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How Do I Decide What’s Most Important on My “To Do List”?

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Knowing This Could Be the Difference of Life and Death for Your Business

I’ve written on this topic of time management and prioritizing things a lot. This is because it is a big problem that can determine whether your company will live or die.

There are so many things trying to get on the “to do” list and each one is competing for the top position. Deciding which one should get that spot is tough. There are so many great and important things that we need or want to do.

It’s easy to say that we have limited time but hard to actually spend it that way.

My computer’s battery is not lasting as long as it was when it was brand new. Recently while working out of the office without the power cord, I had 2-3 things that I wanted to get done before the computer shut down. This limited time forced me to sort and prioritize.

How do we decide what to say yes to?

Emergency situations often require triage. This is the process of prioritizing patients’ treatments based on the severity of their condition and the resources available. In these situations, victims are divided into three categories.

  • Those who are likely to live, regardless of what care they receive.
  • Those who are unlikely to live, regardless of what care they receive.
  • Those for whom immediate care might make a positive difference in outcome.

These choices aren’t easy and often require a quick “gut decision”. A pre-determined system, training, and experience aid in the process and provide for the greatest number of survivors.

Another life and death choice is deciding who gets a transplant when there are a limited number of organ donations available. Take for example a set of twins who both need a liver transplant and their father has one liver to give. Which little girl gets it? The early thoughts of a father would be to give half to each. The problem with this, half wouldn’t help either. The final decision will be determined by which one needs it most or which one is most likely to survive.

Most of the choices that we make in business aren’t this critical…or are they? The decisions we make can mean life or death for our business.

In medical life or death situations there is a system and plan in place before hand. This same type of system should be implemented in our business. We should predetermine how we are going to choose the most important thing to the life of our business. This is where things get hard.

What makes one thing more important than another?

What should be the highest priority? Should it be production or proposals, record keeping or customer service, marketing, or staff? We’re faced with tough decisions in business every day.

I can’t answer this question for you, but if you’re tired of struggling with this dilemma, having the right business building tools can help you shorten your “triage” list going forward.

Having the right tools will give your business the highest chance for survival.

Big Projects Are Made Up of Thousands of Small Pieces

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How Can I Sort Through All of Them and Get Them in the Right Order?

Over the past several weeks we’ve discussed the importance of having a plan when it comes to building anything successfully. This goes for construction projects or businesses. Part of that discussion was focused on having a clear and implementable business operating plan.

We looked at how a standard operating procedure can help you achieve consistent results, reduce costs, increase productivity, and create a higher level of standards. We broke down the things that should be in an SOP. Then we discussed the process of determining the design of your SOP.

It became pretty evident that designing, building, and implementing an SOP is a pretty big project. It’s a lot like building a big construction project, if you don’t start, it will never get built.

The same thing is true for your business…if you don’t start, it will never get built.

I have found myself in several different situations over the past several weeks that have aligned with this whole big overwhelming idea of the SOP. It reminded me of a previous post about being too busy.

Here is an excerpt from that post –

This morning as I was posting in my journal, I started thinking about all of the things that I didn’t get done yesterday. Then I began to think about how many times I have posted this same thing over and over. It sure seems that I spend way too much time feeling overwhelmed and behind. I really want to get more done!

Then I thought about all of the times that I’ve had this conversation with other people. “How is your day going? Man, I am so far behind I don’t think I will ever get caught up. I sure wish there were more hours in the day.” I have heard these or similar comments more times than I can count.

Our lives can feel like a 20,000-piece jigsaw puzzle was dumped out in front of us with no picture of what it is supposed to look like when it’s done.

So how can we get all of these pieces to fit…or can we? This is the big question. It would be nice to know what the finished puzzle is supposed to look like. This puzzle can be tough and frustrating. I think it is especially difficult for those of us who are ‘recovering perfectionists’. We want all the pieces to fit just right. To know ahead of time exactly where each piece is supposed to go. This particular puzzle, called life, doesn’t work like that.

Here are some reasons we struggle with our puzzle and some ideas to help us get our pieces to fit.

