You Need a Plan if You’re Going to Build a Successful Business.
STUCK IN A RUT
It was late on a Saturday night and Gene was sitting at his desk in his home office (otherwise known as a dining table). This was the office of his construction company.
He was working to get at least one more construction proposal done before going to bed. He had promised four different customers proposals this week. If all goes well, he’ll have this second one finished before midnight. As Gene crunched numbers, he worried that he might have forgotten something. This had happened before.
He asked himself, “Why am I doing this? I could make more money and work less hours working for someone else. Heck, I’d be better off flipping burgers. This sure isn’t how I pictured my construction business five years ago when I started.”
“I had no idea that running my own business would be this hard!”
Gene rubbed his eyes and stretched his back and thought, “I must be doing something wrong.”
It’s Saturday, and Gene was working like crazy all week, trying to keep up. With production crews not showing up, materials not delivered on time, cost overruns… There’s not enough time to do everything. This means not enough time to get the proposals done. Even if he works tomorrow, he’s not going to get all these proposals done in time. This means he’s going to disappoint at least one of the customers waiting on a proposal.
This is not a very good way to run a business! “How am I ever going to turn things around?”
When Gene finishes the second proposal and looks at the clock, it’s 12:40. It’s already Sunday and he still needs to proofread it, print it, and sign it.
Something has got to change!
“I’ve been leaving home early and getting home late all week. I’ve hardly spoken with my wife or kids for days. I can’t keep going like this!”
“I’m tired of trudging back and forth in this rut with no clear way out.”
I know, I know, paperwork is not a very exciting topic, but neither is concrete. And we all know how important concrete is in supporting a building. The same is true for paperwork and your business.
One of the three foundational piers in business is administration and finance. One of the building blocks in that pier is a Production Tracker. This tool provides valuable information for forecasting the company’s financial needs and production plans.
Wouldn’t it be helpful if you knew:
Which types of work were consistently the most profitable
How you were doing at meeting your financial goals for the year
When you should have the signed projects finished to stay on track
How well you’re doing at getting proposals signed
What the average price of your projects are
The Production Tracker is an Excel spreadsheet that lets you gather and track information. It has preset formulas that determine and sort the information you need to make your business more profitable.
This document provides information for:
Creating and recording project numbers
Tracking project bid amounts
Tracking dollars of signed proposals
Tracking dollars collected from projects
Percentage of jobs signed
Percentage of dollars signed per dollars bid
Percentage of dollars collected per signed
Average dollar amount of projects bid
Average dollar amount of projects signed
Average dollar amount of projects collected
Projected timeframe for doing signed projects
Projected date work should be done
This list can seem overwhelming but it’s really not.
Here is an example of what the Job List spreadsheet looks like.
Let’s go through the document and break it down into smaller brick size pieces.
Creating and recording project numbers – Having a numbering system can help you sort projects so that you can review which types and size of projects are the most profitable and what you do the most of. It may be that your most profitable ones are not the ones you do the most often. Having this type of information can help you to focus more of your attention on the right kinds of projects for you.
This Production Tracker is a place to list project numbers in conjunction with the size and types of the projects, as well as their chronological order. This document provides the numerical part of the project number specific to each project. The other portion of the project number is determined by job specific parameters that are not included on this document.
Tracking project bid amounts – Our Blueprint for Building a Better Proposal system provides the dollar amount for each project. Once a proposal has finished, the specific information to that project is entered into the appropriate cells on the spreadsheet. This information includes Job Number (column E), the Customer Name (column F), Description (column G), Bid Date (column H) and the Project Amount (column I). Regardless of the system you use for preparing proposals, you should have a dollar amount that could be entered into this document.
As each new project amount is added in the project amount column, the total project amount at the bottom will update, giving you a total dollar amount of the proposals you have done this year. Based on your company’s history, this dollar amount should give you a clear picture of where you are in relation to meeting your financial goals for the year. We will explain this further with the tracking dollars of signed projects.
Tracking dollars of signed proposals – Once a proposal has been accepted, the accepted dollar amount should be entered in the signed amount column. Initially, this amount should be the same as the amount in the project amount column. Sometimes the dollar amounts of projects are changed due to change orders. This can be either an increase or decrease depending on the change order(s).
As each new proposal gets signed the dollar amount of the signed proposal should be entered into the correlating cell in the signed amount column. Just like in the project amount column, as each new amount is entered in the signed amount column, the total dollar amount at the bottom automatically updates giving you a total of work you must currently do.
