1. Are you pricing jobs with current pricing?
You could be giving away money.
In good times it can be difficult keeping up to date with movement in costs. From one month to the next labour rates and materials prices can move rather rapidly. It’s easy to think of it as just a few cents, but a lineal metre of KD 100x50 moving from $4.50 to $4.85 is a 7.7% movement. On $70,000 of framing that’s a whopping $5,390 that you haven't budgeted for.
is a necessary activity in any trade. Unfortunately, it’s often the first task that you drop when things 'get busy'. Perhaps the single reason that Back Costing doesn't happen is fragmented systems. The quoting system is separate from the job management system is separate from the finance system.
Bringing these systems under one umbrella greatly increases your ability to keep on top of costs during a job or project. Knowing where your margins are at every stage of the project is important, if you want to proactively deal with blowouts when they happen and stop them from eating up your margin on the job.
Belief that your business operates completely different from another builder, plumber or electrician is often the reason that you continue with your bespoke, or even manual system. In reality, this often isn't the case and if fact they end up costing you your time and the business's money. Adapting your business to the workflows of the many job management systems available ends up having multiple benefits. Not only does it mean the process becomes simpler and less prone to error, it frees up the time of your QS or admin staff on this stage, allowing you to run a tighter, leaner and more efficient machine.
At Alliott NZ we are informed on the various umbrella systems that could solve your Back Costing woes.
2. Do you know exactly what you plan to make on each job and, when it's finished, what you actually made?
How to avoid taking a hit on a job.
Hopefully, at a minimum, you have a system for tracking the revenue and costs for jobs that you take on. This could be as simple as itemising costs to jobs as you enter them into the accounting system. This is a good start!
With modern software solutions it’s now possible to keep on top of your margins throughout a job. Often, you can immediately see where your cost under/overruns are likely to occur against the original detailed Scope of Works/Quote. A major benefit when trying to forecast the likely margin that you'll make on a job and the impact it will have on your cash flow.
These software solutions put you in a great position
to address a blow out on labour hours at the early stage of a job and the reasons for it, or pick up on activities that you can raise with your customer as variations to the original scope. Tragically, these are often picked up after it’s too late to realistically address it with your customer. And so, you take the hit.
3. Are you so busy you're turning work away?
Maybe it's time to bring on more employees.
If BUSY = PROFITABLE then you are in a good space. If, unfortunately, you sit in the BUSY = FIRE-FIGHTING category then perhaps perhaps it's time to step back and have a good look at how you're doing things.
Two key pieces of information will help break the fire-fighting cycle and tell you whether you should take your business to the next level or not:
- Knowing why you are busy and;
- Knowing how long you're likely to continue being busy.
Ultimately, this comes back to your plan for the business and where you want it to head.
Putting a plan in place gives you the ability to make decisions confidently.
With a plan you can look at where you are heading and make decisions based on whether its appropriate to turn a job away, hire in temporary resource or bring in a permanent hand. Essentially, a plan helps you to make the right decision, at the right time and for the right reasons. It helps you to get out of fire-fighting mode.
Alliott NZ can assist you with business planning, including holding sessions with you to identify, in a proactive manner, issues that might get in the way of you achieving your plan. Armed with this knowledge you can then make the right calls at the right times.
4. Why does my cash flow always seem to be a problem?
Yes, it's a cliche, but cash is king!
Whether you like it or not, cash is the lifeblood of your business. If you struggle with cash, the simplest thing might be look at what system(s) or process(es) you have in place for collecting it in from your customers in the first place.
- Having a system that makes it easy for customers to pay is a great start. Even better is one that tracks customers who are late or overdue in paying their bills.
- Next is a rigorous process for following up late payments. This can have a massive impact on your cash flow. It’s a quick win that puts cash directly into your back pocket without having to even increase sales, or reduce costs.
At Alliott NZ we work with you to implement best in breed systems when it comes to debt collection. We can also advise on setting up a rigorous debtor management procedure. Along with monitoring the performance of your debts, our aim is to get cash in your back pocket.
5. How exposed is your family to the risks of your business?
When a mortgage is not enough.
Losing your family home in a legal stoush over a “potential” mistake made by one of your staff 10 years ago is a nightmare that to be avoided.
- A Limited Liability Company is a good idea, but is not necessarily enough if you're subject to the Building Constructions Act and exposed to personal liability.
- You can limit your exposure with insurance, but it can be quite costly to get enough cover.
- Trusts are another way to ensure your family's assets are protected. Unfortunately, there are few accountants that really know the entirety of trust law and how to form a sound asset protection plan, let alone know what one should look like for your set of circumstances. So many trusts end up poorly executed and not kept up to date, meaning they could be of little benefit if the time comes when you need this type of protection.
Fortunately, at Alliott NZ we have a solid grounding in trust accounting. In conjunction with your solicitor, we can assist you with implementing or refining a sound asset protection plan that not only looks after your assets whilst in business, but also in the event of illness or death.
6. Does paperwork feel like a chore that gets in the way of doing something better?
Don't do it!
Although you wish it wasn't so, the truth is that 'paper work' is an essential chore for you as it is for other business owners.
If you went into business because you like what you do, then you're not alone. Often business owners start businesses because they like their trade. And, like you, they didn’t plan on getting tied to their desks filling out forms and filing paper.
If this does sound like you then our first comment is, “don’t do it”. As a business owner your time has to be spent looking for the next opportunity, providing advice to your staff, or where necessary getting back on the tools to get jobs done.
Between a good book-keeper and accountant it is possible to reclaim precious hours stolen by paper work. Not only will you get better quality information at the right times to assist you with making the right decisions, they'll likely do it faster and get it right first time.
7. Is your business ready to take advantage of a booming economy?
How to be ready.
Positioning your business for growth, or making it agile enough to take advantage of opportunities as they arise, depends on you having enough of the right people, processes and systems in place.
If you're running your business on the 'smell of an oily rag', your next big win might be the job that leads to disgruntled customers or drives you over the edge financially - never mind your stress levels. So when you hear yourself say, "I'm too busy to work out if I have enough of the right people, processes and systems in place," that's when you need help the most.
Having someone external to your business, sitting down with you and critically analysing how you go about things, can be hugely beneficial. It allows you to step back from the day to day running of the business on a regular basis, look at where you are at and where you are heading. This gives you the confidence to say “yes” to the next job, knowing that you have a plan for how you will deal with the increased work load and the confidence that you will actually profit from taking the job as opposed to draining cash from your business.
8. If someone wanted to buy your business today, would you know what price to sell it for?
Being ready to take advantage of opportunities.
Getting the best price you can for your business when you sell it, is about having your ducks in a row. It's about making it easier for a potential buyer to see the value in what you are offering them. It's more than balance sheet and profit and loss, it's about knowing who your customers are, understanding the role your people play in the business and ensuring you have clear process and robust systems in place. Being able to show your business in the best light, maximises the goodwill (non-taxable) component when it comes time to sell.
At Alliott NZ we use a system called the “Sellability Score”
to assess your business's estimated value. We also use it to pinpoint weak areas within your business that need improving and to reveal any strengths that can be leveraged.
Using a tool like the Sellability Score
, in conjunction with a robust business plan, and monitoring progress at regular intervals, will ensure you get the best price for your business when it comes time to selling it.