  • We pick up too many pieces by over scheduling. There are so many pieces…Start with the corner pieces. Put in the most important pieces first.
  • The puzzle isn’t going together as fast as we want. Sometimes (most times) things just take longer…do as much planning and preparation as we can before we start, but don’t over plan. Spread the pieces out, find the edge pieces and get started.
  • With so many pieces in front of us we lose our focus. After we have put the edge pieces in place…remember that we can only put one piece in at a time. Concentrate on that one. If it doesn’t fit, then pick up a different piece and focus on it.

Life is a puzzle. What really makes this puzzle fun and exciting is that while we are putting our puzzle together other people are doing the same thing and their puzzle connects to ours.

Ideas are great, but if you don’t take action, nothing will get done.

Whatever the project is that you’re working on, find the first next piece, pick it up and put it in place, then repeat. This is the only way you will get the business of your dreams built.

What Should be Included in Your Company’s Standard Operating Procedure?

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Like Everything Else in Your Business, the Answer to That Question is Up to You

Last week we talked about preparing an operating system for businesses and how it can help you build a successful construction company. I pointed out that a standard operating procedure is a set of detailed step-by-step instructions that describe how to carry out any given process.

I discussed that it would allow you to –

  • Achieve consistent results
  • Reduce costs and increase productivity
  • Create a higher level of standards

This all sounds great, but what does it really mean?

Let’s break standard – operation – procedure down as it applies to business.

Standard – Is a consistent basis of comparison, an approved model, as determined by you as the owner and/or your leadership team. It recognizes a level of acceptable excellency. It is the level that the bar is set and where you let everyone on your team know what is expected.

Operation – Is a highly organized activity involving many people doing different things that contribute to the outcome of the whole. It is the performance of practical work involving practical application of principles and processes.

Procedure – Refers to a comprehensive set of instructions that prescribes a certain way of performing a process, or part of a process, in relation to time. It states a chronological sequence for undertaking activities, to achieve the objectives. Procedures are meant for members of the organization, including directors, managers, and workers to be pursued. It states exactly what course of action is to be followed by an employee in a specific circumstance.

Like everything in your company, you get to decide what and how things are done. Your operating procedures are no different. You get to decide…

  • What your standards are going to be
  • How your operations are going to be organized
  • What procedures you are going to implement

Constructing your Standard Operating Procedure.

Here is a list of things that are typically used in a SOP –

  • A Title Page
    • Title
    • Names of people who created the document
    • Dates when the document was created
    • Departments, divisions or people who will use this document
  • Table of Contents
    • A table of contents allows team members to easily find sections and areas quickly.
  • Introduction
    • The purpose and scope of this document
    • Roles and responsibilities of team members who are involved in the process
    • Resources and materials that team members will need to complete procedures
    • Cautions and warnings related to the procedures used in the process
  • Procedures
    • This is the essence of your SOP. Here you describe what needs to be done, the order of the tasks, and methodology team members need to follow. You can list the different steps here and if the process is more complex, include sub-steps to describe all activities in detail. You can include diagrams, images, and/or illustrations when appropriate. Imagery can be an effective way of explaining how to get things done.
  • Quality Control
    • Team members can keep track of performance on a case-by-case basis or over a period of time by consulting with this section.
      • Best practices related to a specific procedure
      • Guidelines on how to measure their performance
      • Samples of previous results
  • References and Glossary
    • Here you can include all the terms, resources, and documents that might be in the procedure section. This is especially helpful if you’re onboarding a new hire, and they’re not familiar with your company and business concepts.

These are examples of things that should be included in your company’s Standard Operating Procedures. Like I said before, it’s your company so you can pick and choose what will be included in your business.

As we go forward on this topic I will continue to go deeper and provide more specific about how to prepare an SOP for your company. Keep in mind that this process is like every other part of building your dream business.

It takes a lot of bricks to build a successful business.

Like I said last week, your company’s SOP is an important part of the Blueprint for Building a Better Business. and is one of the tools that we plan to include in the Business Building Toolbox.

How Can I Prepare a Standard Operating System for My Company

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Why Building a Successful Construction Business Requires Having a Plan

Over the past few weeks, we’ve discussed how building your business is critical to the success of your business and the importance of keeping your business in balance. After more than forty years of construction experience, I tend to view most things from a “building perspective”. Today we’re going to compare once again building a business and a construction project.

