themselves, we need to take into account the efficiency of your employees. No employee is 100% billable. While the goal of your company is to pay the crew to work in the field, consider all the time that you pay them to not work in the field. Do you have weekly production meetings? Do you pay for training? What about windshield time driving from job to job.
Look at the total number of hours you paid your employees last year. Then look at the total number of billable hours paid. Divide that into the total paid hours to determine your employee efficiency factor. With all the paid, nonproductive time, achieving even a 75% efficiency rate is difficult. Few companies in this industry are able to meet that goal.
As efficiency drops, the cost per hour increases. Even if you achieve a 75% efficiency factor, it means that for every three hours of paid billable time spent on the job, you are paying for one additional hour that is not billable.
Bear in mind the Pig-Pen effect as you set your billing rates. Considering all the costs of employees can help you structure your pricing strategy to make sure you stay profitable as you grow. With tight margins on each job, having a billing rate that doesn’t even cover your true costs spells disaster for the future of your company. As you send your crews out into the field, remember the cloud of costs that follow them wherever they go.
(Note – to obtain a FREE simple labor burden calculator, check out my website at www.shinergroup.com)
Leslie Shiner— author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A Simple Guide to Turning a Profit as a Contractor.” Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining.
- Posted by Leslie Shiner, MBA on May 26, 2010
It is a rare job indeed that has no change orders. For some contractors, they are just an added headache. For the more successful contractor, change orders are an opportunity to increase profit on a job. Have you considered the true cost of change work? You may already price changes to include the additional job costs, but what about the other factors? Are you including the costs of identifying, estimating and pricing the additional work? Are you including the administrative costs of creating, tracking and collecting the change?
Charge an administration fee: I’ve seen a trend over the last five years. More and more contractors are adding an administrative fee for each change order. They sometimes credit that fee if the change order results from unforeseen conditions. However, if the change order is created as a result of the client’s decision (or lack thereof), a change order fee is appropriate. I’ve seen fees ranging from $75 to $250 per change order. It is important to remember that there are significant time and costs involved in creating change orders. Charging a fee will communicate to your clients that you are a professional and your time has value.
Revising the schedule: Bear in mind that change orders usually affect both the final price and the final completion date of the project and clients need to be reminded of this. Be sure to include in all documentation the days delay due to any change work. Setting expectations and increasing communication with clients go a long way to ensuring their satisfaction with your work.
Bill early, bill often: Don’t allow change orders to accumulate until the end of the job. While you may detest paperwork and put it off until the last minute, undocumented change work causes erroneous expectations. Just because you told the client that there would be an additional charge, without the signed paperwork and accompanying invoice, the client may forget or minimize the costs. Ultimately, delayed change order documentation and invoicing gives clients a bad surprise and sours their attitude towards you just when you want them to be singing your praises. To determine if you fall prey to this bad practice, review the jobs you completed in the last two years. How much did you end up writing off on the final invoices, just to get paid? Are there some really old invoices that are still outstanding? How much money did you lose due to poor change order management?
Don’t forget to update your budget: Since change orders can significantly increase the costs of a job, make sure to update your budget to reflect the new total expected costs. Then, as you continue to job cost (you do that, don’t you?), you can continue to monitor the estimated to actual costs. During the job and as it comes to a close, continue to monitor your actual costs against projected costs. If you do not update your budget, you cannot determine if an overrun is due to poor management, field inefficiencies, increased prices or change work. Taking change work out of the picture will help you better analyze your jobs and become better at estimating and managing future work.
Turn change order work into a profit center: Remember to value your time and your work. I will never recommend creating an initial low bid just to get the job and then gouging the client with change orders. But I do recommend that you value the additional costs of change work on each job and make sure to price changes with the same (if not more) margin as you included in the original estimate. Test out your ability to keep up the margin on change orders. Compare the margin achieved on jobs with little change work with that on jobs with significant change work. If your margin falls with the increased number of changes, then you are not controlling change work properly and losing money on change orders.
Remind yourself that change orders can be a source of additional headaches or additional profits – which would you prefer?
Leslie Shiner—author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A Simple Guide to Turning a Profit as a Contractor.” Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining.
- Posted by Leslie Shiner, MBA on April 26, 2010
The first task a contractor typically delegates is the bookkeeping function. But all too often, contractors not only delegate all the financial tasks, but also abdicate the responsibility and accountability.
I understand that looking at financials can be confusing and frustrating. That’s why you need someone in your business who can look at your numbers with you, help analyze them and provide you with the assistance you need to you make decisions based on the facts and figures. This someone needs to be part of your team.
Now that April 15th has come and gone, you’ve probably been in communication with your CPA or tax preparer. You may have completed your return or filed an extension and you probably needed to put together either a final copy or draft copy of your 2009 financials to do so.
Did you have to contact your tax preparer or did he or she contact you? Did he take your information without asking questions? Did she discuss with you the results of 2009 and offer suggestions about 2010? If you had to contact him and he never asked questions or made suggestions, then perhaps you need to find another financial advisor for your company.
In small to mid-size construction companies, there is usually a gap in the accounting department. You may have a bookkeeper who writes the checks and creates the invoices and a tax preparer who prepares your tax return, but there is a position in-between the bookkeeper and the tax preparer. In larger companies, that position is filled by a full time CFO or Controller. But small companies usually can’t afford this and there isn’t enough work to justify a full time position.
