You’re in the building & construction industry? Don’t be a Schmuck Builder
Here are some builder tips to live by…
A “schmuck” builder ignores or is blinded to the core reason for tendering on any job. The core reason to quote or tender for a job is to generate revenue to:
- cover all the jobs costs
- contribute to a share of the business overheads and
- deliver a respectable profit to the business
A project where you are being dictated to on your business’ financial viability is one to avoid. We recommend that you hand all the documents back, say you are too busy and just walk away. Let some other schmuck builder have the job. Using these builder tips can make the difference between being just a builder and being a wealthy builder.
Builder Tips 1
Only go into a building contract when you know the full costs, and have added a respectable margin.
All too often we hear of builders submitting a construction tender/quote, or worse, going to contract without a fully detailed and costed estimate. A comprehensive knowledge of company overhead costs is essential to enable a correct profit margin to be applied. Furthermore, an understanding is also needed of what percentage, or dollar value, of margin, should be available upon receipt of final payment for works completed.
It beggars belief that anyone can seriously be prepared to submit a project tender or quote and sign a building contract without a detailed estimate. But it happens. Unfortunately, these builders put their business, their builders’ license and their family’s financial position at risk. Exposure to a potential litigation minefield is another repercussion if the job goes bad financially. Limited cash flow may result in poor workmanship. Clients withholding payment, while the subbies and suppliers chase their payments. It all becomes a vicious circle.
Builder Tips 2
Do not go to contract on any construction project at a reduced profit for a perceived or intangible prestige value.
Submitting a quote/tender or signing a contract can sometimes appear enticing, based on the perceived prestige value for building this particular job. Some builders are persuaded to sign up on a less than ideal cost and profit margin basis, all because of this intangible value. Having builder’s signs or banners hanging off this job might seem like an important marketing choice, but not at the expense of your profit. Keep your ego out of the business! The most likely reality is that the perceived intangible benefit to the business will never be realised. Make sure the benefits are always bankable.
Let’s face it, do you really want to get screwed over by every client of the architect or the clients’ friends and associates? They will more than likely tell everyone you are an easy touch!!
Builder Tips 3
Control the financial viability of your building business.
Controlling the project profit margin, even before the work begins, is the result of a good knowledge of all of the tender documents, in detail. Reading and understanding the tender documents enables the builder to then fully cost a project and realise the right profit margin. Check all aspects of the tender concerning claim submissions for any restrictions noted in the contract. This includes how and when progress payments are made. Pay attention to any special damages clauses as these can be financial death traps to a builder. In addition, scan for clauses which require all costs invoiced for the claim with NO overheads. Finally, look for restrictions on the profit margin that can be added.
Builder Tip 4
Don’t allow your salesman to control your contract pricing!
The contract price should not be dictated by the sales person. Someone who is dependent upon commission is the last person who should be calculating your contract price. The business owner is the only person who can take on the responsibility for the profitability of the business. Ensure processes are in place to have clear profit margins defined for all key staff.
Every project should deliver a respectable profit to the business. True job costs are critical to the success of a project and must be inclusive of all business overheads. Read more about job costing here. There is no shame in making money, but there is shame in losing money, or going bust because you went to contract without knowing the details.
We recommend following these builder tips to avoid being a schmuck builder