One of the most important parts of the plan for building a good building has nothing to do with physical construction. It has to do with processes and systems.

I have written about how building and operating a business can be like standing in the shadow of an overwhelming mountain and not knowing how to get past it. When you find yourself facing a mountainous obstacle it helps to have a plan.

One of those mountains when running a construction company is being pulled in too many different directions. Trying to operate all the different pieces of a business can be a big mountain. Having a clear plan and being organized can help you manage your mountain.

In your business, you have a specific way of getting things done.

But things are constantly changing, employees come and go, customers come and go, and if your company is going to stay in business you need to keep delivering high-quality construction projects regardless of the obstacles. This chaos just makes the mountain bigger.

So how can you maintain steady consistency with your company’s end results?

In an online article Workflow Automation shares how having standard operating procedures (SOPs) can help your business eliminate confusion around processes that are performed daily. This will allow your employees to be more productive and minimize mistakes! These procedures help you break down even the most complex processes so even a novice can manage these tasks from start to finish.

So, what exactly is a standard operating procedure?

A standard operating procedure is a set of detailed step-by-step instructions that describe how to carry out any given process. Companies that are serious about process management use SOPs to manage their day-to-day activities.

Having Standard Operating Procedures allow you to:

  • Achieve consistent results. With standard operating procedures, you complete your processes in the same way and achieve the right results every time.
  • Reduce costs and increase productivity. When everyone does the same task in different ways, eventually your organization will run into inefficiencies that cost you time and money. With SOPs you can streamline the process and increase productivity.
  • Create a consistently higher level of standards. SOPs are very useful when it comes to getting everyone on the same page and provides a standard way of getting things done.

Organizational paperwork is critical to having a business that operates smoothly and successfully. Having an organizational plan can answer a lot of questions before they’re ever asked.

This whole operational procedures thing sounds like a great idea, but also sounds like a lot of paperwork.

And the problem is…most construction people don’t like paperwork.

In a future post we will dig deeper into what is included in an operating procedure and how to prepare and implement one in your business.

Having an operational procedure is an important part of the Blueprint for Building a Better Business and is one of the tools that we plan to include in the Business Building Toolbox.

Portions of this are from a previous post on 10/27/18

How Can I Determine Which Thing on the List Should Be Done First?

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It’s Amazing How Things Become Clear with a Limited Amount of Time

The discussion in our mastermind group this past week was around productivity and how to be more productive. It started with the question of, what does productivity mean and what does it look like to be productive?

What is productivity? Now there’s a question for you to answer. We have a limited amount of time in a day, a year, or a life.

Productivity generally refers to the ability of an individual, team, or organization to work efficiently within that time in order to maximize output.

High productivity results from a mix of factors: motivation, personality, natural talent, training or education, environment, support from others, time management, and things that happen that are outside of our control.

Output / Input = Productivity

So, what is output? This is one of the things that makes the question of productivity so hard to answer. But this is where we need to start with the productivity question. What is the most important thing to accomplish in this finite amount of time we’ve been given?

There are so many things trying to get on the “to do” list and each one competing for the top position. Deciding which one should get that spot is tough. There are so many great and important things that we need or want to do.

It’s easy to say that we have limited time, but hard to actually schedule things that way.

My computer’s battery is not lasting as long as it did when it was new. Recently while working out of the office, without the power cord, I had 2-3 things that I wanted to get done before the computer shut down. This limited time forced me to sort and prioritize them.

How do we decide what to say yes to?

Emergency situations often require triage. This is the process of prioritizing a patient’s treatments based on the severity of their condition and the resources available. In these situations, victims are divided into three categories.

  • Those who are likely to live, regardless of what care they receive;
  • Those who are unlikely to live, regardless of what care they receive;
  • Those for whom immediate care might make a positive difference in outcome.

These choices aren’t easy and often require a quick “gut decision”. A pre-determined system, training, and experience aid in the process and provide for the greatest number of survivors.

Another life and death choice is deciding who gets a transplant when there are a limited number of organ donations available. Take for example a set of twins who both need a liver transplant, and their father has one liver to give. Which little girl gets it? The early thoughts of a father would be to give half to each. The problem with this, half wouldn’t help either. The final decision will be determined by which one needs it most or which one is most likely to survive.