With the total of the signed amount column and the total of the project amount columns, you should be able to get a clear picture of where you are financially in relation to where you want to be at year end.
Let’s say your goal for the year was to generate a gross revenue of $400,000.00. Using the example, you can see that as of December 12th you were at $352,877.66. This is close, but not quite there. If you compare the signed amount to the project amount ($664,381.27) you will see that the signed amount is 53.11% of the project amount. Based on this percentage, to get the signed amount to $400,000.00, the project amount would need to be $754,000.00.
This information is critical to the survival of your construction business.
Your business needs to be built on a solid foundation.
We’ve covered a lot here today. In our next post we’ll pick up at tracking dollars collected from projects.
It’s Like Quality Construction, It Sets You Apart as a Professional
As Gene is driving to his weekly Saturday training with John, he remembers how hard it was in the beginning to convince himself to take the time to learn this system and how glad he is that he did. He thinks back over what he’s learned during the past several weeks:
Digging down to figure out why he was doing construction and the importance of that clarity.
Communicating clearly with the customer with a Scope of Work.
Last week’s focus on how to price a project clearly and profitably.
Gene’s getting excited as he pulls up to the SMR Construction Company office. Today they are going to put all the pieces together, creating a finished proposal.
After John and Gene have some lunch and get caught up on the past week’s events, John asked Gene, “You know how exciting it is when you see a new home coming to completion after starting with nothing but a blueprint? That is what we’re going to do today…we’re going to see…
A proposal taken from blueprint to reality.
Let’s get started.
The final step in preparing the Proposal is to transfer the information from the Scope of Work and the Worksheet to the Proposal template.
If you use a project number, insert it behind the number sign at the top of the page, below the proposal title. Next, insert the customer and project information in the open areas as it pertains to the project.
Insert your company name at the beginning of the introductory sentence.
Copy and paste the description of the work to be performed and material to be supplied from the Scope of Work in the body of the Proposal template.
Next, take the prices from the Worksheet for each individual task described on the Proposal, and place it under each task on the right side of the page. At the end of each section, put the total price for that section. This allows the customer to see a price for each section, i.e. foundation, framing, roofing, etc.
Now that the description of the work to be performed, the materials to be used, the prices for each task, and the subtotals of each section have been placed on the Proposal, it’s time for the project subtotal to be inserted at the bottom. Insert a separate price for the sales tax below the subtotal. Sales tax rates will be determined by the location where the work is to be performed.
Next insert the project total after, “For the Sum Of:” on the Proposal both in written and numerical forms, this duplication (just like on a check) helps with clarity.
Now that you have a project total you need to determine how payments will be made. There are several different factors which can determine how this will be done, i.e. the size of the project, when material will be ordered and/or paid for, the financing of the project, your personal preferences, etc. This could be done at the completion of set production tasks, scheduled times (weekly, monthly, etc.) or when the project is finished.
Determining the date in which the Proposal will expire will be up to you. If the Proposal includes some materials that fluctuate in price often then you may want the expiration date to be sooner rather than later. A standard time frame is 30 days.
The duration of time to complete the project can be determined from the Worksheet. At the bottom of the Worksheet there are four cells, with corresponding amounts for each category.
The Labor Price is the total amount of labor costfor the project. The Hours, is the total man hours needed for the project, dividing the hours by $60/hr. This hourly rate can be adjusted to whatever dollar amount you determine. The Days are the total hours divided by 7 hours of production per day. The Weeksare total working days divided by 5 days of production per week. You then have the number of working days needed to complete the project. This will then be entered into the corresponding blank space on the Proposal. It’s a good idea to add a little more time for the unplanned.
You now have completed the proposal!
At this point I recommend going back through and proofreading the scope of work for each task, checking the math to make sure that the prices on the Proposal add up correctly. Don’t be surprised if a few of the numbers on the Worksheet totals are off a cent or two from the total on the Proposal. This happens sometimes due the combinations of formulas on the spreadsheet. The most important thing is that the prices on the Proposal add up correctly.
Now sign the proposal and deliver it to the customer.”
John looks over at Gene and asks, “Well what do you think?”
Gene smiles and says, “You’re right. It does feel like seeing a house where there wasn’t one before. It’s very satisfying.”
“Know this Gene, it’s also going to be like building the first house. You’re going to have questions when you start using the proposal system. Start using it and let me know when you have questions. It will be tempting to go back to doing bids like you used to, but don’t.
Providing proposals like this communicates clearly with customers and prevents misunderstandings. It gives you a production budget and scope of work for the production crews which increases your bottom line. This is different than how most companies do proposals and will set you apart as a reliable professional.
