Fourteen lessons, in the order the method is installed. Each one explains why a step is in the plan, shows it as a picture drawn from your own numbers where it can, and links to the screen where those numbers are yours to change.
1 · Chapter one
Survival first, then growth, then profit
Construction is one of the largest industries in the economy and one of the hardest to survive in. Many companies do not last long, and the ones that do often keep only a few cents of every sales dollar. That leaves very little room for a mistake in planning, pricing, or execution.
The method rests on one idea: overhead is an investment. Your own time, the people you hire, the systems you install, and the tools that support the field are what let the company take on work it could not take without them. The plan prices that investment and asks whether the volume and the markup pay it back. That measure is return on overhead.
StagesEach stage strains the owner differently Risk and reward both grow with size. Bigger is not automatically better, and large companies fail too. The plan has to suit the stage you are in.
Control over your own futureA plan separates the things you can control from the things you cannot, so you act on the first and prepare for the second.
Confidence to delegateWhen the goal and the reports are written down, someone else can carry part of the load and you can see whether it is working.
Up and out of the detailsThe owner's week moves from running every job to steering the company.
Field work is not the only profitEfficient field work is essential, but jobs are also won or lost in pricing, in buyout, and in how overhead is sized to the volume.
2 · Chapter two
Test the company before you plan it
Many contractors add volume before the systems that deliver it are in place, such as taking work that needs tight job cost control without having a job cost system. The result is confusion and lost profit. The exam is a benchmark of whether the company is ready for the volume it already has.
Answer for the company as it runs today. Thinking about a procedure is not the same as having it working. Your score and what it means appear once you submit.
3 · Chapter three
Choose where the work comes from
Construction expands first when the economy grows and contracts first when it slows. Over the years that roller coaster changed how work is bought. Buyers became more demanding about time, quality, and cost. More work moved from the low bid to negotiated and design-build arrangements, and project managers took over much of what a lone superintendent used to carry. Selling a service became as important as selling a price.
CommunityEveryone with a stake in the job Because a job is expensive, a third party usually finances it, and the person who uses the building is often not the person paying. That made buyers more demanding, and it is why contractors now have to market a service, not just a low price.
A small share of firms does most of the work. What usually separates them is a chosen market position with repeat clients, not field skill alone. Three choices define the position: who pays (public or private money), what is built (new space or existing space), and on what terms (pricing someone else's plans or designing and building).
Market positionEight places to sell, each with its own economics Who pays, whether the space is new or existing, and whether you price someone else's design or sell your own method all change the risk. Markup follows that risk. The same million-dollar job can carry roughly double the markup in private design-build that it carries in public plan-and-spec, and the difference comes from the market chosen, not field skill.
Cost to win the jobLow for public plan-and-spec work, which costs little more than the estimate. High for private design-build, which takes relationships, design time, and negotiation.
Odds of winningHigher in private negotiated work. Fewer firms invest to compete there, and owners return to contractors they trust.
Skill in-houseThe further you move from public plan-and-spec, the more design, estimating, and project management the company has to carry.
Planning is making decisions under uncertainty, with the aim of making good results more likely and more repeatable. Survival has to be earned every year: the gross profit in a company's backlog typically carries its overhead for somewhere between a few months and two years, no matter how long the company has existed.
Four variablesThe goal drives sales, production, and finance Left alone, these three functions pull against each other. A business plan ties them to one goal, and the results feed back into next year's goal.
The process starts with goal setting. Profit above what survival requires gives you choices: save it against a downturn, spend it, or reinvest it in the company. The reinvestment is the decision that powers the plan, because it is the risk you take to grow.
Your economicsThe company is the vehicle for personal goals Keep personal goals and company goals apart. The plan turns on the reinvestment decision, because that is the risk you take to move the company forward.
Every job, in any company, passes through the same eight functions. The plan has two dimensions: the dynamic one, which moves work through those functions, and the structural one, which decides who has the authority and the responsibility for each.
WorkflowEight functions every job passes through The first four run on belief: you expect the estimate, the buyout, and the schedule to hold. Once the job is in the field, the process reverses and reports what actually happened. The management information system is how the company keeps score and learns.StructureDelegation creates three levels of authority Authority is the right to make a decision. Responsibility is the obligation to carry it out. Each level needs a different skill: leadership at the top, management in the middle, and technical skill in the field.Six modulesThe order the plan is installed in Each module depends on the one before it. A bonus plan without reports pays on guesses, and reports without a goal only describe the past.
5 · Chapter five
Return on overhead
Return on overhead is pretax income divided by the overhead invested to earn it. A dollar of overhead that produces a dollar of income is a 100% return. Four variables carry the whole plan: overhead, volume, markup, and profit. Overhead is the one you control completely, so the plan starts there.
Operating budgetPrice, overhead, and return in one picture Markup 1.37 turns $8,450,000 of sales into $2,281,500 of gross margin. The three overheads come out of that margin, and what is left is the pretax income the return is measured on.