Most of the choices that we make in business aren’t this critical…or are they? The decisions we make can mean life or death for our business.

In medical life or death situations, there is a system and plan in place before hand. This same type of system should be implemented in our business. We should predetermine how we are going to choose the most important thing to the life of our business. This is where things get hard.

What makes one thing more important than another?

What should be the highest priority? Should it be production or proposals, record keeping or customer service, marketing or staff? We’re faced with tough decisions in business every day.

I can’t answer this question for you, but having a “business triage” system will give your business the highest chance for survival.

Our 5-step BUILD process helps us prioritize and manage all the hundreds of decisions we’re faced with every day in our business. You can find out if the business building tools are right for you here.

How a Business Plan Can Help You Keep Your Business from Crashing

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It’s Hard to Keep Your Business in Balance Without a Plan

Most of us who are self-employed spend way too much time feeling like our businesses are out of control. We started our businesses with grand ideas and dreams. Then one day we woke up and wondered what in the world we were thinking.

Last week I wrote about needing a plan for building your business and how many businesses fail because they don’t have one. We compared a plan for building a business to a blueprint for building a building.

I recently finished reading the E-Myth Revisited by Michael Gerber. This book does a great job of pointing out the misconceptions around starting your own business and shows how commonplace assumptions can get in the way of running a business.

Michael walks you through the steps in the life of a business, from entrepreneurial infancy, through adolescent growing pains, to the mature entrepreneurial perspective.

Gerber draws the vital, often overlooked distinction between working on your business and working in your business.

As I read through the book I was reminded and encouraged to review and improve our business and the operating procedures. If we don’t have a plan and aren’t intentional about implementing it, we are doomed to failure.

Business is like a three-legged table. If one leg is short, it gets kind of wobbly.

I know I have felt this way about my business and sometimes still do. This is why after reading the book I was reminded that I have not been giving each of the leg’s equal attention.

You have probably heard the saying ‘feast or famine’. This is used quite often in the building industry. It refers to the common problem of having way too many projects to do. Or not having enough and worrying about how you are going to pay the bills if you don’t get some work soon.

Sometimes this is caused by situations beyond our control. The economy, the weather, or some other external force. More often than not it is due to an ‘out of balance business’…like a table with a short leg.

As in Gerber’s book, we usually start a business knowing the trade but not having any experience in operating a business. We know what we know and don’t know what we don’t.

We started out by learning our trade as an apprentice, while working for someone else. I know this is how I got started. The problem with this is that while I learned how to build a building, I wasn’t taught how to build a company.

Like a three-legged table, when all the legs are the same length, it provides a level sturdy platform for my company to sit on. When any one or two of them is short the table starts leaning and begins to tip over. If it tips too far the company will slide off.

It’s never good when a company crashes onto the floor.

The three table legs of a construction company are:

1 – Sales/Marketing – Searching for and finding customers that you can help by providing your service and/or product through word of mouth, advertising, and awareness. Meeting with potential customers, determining what they want/need, and preparing estimates, proposals, and contracts.

2 – Production/Operations – Organizing, scheduling, and maintaining the projects. Determining who the right people are to perform specific tasks. Knowing the parts that are needed and making sure they fit. Maintaining communication between all parties involved. Ordering, delivery, storing and returning of building materials. Facility and equipment maintenance and repairs.

3 – Administration/Finance – The preparation of documents needed to communicate, track, and record all aspects of the business. The filling out and filing of income, expense, banking, and tax papers. This leg is one of the easiest for ‘tradespeople’ to neglect and can cause the table to lean quickly.

The top of the table – This is the big picture planning and organizing of the company. It’s what connects the three separate legs. It’s one of the hardest parts for the tradesman to understand and the most important. If there is no attention or work done on this part, you may just as well throw the legs in the fire and go to work for someone else.

It’s easy to give too much attention to one or two legs and forget the other parts. To get so focused on the production of a project and forget to follow up with a new customer. To get so into preparing proposals that we forget to invoice. To work so diligently on tracking expenses that we don’t leave enough time for working on the project.