“Next week we’ll review your experience and spend our time answering those questions.
It’s week six of learning the Building a Better Proposal system. As time consuming as learning new things is…Gene is beginning to see the benefits this proposal system will provide.
Just like building a house uses repeated actions to reduce the need to think about how to do things, this proposal system does the same thing when bidding construction projects.
As they settle in and begin the meeting, John tells Gene, “Let’s take a quick look back at what we’ve covered so far. We started by asking ourselves some foundational questions. Next, we discussed the common mistakes contractors make when doing bids. Then we went over the system and its parts. The last couple of weeks we’ve worked on gathering information and turning that info into a Scope of Work. Today, we’re going to start working on Pricing the Project
Communicating a clear description of the project is achieved with the Scope of Work. Accurate pricing is equally important to avoiding misunderstandings.
Poor communication will cause heartache, poor pricing will cost you money.
Open the Worksheet template. This blank Worksheet is where you will paste the information from the Data Base as it relates to each of the specific tasks of the project.
The Worksheet template has six different options for overhead and profit ranging from 20% overhead and 10% profit to 40% overhead and 20% profit. You can use whichever of the six options works best for you on the specific project you’re working on.
Typically, larger projects, i.e. new construction, large renovations, remodels, or large additions will use smaller percentages, while small projects will use bigger ones. You can use whichever works best for you. These percentages can be adjusted after you have finished the pricing if you want them increased or decreased. These documents can be modified with custom percentages as well.
Open the Data Base and prepare to copy the appropriate content into the correlating cells of the Worksheet of the project you are working on. Use the previously written Scope of Work to determine which of the categories specific to the project need to be copied from the Data Base and pasted on the Worksheet.
If more than one item for a specific task is needed, for example shingles, synthetic underlayment, and metal flashings, these individual items will be entered separately then added together to create one price for roofing.
You can add as many additional rows as you need, just be careful to keep the formulas intact by filling the content of the existing row to the new ones.
Determining which tasks should be inserted into the Worksheet is the next step.
Most of the tasks on the Data Base have options; determining which to use will depend on the specifics of the project. For example, how is the excavation, trenching and landscaping going to be done…with a skid loader, mini excavator or by hand?
Once it’s determined which methods, actions or materials are to be used for a specific project, copy the pertinent cells from the Data Base and paste them to the Worksheet.
After the pertinent information from the Data Base has been placed on the Worksheet it’s time to…
Enter the quantity of the work to be done.
Fill in the quantities needed to do the work for each item listed on the Worksheet. This may be in lineal feet, square feet, square yards, cubic feet, cubic yards, or numbers of pieces. Once this is completed for all the categories, you’ll have a price for each task of the Proposal!
This system offers a consistent repeatable process for preparing accurate proposals and is the difference between making money or losing money on construction projects.”
John looks at Gene and asks, “Well, what do you think?”
“Well, I thought my head was spinning before today…now I’m getting dizzy.”, Gene replied with a grin.
“I know it seems like a lot, but it really isn’t once you get started using it.” John says reassuringly. “Experiment with it this week. Call if you have any questions. Next week we’ll bring everything you’ve learned together into a proposal ready to be presented to the customer.”
Construction projects are consistently more profitable when you’re intentional with the dollars and cents.
Another week has gone by and Gene’s looking forward to today’s meeting. As they wrapped up last week’s meeting, John indicated that they would “actually” learn the first step in the proposal system today.
As Gene enters SMR Construction Company’s conference room, John is sitting at his computer with a Power Point on the big TV ready to go. “Good afternoon, Gene. Are you ready to get started learning the first step for doing better proposals?”
“I’ve been looking forward to it all week long.” says Gene.
“Okay. There’s oriental takeout there on the counter. Fill a plate and let’s get started.”
As they fill their plates, John asks Gene,
“When you begin talking with a new customer, what’s the first thing you ask?”
Gene ponders the question as he sets down. “I ask them about their construction project. What is the work they want done? For example, are they wanting to add on a room addition or remodel the kitchen or do they want to replace the windows?” Then Gene continues “You know…
WHAT is it they want done?”
John responds, “This is the typical question asked by most contractors. Without a doubt, it’s a question that needs to be asked. But there’s another question that will help you serve your customers better in achieving their construction dream.
The most important question is WHY.
Why does the customer want to do this project? Do they need more space, does something need repaired or replaced, are they looking to make an area more usable, or is it just because they want to? Learning their “why” early helps clarify their “what”.