This plan: $937,000 ÷ $1,344,500 = 69.7%.
OverheadYour $1,344,500 overhead investment, split three ways Overhead is the capacity you buy to compete: people, systems, and tools. Keeping the three apart shows which one is too large or too small for the volume.
Volume and overhead move together, but not evenly. As a company grows, volume grows faster than overhead, so overhead falls as a share of sales. To reach the next level, though, it has to add estimators, project managers, equipment, or systems before the new volume arrives, and it gives up some efficiency during the transition.
Overhead and volumeOverhead falls as a share of volume, then steps up Inside a stage, the same overhead is spread across more work. Moving to the next level of volume takes a new investment that pushes the share back up until the work arrives. The balance points are where a stage runs at its best, and the share never reaches zero.
Markup is partly yoursMarkup is the bid price divided by direct cost. Competition and the customer limit it, but winning one job at a good price lowers overhead as a share of sales the day the contract is signed.
Profit is the feedbackA job estimated right and delivered on time and on budget earns the gross profit that pays the overhead. A job that misses consumes it. Profit is the result of how well the other three variables were managed.
The more risk a contractor takes on each job, the higher its markup tends to be, and the more overhead it needs to carry that risk. That is why the expected return differs by trade. The starting marks below are comparisons, not promises. Your own closed years should replace them.
Return standardsWhat a fair return looks like by trade Contractors who take more risk on each job carry a higher markup and need more overhead to support it, so the expected return differs by trade. Your comparison is General contractor. Replace these starting marks with what your own years support.
To compare your company, restate the last three fiscal years with the three overheads split out. Markup is volume divided by direct cost, and the return is pretax income divided by total overhead. Show each line as a share of volume so you can compare your company with others of a different size.
PerformanceThree closed years beside this plan Restate each year with the three overheads split out, then compute markup and return the same way. One good job can flatter a year. Three years show the pattern.
Structure is what lets people succeed. Without it, some people are always overloaded and others underperform because nobody has said what is expected, how it is measured, or who decides. No structure lasts: a change in the market, the job size, or a key person usually means the seats change too. A flexible structure beats a rigid one.
OrganizationThree ways to divide the work There is no single best drawing. Start by naming what the structure has to make possible, then pick the form that supports it, and expect to change it as the market, job size, or people change.
The organization chart that matters is the week. Write down how each person's hours split across the functions, turn the totals into person-years, and the plan can see whether the company has the estimating time to bid the volume and the superintendent time to build it. A board or executive committee is how someone besides the owner reviews the plan each month.
TimeWhere the company's week actually goes Each person's weekly hours, split by function and turned into person-years. Estimating years set how many bids you can produce. Superintendent years set how much backlog you can run.
Goals have to become standards people can work to. For each size of job the company pursues, set the markup, the share of bids you expect to win, the hours one estimate takes, the months the job stays in the field, and how many of those jobs one superintendent can carry. Industry figures are a place to start. Your own history is better.
Job characteristicsEach size of job behaves differently Larger jobs usually carry a thinner markup, take longer to estimate, stay in the field longer, and let one superintendent carry fewer of them. Planning them as one average job hides all of that.
Two cash facts finish the inputs. The share of direct cost that is labor and material is money you pay before the owner pays you. The collection cycle is how long you wait, in months. With those, the plan can answer the nine questions every year has to answer.
Nine questionsWhat the economics have to answer before the year starts Grouped by the variables of the planning model. If any answer cannot be met, the goal, the mix, or the overhead has to change before the year begins.FormulasHow one number leads to the next Every value here is computed from your inputs. Change an estimating hour, a capture rate, or a month in the field, and the chain moves.
Potential versus demandPotential is what the estimating hours could price. Demand is what you plan to win from it. If demand falls short of the sales goal, you need more estimating time, a different mix, or a better capture rate.
Maximum versus minimum backlogMaximum is the work you would hold if demand lands. Minimum is the same mix scaled to break-even, below which the overhead earns nothing.
Superintendents3.33 on hand against 5.42 required. The plan needs more superintendent time or a smaller mix.
Cash and bonding$665,176 of working capital a month, and $3,802,585 of bonding at the surety multiple. Both have to be in place before the work is.
Accounting records every transaction in five books of original entry: purchases, payroll, sales, cash received, and cash paid out. A management information system arranges those same records so they answer planning questions. Arrange the chart of accounts so the statements come out in three levels without being restated.
AccountsA chart of accounts that already speaks the plan Arrange the accounts so the profit and loss falls out in three levels. Keep one-time gains and losses in their own range so they never flatter the operating return.ReportsFrom source documents to the next bid Each report is built from the one before it. Labor and job cost feed work in process, which feeds the statements and the backlog report. The backlog report is what makes the system answer a pricing question instead of only a history question.
Profit and loss in three levelsBudget, actual, and variance for markup, volume, gross profit, each overhead, pretax income, and the return.