There is no perfect solution to keep the table from ever leaning. The most important thing is to BE AWARE that it can happen, UNDERSTAND the problem, gather INFORMATION and get INSTRUCTIONS about the tools needed to keep the business from crashing and LEARN how to use these tools in your business.

Keep your business from crashing by intentionally working to keep the table balanced.

Portions from a previous post on 4/30/16

How Building Your Business Is Critical to The Success of Your Business

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Like the Construction of a Building – You Need a Plan for Your Company

If you own your own business and aren’t being intentional about the organizational operation of your company, it is likely that you won’t make it past your 5th year. This is according to the Bureau of Labor Statistics.

Just think about the number of businesses that you have seen come and go.

Whether you are a solopreneur or have a team. It doesn’t matter if you have been in business for 30 years or just starting out. Regardless of the kind of work you do, the organizational plan is just as important as the work you do…maybe more.

I know in my 40 years of being in business I have learned some lessons the hard way. Let me tell you, the tuition for ‘The School of Hard Knocks’ (SHK) is expensive. There were times when I got behind on taxes to pay bills and other times when I got behind on bills so that I could pay taxes. Neither of these is a very good business plan.

One of my SHK professors once told me, “That when you steal from Peter to pay Paul, you make Peter a Paul bearer”. If you want to avoid the need for a pallbearer for your business…you need a plan.

Starting a business without a plan is not a very good plan.

Often, someone who has learned a trade or a craft decides, for whatever reason, to go into business on their own. Most of the time they have given little, if any, thought to business structure.

You show up every day working hard and then…surprise, you owe some taxes and don’t have the money to pay them. You needed a plan…a Blueprint for Building a Better Business.

There are a lot of similarities in constructing a sound building and constructing a profitable business.

  • Both need to start with design plans – The thing that gives you a clear direction of what you want the outcome to be.
  • Both need an architect – The person that can see the vision of what the finished product will be.
  • Both need a good solid foundation – The thing that will support you when the storms come.
  • Both need a good framework – The thing that holds everything together.
  • Both need a builder – The person that reads and understands the plans and puts all the different pieces together correctly.
  • Both need the proper tools – These are what allow the pieces to be shaped and fastened together in the right places in the right order.
  • Both need a good team – These are the different people with the different skills and knowledge needed.

It doesn’t matter if you have been in business for years or are just starting, YOU NEED A PLAN. If you would like to minimize the time you spend attending ‘The School of Hard Knocks’, then keep following our blog. We are working on some Business Building Solutions for just this purpose.

In what areas of building your business would some ‘higher education’ be helpful?

Originally posted 2/24/18.

How Using the Payment Application Tool Communicates Clearly with Construction Customers

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Learning About Business Tools Isn’t Necessarily Fun, but it is Necessary for Business Success

I know that the topic of the Payment Application over the past couple of weeks hasn’t been one of the most exciting topics. Learning about any tool, how it works, and how to use it isn’t one of those things that scores high on our “fun meter”.

This is true for most men. Just think about Christmas time and how most of us guys just want to dive in and put that new toy together without bothering with the instructions. We don’t need any stinking instructions!

This, “get ‘er done” attitude gets amped up even more for those of us in construction. Afterall…building things is what we do.

However, you know as well as I do that, more times than not, this doesn’t turn out so well.

That’s why years ago as I struggled trying to put my business together, I decided I needed to read the instructions. The problem was…I couldn’t find the tools or the instructions. So that’s why I decided to make my own Business BUILDing Tools, complete with instructions. 😊

One of those tools is the Payment Application.

Last week we went through the process of getting started with a blank Payment Application and getting it filled out so that it is ready for the customer’s first payment. Now let’s look at preparing the Payment Application for recurring progress payments.

Preparing for the next progress payment –

Step 1 – Updating the application information – In the application information box, change the application number to the next sequential number i.e., from 1 to 2. Change the date from the previous date to the date through which this application includes. This consists of the material provided or ordered and work done by this date.

Step 2 – Moving dollar amounts from work completed to previously billed – On the previous Payment Application you have dollar amounts in one or both columns D (materials presently stored or ordered) and E (work completed this period). The numbers in these columns need to be added together and added to the number, if any, already in column F (previously billed).

