How much profit is your company leaving on the table?

Most contractors know their trade cold and still lose the year in the office. This exam checks the twenty planning habits that separate firms that keep their profit from firms that give it back.

Your scoreand how your company compares with firms your size

Dollars at stakewhat your gaps are worth in pretax profit each year

A first stepfor every no, and a free planner that closes the gaps

Want the background first? See the overview or read the method.

1. About how much work does the company put in place a year?

2. Which of these are in place and working today?

Check a box only if it is working now. Planning to install it is not the same as having it. Leave the rest blank.

Leadership1. We have an annual budget.Is there a written budget for the coming year, made before the year starts, that sets out expected sales, job costs, and each kind of overhead?Answer yes if a written budget exists for this year and someone compares actual results with it at least every quarter.2. We can show what this company is able to build.Have you defined the kinds and sizes of work the company is equipped to do well (trades, job sizes, clients, and locations) so everyone who sells knows what to chase and what to pass on?Answer yes if you could hand an estimator a written description of the work you want and the work you avoid.3. We have a written markup policy.Is there a written rule for how much markup goes on each type and size of job, including the lowest markup you will accept when work is scarce?Answer yes if estimators price from a written markup schedule, and going below it takes an owner's approval.4. We know our break-even volume.Do you know the sales volume at which gross profit just covers overhead, and do the people who price and sell work know it too?Answer yes if you can state this year's break-even volume and explain how it was worked out.5. The return on our overhead is acceptable.Is the pretax profit the company earns, compared with what it spends on overhead, a return you are satisfied with for the risk you take?Answer yes if last year's profit met the return the owners set as their goal for the investment in overhead.

People6. People give us the information we need to run the company.Do field and office people turn in the time cards, job reports, change orders, and other information the company runs on, complete and on time, without being chased?Answer yes if reports arrive on schedule and are reliable enough to use without rework.7. Positions, work rules, and time off are written down.Are job descriptions, who reports to whom, work rules, and time-off policies written down and given to employees?Answer yes if each key position has a written description and the employee handbook is current.8. Wages, salaries, and incentives are a written plan.Are pay ranges for each position, and any bonus or incentive, written down before the year with clear rules for how they are earned?Answer yes if people know before the year starts what they can earn and what it depends on.9. The company can operate without the owner on site every day.Could the company run its jobs, win new work, and keep the office moving for a couple of weeks without the owner, with others making decisions under clear authority?Answer yes if the owner could take two weeks off without jobs, bids, or cash falling behind.

Systems10. Estimators use our own estimating manual.Do estimators follow one company standard (the same takeoff method, crew and production rates, and checklists) rather than each person's own habits?Answer yes if two of your estimators pricing the same job would carry the same scope and the same production rates.11. Purchase orders are matched to invoices.Before a supplier or subcontractor bill is paid, is it checked against a purchase order or subcontract and coded to the right job?Answer yes if nearly every bill is matched to a purchase order or subcontract and a job number before it is paid.12. Each job has an estimate we track from start to finish.Does each job's estimate become its budget, with costs posted against it from start to finish, so you can see profit fade or grow while the job is still running?Answer yes if every job above a minimum size has an estimate-versus-actual report that someone reviews while the job is open.13. Labor is reported against the estimate.Are field hours recorded by job and by task, and compared with the hours in the estimate often enough to fix a problem before the job ends?Answer yes if crews report hours by cost code, and project managers see hours against the estimate at least weekly.14. Job cost is split into labor, material, equipment, subcontract, and other.Is job cost recorded in separate buckets (labor, material, equipment, subcontract, and other) rather than as one total?Answer yes if your job cost reports show each of those categories against its estimate.15. Cash need is projected job by job.Do you forecast when each job will need cash and when it will bring cash in, and add those up into a company cash forecast?Answer yes if there is a month-by-month cash forecast built from the jobs you have and the jobs you expect.16. Project managers, the controller, and the principals meet on job status.Do the people who run jobs, the person who keeps the books, and the owners meet on a schedule to review each job's cost, schedule, billing, and collections?Answer yes if a job review meeting happens at least monthly with written job reports in front of everyone.17. We see a year-to-date profit and loss every month.Do you receive a year-to-date profit and loss soon after each month closes, accurate enough to make decisions with?Answer yes if a monthly year-to-date statement arrives within about three weeks of month end, with work in progress adjusted.18. The financial statement is useful to us.Is your financial statement set up so you can manage with it (job cost separated from overhead, overhead split by type) rather than only for the bank and taxes?Answer yes if you read your statement every month or quarter and use it to make decisions.

Outsiders19. The bank line is large enough.Is your line of credit big enough to carry the company through its slowest-paying months at the volume you plan, with room to spare?Answer yes if in the past year you have not had to stretch payables or worry about payroll because the line was used up.20. Bonding capacity is large enough.Does your surety support the largest single job and the total backlog you plan to pursue?Answer yes if you have not passed on work you wanted because of bonding limits, or your work does not require bonds.

0 of 20 in place