As the construction professional, it’s your job to guide the customer through this process. Most customers have very little if any experience doing construction projects. Often, they get ideas from DIY programs on TV or the internet, other people’s projects, etc. and they just want one of “those”, whatever that is.
Every project is as different as the customer. Without blueprints, specs or seeing the existing location, the chances of giving the customer the project they want is almost impossible. Unless they have a full set of blueprints and specifications to bid from, you need to gather the information for each specific project.
The customer will have a vague image in their mind of what they want. It’s the contractor’s responsibility to guide them to the realization of that dream.
Last week we talked about the documents and definitions that make up the proposal process. Here are the steps to preparing a proposal:
Gathering information
Preparing the Scope of Work
Pricing the Project
Quantities
Preparing the Proposal
The important thing when gathering information is to not overlook something. This is what makes the Bid Sheet so important. It includes a list of most of the different construction tasks that might be needed and provides space under each task for a brief description, dimensions, specific notes, drawings, etc.
A pre-determined list minimizes the possibility of forgetting something.
The information gathered can be recorded in whatever way works best for you. It can be handwritten on a printed out Bid Sheet template, or it can be entered directly to a Bid Sheet on a tablet, smart phone, or laptop.
Using the Bid Sheet minimizes overlooking things because the different areas of a construction project are already listed.
If you use an electronic device (tablet, smart phone, or laptop) to gather the information, you can enter it in the appropriate space on the Bid Sheet template. With most electronic devices now, you can either type, write, or draw right on the device.
Using an electronic device streamlines the process and reduces the chance of something getting overlooked. Be sure to keep a copy of the template for the project you are working on; this will leave a blank template for the next time.
Forgetting to include something in the proposal is a sure way to lose money.
There are over one hundred items listed on the Bid Sheet and it still doesn’t cover every possibility. Construction projects vary a lot. Even small projects can include a lot of different pieces. If you leave one of the pieces out, someone’s going to be disappointed.
Here’s an example of finding out the WHY:
When meeting with customer, Jane Smith, she explained that she wanted to add a laundry/sewing room to her house but didn’t know where to start or what it should include.
We asked her WHY.
We found that she loved to sew and did a lot of it. Currently she used the table in the main floor dining room for measuring and cutting and did the sewing on a machine in the basement. In addition, her washer and dryer were in two separate closets in the master bathroom. Both situations were inconvenient.
Finding out “her why” helped us to find solutions for building her dream.
Here’s an example of the information gathered on the Bid Sheet:”
As they were finishing up John said, “If you’re serious about doing better proposals and haven’t got your Building a Better Proposal Stystem yet, I would suggest that is the first thing you do.
I would recommend you use the Bid Sheet this week when you meet with a customer wanting a proposal. Bring it with you next week so we can use the information from the Bid Sheet to prepare a Scope of Work.”
If you’d like more information about the proposal system referred to in this blog post, you can check it out here or join us at the free Building a Better Proposal Workshop at 10:30 CST on Saturday, February 10th. Attendees will be able to get the proposal system at half price plus a 90-minute, one-on-one training on how to use it for free.
You can learn more about some of the other tools and training for building a successful construction business here. If you have any questions, schedule a free 30-minute construction company consultation.
This is the First Step in Building a Better Proposal
Even though Gene was still overwhelmed, and his schedule was packed, he knew the only way to ever get control was to keep his upcoming appointment with John.
Gene had spent a lot of time this past week considering the questions John had asked at the first meeting.
Why do you do what you do?
Do you love what you do?
Why do we need to do proposals?
As Gene was driving to the office of SMR Construction, these questions were still banging around in his head with a wide variety of answers and no real clarity.
As he entered the office, Gene smelled something amazing. He hadn’t realized how hungry he was. John was providing lunch this week, and the smell made his hunger apparent.
In the conference room John was stirring some chili. “Lunch is ready. Grab a bowl and let’s get started.”
As they sat down John asked, “Did you come up with answers to the questions?”
Gene sat there for a minute and said, “I’ve come up with way too many answers. About the time I think I have it figured out; another answer shows up.”
John grinned, “That sounds about right.
The important thing is not having every answer to every question, but rather to continually be asking the questions and actively looking for the answers.
I still ask and answer questions every day.”
“A good way to find WHY answers is to figure out things that work and things that don’t. Let’s start with a WHAT question. John handed Gene some papers and said,
Here are seven mistakes that construction companies consistently make that cost them a fortune in both time and money. The first one is…
#1 Customers lack clarity – You remember the story I told you last week about that misunderstanding I had with a customer? This is a perfect example of how the lack of customer clarity is a problem. You need to provide a clear detailed description of the work and the materials you’re going to provide. A clear scope of work helps avoid customer confusion. The Building a Better Proposal provides a system to give clarity to your customer.