Step 3 – Clear dollar amounts from Work Completed columns – After completing the previous step you need to clear the dollar amounts from both columns D and E.

Step 4 – Confirm the dollar amounts – After clearing the dollar amounts from columns D and E you need to check the dollar amounts in columns F (previously billed) and G (total completed and stored to date). These numbers should be the same. Also compare these numbers to column G on the previous Payment Application to confirm that these numbers are correct.

Step 5 – Entering dollar amounts – Now you can start entering new dollar amounts for Material Presently Stored or Ordered (column D) and Work Completed this Period (column E). These numbers will be determined by the material provided and the work done since the last application.

Step 6 – Figure and enter sales tax – Depending on the jurisdiction and the state in which you are doing the work, determine what your tax rate is and whether it is on material only or both material and labor. We use a bookkeeping program on our computer to provide the sales tax based on the jurisdiction. Then, depending on whether it is material only or both material and labor, enter the sales tax amount(s) in the row marked Sales Tax and in the appropriate columns D, E, or both.

Now you have the next Payment Application ready to be given to the customer, in conjunction with the invoice.

Miscommunication happens too often when dollar amounts are left floating around in the customer’s head due to making multiple payments strung out over the duration a large project.

Most customers don’t bother to write invoice amounts down and/or keep a running total. They’re just writing checks periodically with at vague running balance and then are surprised that the final invoice is more than they expected.

The Payment Application lets the customer see –

  • What the original contract amount was
  • What is included in this current invoice
  • What they have paid for previously
  • The total of what they have paid for previously and the current invoice
  • The percentage of the job that they have been invoiced for at this point
  • The balance of what they have left to pay

They get this updated information with each invoice and can easily see where they started, where they are, and what is left to pay.

This is how the Payment Application provides clear communication for the construction customer.

Having this business tool and learning to use it will not only make your customers happy…it will also help you to BUILD a successful construction business.

How Our Payment Application Tool Works to Help Build a Better Business

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This is One of the Most Important Tools in the Construction Business Toolbox

Last week we talked about how construction companies struggle with cash flow and how not knowing what to expect can be very damaging to the business.

Communication between construction companies and customers is one of the biggest problems in the construction industry. The Payment Application is a business tool used for tracking project progress payments. It’s a way to communicate the financial expectations to the customer…and it’s only fair to let them know what to expect, when they’re the ones writing the check.

Construction customers don’t like surprises.

Our Payment Application is an Excel spreadsheet that lets the customer see the numbers before the project starts, continuing all the way through to the end…and this prevents them from being surprised at the end of a project with a bigger than expected bill.

The Payment Application is a document used to show the customer the price of a construction project broken down by item. It tracks the breakdown of payments being made, what has been paid up to this point in the project and what remains to be paid. This document is given to the customer with each invoice so they can see what they are being billed for on the accompanying invoice.

Starting with a blank payment application –

Step 1 – Filling out the project information – This process includes filling out the project information box with the customer’s name, the project name, and the project address. Next fill out the application information box with the application number, application date, project number, and the date the contract was signed. With each new payment application, the application number and date will be revised.

Step 2 – Filling out the scope of work information and value – This information will come from the signed proposal and will be entered in the first three columns on the left side of the spreadsheet. Using the proposal, take the number of the first item and enter it into the first cell on the column titled Item #. Next, write a brief description of the work described on the proposal in the column titled Description of Work. Finally take the dollar amount for this item on the proposal and enter it in the third column titled Scheduled Value. Once this is done you will repeat these three steps, one row at a time, as you go down the spreadsheet until you have all the information from the proposal entered on the payment application.

Step 3 – Confirm the dollar amounts – After all the values are entered, the total at the bottom of the Schedule Value column should match the total price of project on the proposal. If it doesn’t review the numbers in the Scheduled Value column until you find the mistake and correct it.

Now you are ready to use the Payment Application to accompany invoices. This will let the customer see what they are paying for. Seeing a large dollar amount broken down into smaller ones helps the customer understand what it is they are paying for.

It is a good idea to invoice for a percentage of a project prior to starting. This shows the customer’s commitment to the project and helps cover the contractor’s expenses on the project if something were to happen that puts the project on hold or stops it all together.