Labor reportHours and dollars to date against the estimate, by activity. Labor can be a tenth of job cost or most of it, and it is the cost that moves fastest.
Job costLabor, material, equipment, subcontract, and other costs against the estimate. Cost codes should follow the estimate, with room for change orders.
Work in processEarned revenue and remaining cost on every open job. It is where the backlog report gets its numbers.
Debt to equityTotal debt divided by net worth. Keep it below one to one, and preferably nearer one to two. This plan: 2.88.
Return on equityAfter-tax earnings divided by net worth. It compares the owners' capital with what it could earn elsewhere. This plan: 123.2%.
Your banker and surety will run the same statements through a standard set of liquidity, leverage, efficiency, and profitability ratios. On your 2026 statements, 15 of 23 sit inside the usual comfort zone.
Reports are only useful on time. Labor reports should follow the posting of time sheets every week, and job cost should update with them. Work in process, the statements, and the backlog report should close every month. Field leaders, estimators, and project managers get the weekly reports when they need them. The executive committee reads the monthly ones together.
CalendarThe reporting rhythm that keeps the plan alive Labor and job cost every week, as soon as time sheets are posted. Work in process, the statements, and the backlog report every month. A report that arrives late is yesterday's newspaper.
Gross profit left in the backlog, divided by a month of overhead, is how many months the company can carry itself before it needs new work. It is lead time. If it is short, you may have to give up some markup to reach the minimum backlog. If it is long, you can price higher and reach the profit goal sooner. Either way the rule is to replace backlog at least as fast as you burn it, at a price the plan can live on.
SurvivabilityHow long the backlog can carry the overhead Gross profit still in the backlog, divided by a month of overhead. It is the lead time you have to win new work before the company has to fund itself. Short means price to refill. Long means you can price higher.
On this mix, the maximum backlog would cover 3.3 months, so the posture is to tighten the markup and refill toward the minimum backlog. The bid log tracks every bid, award, and markup against the monthly goals, so you can see the drift before it shows up in the statements.
The compensation plan has two modules. First, a wage, salary, and benefit program: a range for each seat, split into grades, with written benefits, so people are paid fairly for the job they hold. Second, a cash incentive written before the year begins, so people can earn more here than in the same seat elsewhere by hitting the plan.
WagesA range for every seat, then the bonus on top Set a salary range for each position, split into grades, with the same written benefits for everyone in it. The ranges shown are illustrative bands around current pay. Fair base pay comes before any cash bonus.
The cash plan makes three decisions: the return that turns it on, the share of eligible salaries that funds it, and how the pool is split. Most of the pool follows each person's salary share. A smaller discretionary slice rewards work the profit number does not show. Field crews are paid from their own pool, because their result is the job in front of them.
IncentiveThe pool turns on at the trigger and keeps sliding up Below 35% nothing is paid. At the trigger the pool is 15% of eligible salaries, and each 5% of return adds 1% through the 70% goal and beyond, with no cap.DistributionWho receives the pool, and why Most of the pool follows each person's share of eligible salary, so the rule is the same for everyone. The discretionary slice rewards work the profit number does not show.
LimitsKeep the office pool inside about 30% of pretax income. A bonus of roughly 15% to 25% of salary is competitive. Much more than that usually means base pay is too low.
AdministrationSix months on the payroll to be eligible. Pay about 30 days after the accountant's statements. Rewrite the rule each year, and announce it before the year starts.
Build relationships with the professionals outside
OutsidersProfessionals who constrain the plan whether invited or not Use them for expertise you do not keep in-house. They can advise, but the numbers are still yours to know.
AttorneyContracts, liens, collections, and the form of the company. Bring them in before a dispute, not after.
AccountantStatements in the three-level format, on a calendar the plan can use. The bonus and the bank both wait on them.
Insurance agentA strong account gets the best coverage at the lowest cost. Rebid the program every four to eight years, and no more often than every three unless service is poor.
Surety agentFew agents specialize in surety. Choose one who understands contractors and has markets for your size. Expect a thorough review of your character, capacity, and capital before every program.
BankerA demand line of credit carries payroll and material while you wait to be paid. Longer loans should match the life of the equipment they buy. Learn how your bank approves loans and who signs.
Your homeworkOutsiders can advise, but you still have to know your own numbers. Hand them this plan.
The common language of the plan is numbers. People inside and outside the company may see the business differently, but the same numbers let everyone measure the same thing. Every module of the method comes back to that.
Emerging
Invest enough to compete over the long run. Put the first people in place to sell, produce, and finance, and give them the tools to do it professionally. The return may dip while the overhead is added. That dip is the price of becoming able to grow.
Mature
The investment is made. Now give people the systems and reports to work to a consistent standard, refine the job mix and the markup, and make the return predictable from year to year.
Big league
The routine is in place. The work is keeping people motivated, keeping the plan theirs, and holding market position without letting overhead drift ahead of the volume.
This workspace is marked mature. Change it on the business plan when the year's volume says the stage has changed.