Wednesday, May 4, 2011

How to Spot a Contractor Without a Functioning Brain

STOP ... Doing This!

The contractor was desperate and I could hear the fear in his voice. "I need work really bad," he said to me, "I can't pay my bills, how can I bid the jobs cheaper? I've got a guy, who will give me a job for 5% over costs. What shall I do?""

The truth is, he can't take this job or any other for that amount. After I looked at his financials, this contractor didn't even understand that he was bidding too cheap already and losing a ton of money.

You see. The numbers don't lie. If you do not have a clue or a handle on your numbers, you're a contractor without a functioning brain. To be truthful, you're a train wreck about to happen.

You make your money with your business skills, not your construction skills!

Let me show you what I mean.

The average contractor, doing about $700,000 a year, has an overhead expense of about 25%. Some are higher, and others are lower, but it is a good average.

This means his overhead or burden to support his field operations is costing him around $175,000. Not a lot of money, and it doesn't include any profit. In order to generate at least a 10% profit margin above and beyond his overhead costs, he would need to mark up his estimates by 1.35 or more.

In other words, a $10,000 estimated cost would have to be sold for $13,500, and enough sales, ($700,000 at that mark up of 1.35) to make what he wants.

His margin of error is his 10% profit or $70,000. One bad estimate, or Sales below the $700,000 mark, one price increase not properly covered, and costs start to devour the profit first.

For an example, let's say that he lands a $700,000 job for costs plus 5%. His total Sales would be $735,000. Costs would be $700,000, leaving the difference to cover his overhead and profit. What is the result?

A net loss of $210,000!

Let me show you. -

$175,000 overhead + $70,000 profit = $245,000 - $35,000 = -$210,000

There is no way that volume can make this up. Too many are selling jobs too cheap just to get the work, and that is a perfect recipe for financial failure.

As sung by Kenny Rogers in the song "The Gambler," "You've got to know when to hold, know when to fold them, and know when to walk away!" You'll lose less money by walking away.

If you would like to learn how I can help you get a handle on your business, check out and get my FREE Coaching Report by clicking on the report.

Why suffer the consequences of not having a handle on your business? It's costing you more than you think without it!