Entering the payment prior to starting in the application –

Step 1 – Determine the dollar amount for each item – Based on the predetermined percentage of the project prior to starting you will need to get the percentage of material and labor for each item. This information will come from the Worksheet used in the bidding process.

Step 2 – Enter the dollar amounts – The 4th and 5th columns of the Payment Application is where this information will go. These columns are the Work Completed columns. The 4th is material ordered, stored or used. The 5th is work done. Starting with the first row you will go down the sheet entering the percentage amounts in the corresponding column.

Step 3 – Confirm the dollar amounts – This step is the same as step 3 in the initial filling out of the form. It is to confirm that the dollar amount of the two columns added together matches the dollar amount given to the customer as the payment prior to starting.

Step 4 – Confirming percentage – Column H is a formula that is automatically calculated and shows the percentage this payment is of the total amount for each item. Once again you want to confirm this percentage matches the information given to the customer in the proposal.

We’re going to stop here today.

Next week we’ll get the Payment Application ready for the next progress payment.

This may seem like a lot of work, but it isn’t nearly as bad as it appears on the surface, and the benefits of communicating clearly with a Payment Application are well worth it.

The Payment Application is one of the best communication tools in the Business BUILDing Toolbox.

The Payment Application is Another Important Tool in the Business BUILDing Toolbox

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This Tool Helps the Construction Companies See Their Cash Flow Ahead of Time

Concerns about cash flow is one of the biggest struggles construction companies and contractors face — and for good reason. These businesses typically lay out large amounts of money for project-related expenses. Waiting to get paid until the job is complete is a sure way for a company to go out of business.

This is especially hard on smaller companies with limited cash on hand when they are working on larger, long-term projects.

An alternative approach is for businesses to be paid when predefined stages or percentages of a project are complete, a model called “progress payments.”

Progress payments benefit all parties involved.

The Payment Application is an Excel spreadsheet that is used for tracking progress payments made on construction projects. A payment application is more than a simple invoice. It includes a schedule of values based on the proposal and the individual items included in the scope of work.

Construction companies aren’t banks and shouldn’t be carrying the cost of larger construction projects until they are finished. Progress payments help companies recover a portion of their costs for the project along the way, thereby maintaining a steady cash flow.

Payment applications can also protect companies in the case of client nonpayment throughout the construction process. At Timber Creek Construction we have a delay condition in our contract that we can stop working on a project if a progress payment is not received promptly. 

In the construction industry, a progress payment is a partial payment often made after the completion of a predefined stage of work — for example, demolition, concrete, framing, roofing or siding. These installments replace single, lump-sum payments at the end of a project or a “half upfront, half at the end” arrangements.

Making payments connected to the completion of a specific stage of work can create some confusion., For instance, does completion of concrete include sidewalks and garage approaches that may not be able to be completed until other things are done? That’s why at Timber Creek Construction we choose to make our payments based on periods of time rather than stages. We then determine how much has been done within the predetermined period of time and invoice accordingly.

Benefits to progress payments are:

  • Stable cash flow – Progress payments provide construction firms and contractors with a steady stream of income, thereby reducing the amount of working capital needed for projects. This makes it easier for companies to cover costs for supplies and labor throughout the project. This minimizes the need to go into debt.
  • Increased motivation – Reaching that next milestone to get that next progress payment is a great motivator in the construction industry. Being paid along the way can also drive productivity, reduce material and labor expenses, and result in higher profits.
  • Minimizing payment problems – Getting paid based on progress establishes a steady expectation of cash flow and when you should expect it. If payments begin coming in late, or not at all, it could be a sign that the client is having financial issues. Delayed payments help flag this early and can prevent the need to take legal action.
  • Opportunity to pause the project – If a customer doesn’t pay their progress payment for work completed, you may decide to pause work until the issue is resolved.

The one drawback to progress payments is like most other business-related activities…it means more paperwork.

Construction companies and contractors need to make sure they are paid. Most don’t have a dedicated financial or accounting department to handle that function. This puts that task on the basic office staff or the contractor himself.

This is where having a Business BUILDing Tool and a system to use it comes in.

Next week we’ll look at the specifics of our Payment Application and how that tool works.