However, this doesn’t mean that you can go without someone fulfilling this function. Just because your bookkeeper enters data into your accounting software, it doesn’t mean that you’ve done all you need to do to manage the financial aspect of your company. Remember, garbage in = garbage out, and I’ve seen a lot of contractors' financial statements that were incomprehensible and had no value in helping them run their businesses.
If your CPA or tax preparer is not communicating with you regularly, it’s time to find a new one. Or, keep that person around to prepare the tax return and find someone else to meet with you regularly. You should be meeting with this person at least quarterly to help you analyze the financial aspects of your business. As business starts to improve, now is the time to revitalize your financial acumen and make the right choices about pricing, labor costs, overhead, growth and other crucial decisions you need to make every day.
Leslie Shiner—author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A Simple Guide to Turning a Profit as a Contractor.” Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining.
www.shinergroup.com
- Posted by Leslie Shiner, MBA on April 8, 2010
There are really only three ways to increase profits: 1) spend less 2) charge more or 3) do more work. Which strategy do you choose? Let’s look at each one, in reverse order.
Do More Work
If you complete more jobs, you have the opportunity to make more money. But that only holds true if the jobs are profitable. Many contractors fall prey to thinking that this is the only option to increase profits. However, be aware that as your volume increases, your efficiency may decrease. Only consider increasing volume as a path to increased profits if you can continue to maintain your margins on each job completed.
Charge More
In today’s economy, many contractors are afraid to charge more. You might think that if you charge more, you won’t get any more work. However, pricing is only one aspect of the sales process. Consider the way you sell your jobs. Look into sales training, study value-based selling, and improve your sales skills. A good salesperson can improve the chances of successful sales. Don’t believe that charging less is the only way to sell more work.
Spend Less
There are many ways to spend less money on jobs. Creating schedules and sticking to them will allow you to better manage your time and your crews. Reducing the total time that a job takes will allow you to do more work and reduce the amount of overhead that each job costs. Managing material procurement will also help you spend less by reducing wasted time and materials on the job. Consider how much money could be saved by reducing your trips to the lumber yard. Think about how much money could be saved if you and your crew had the right materials at the right time. Increased planning and focus will help you minimize costly overruns and increase profits.
Look at your current jobs. Think about how you can better manage each job today to improve profits. Then look to your future jobs and consider what you can do today to improve your chances of success tomorrow.
Leslie Shiner—author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of A Simple Guide to Turning a Profit as a Contractor. Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining. www.ShinerGroup.com
- Posted by Leslie Shiner, MBA on March 31, 2010
What’s the first thing you do when you get to work? Read email? How many of you check your email even before you make your first cup of coffee? Come on, admit it – how often during the day do you check your Blackberry, iPhone or other smart device.
With today’s multitude of communication options, many of us are experiencing communication overload. And without self control and good time management skills, we are actually less productive than in years past. Most time-management professionals will tell you that the first step to improving time management is to take control of your communication by not reading your emails first thing in the morning. Why is this?
First, emails cannot communicate importance or significance. Even with the little red exclamation sign, it takes time to sift through your email to find the few that are the most important. Each time you read the same email and put off answering it, you’ve wasted time
Second, email is disruptive. Some email takes only a few seconds to respond to, others require more action on your part. Set aside a specific amount of time each day to answer email. Limit each email session to one hour, to make sure you continue to be productive. You may schedule multiple email sessions during the day, but make sure they have a definite start and stop time. Otherwise, you’ll feel like you wasted the whole day answering emails.
Think about the message you send when you respond to emails immediately. You are telling everyone in your network (your clients, your co-workers, your friends) that the best way to communicate with you is to send an email. The consequences of quick response to emails will only generate more emails. As you try to respond quickly to clear out your inbox, you’re only asking for more clutter in your inbox.
Another problem with email is that threads can become so long that a phone call would have been a much more efficient method of communication. If your thread is more than three emails, pick up the phone and talk to the other party. You can always follow up with a review email, to reiterate what was discussed.
The best way to spend the first hour of the day is to select a few tasks to complete before you check your email. Review a job schedule, check with a subcontractor or supplier, produce a proposal – these are all tasks that require concentration. Lock your door, turn off your email, and produce the work you need to produce.
Commit to spending the last part of every day determining two to three tasks you need to complete the next morning. Then, when you come into the office, do not open the email, but complete those tasks. Make yourself spend one full hour producing work, before reading your email. It’s a hard habit to break, but I’m confident you will see yourself become more efficient. Try it and post a comment to let me know how it goes.
Leslie Shiner—author, speaker, and trainer—has more than twenty years experience as a financial and management consultant. She is the owner and principal of The ShinerGroup, a consulting firm helping businesses gain financial control. As a business coach, she has worked with both small and large businesses to help them better understand their business practices and maximize their profits. She is the author of “A Simple Guide to Turning a Profit as a Contractor.” Ms Shiner is an engaging speaker with a long history of rave reviews. She continues to receive high praise for her ability to make financial management interesting, understandable, and even entertaining.
www.TheShinerGroup.com