#2 Production crews lack clarity – The scope of work not only provides customers with clarity, but it also gives the production crews a clear understanding of the work to be done. This prevents subcontractors and employees from doing more or less than the project includes. Too much work done means cost overruns. Too little and the customer is unhappy. The Building a Better Proposal system gives the production crews a clear description of the work to be done.
#3 No production budget – When the production crews don’t know what the budget for the project is, they often spend more than expected. These cost overruns mean less profit.
When I was just starting out in business a banker told me…
If you take care of the pennies, the dollars will take care of themselves.
Let your production crews know how many pennies they have to spend. This will lead to more dollars of profit. The Building a Better Proposal system provides the production crew with budget numbers.
#4 Unsatisfied customers – Unhappy customers can be a series problem. Not only can they be a drain on company morale, but they can cost you money and hurt your reputation. They’re paying you to have their dream turned into reality. When they don’t have an accurate project amount before the work’s done, they won’t be happy when it’s finished and costs more than they expected. The Building a Better Proposal system gives the customer a clear expectation of cost before the work starts so that when it’s done for that price, they’ll be happy.
#5 Unprofitable projects – One of the biggest problems in construction is Guesstimates. Guessing at the amount of time and material it’s going to take to do a project is a big risk. Different size projects require different overhead and profit margins. The Building a Better Proposal system provides predetermined options of overhead and profit when preparing a proposal.
Proposals done this way can increase the profitability of your projects.
#6 Trying to do everything yourself – Most small construction companies only have a few employees. Their focus is usually on the physical construction which doesn’t leave time for doing accurate detailed proposals. Most contractors don’t like paperwork. This leads to hasty, inadequate, and oversimplified proposals. The Building a Better Proposal is a system that allows you to focus on doing construction while office staff does paperwork.
#7 Your bidding system isn’t customizable – Most construction projects consist of a variety of different areas of construction. You need a system that gives you the freedom to pick and choose what’s included and what’s not. Because markets vary greatly based on geographic locations, you need a system that you can adjust to your area’s specific requirements and rates. The Building a Better Proposal system allows you to customize proposals in these ways and more.”
John could see that Gene’s eyes were glazing over. “I know this is a lot to take in and doesn’t feel like we’re getting any closer to actually doing proposals, but I assure you…
Getting clear on these mistakes is the first step to providing better proposals.
If you have questions about the Building a Better Proposal tool or how we can help you take control of your construction business, set up a free 30-minute construction company consultation.
It’s Friday, and Gene is in his normal state of overwhelm. He’s supposed to be meeting with John tomorrow afternoon to go over the Building a Better Proposal system, and he doesn’t know how he can fit it in.
There are still so many things that need to be done.
“Maybe we can reschedule,” thinks Gene, “I’ll just give John a call and see about moving the meeting back a week… Okay, that’s enough.” Gene says to himself. “The whole purpose for this meeting is to change things, so that I don’t have to feel this overwhelmed.”
“I’m tired of always feeling out of control.”
A few minutes after noon on Saturday, Gene pulls up in front of the SMR Construction Company office and admires the building. As he gets the pizza out of the truck and goes up to the front door he thinks, “I sure hope I can have a place like this someday.” As he walks through the door John greets him with a solid handshake and a grin as he says, “I wasn’t sure that you would make it.”
“I wasn’t sure either.”, Gene says with a smile. “I came really close to calling yesterday, to see about rescheduling.” “I’m glad you didn’t.”, replies John. “You’ve taken the hardest step in a series of hard steps.”
“The first step is the hardest. It requires a change of thinking and direction.”
“Bring the pizza and let’s go into the conference room.”, John says. As they make their way into the spacious comfortable room Gene thinks back on when they used to have their weekly production meetings in this very room. Looking back, he realizes how much he had taken what John had accomplished for granted.
John hands Gene a plate and they both get some pizza. “There’s water and soda in the fridge like always.”, says John, “Help yourself.” As they set down and start eating John asks Gene, “Why did you start your own construction company?”
“Why do you do what you do?”
Gene sat there for a while chewing his pizza at the same time chewing on this question. “Why was he doing this?” He had asked himself this question a lot, but it was usually a question of frustration, not really looking for an answer.
After what seemed like an eternity, Gene answered, “I really don’t know. I suppose that seeing what you had accomplished, I wanted the same thing.”
“That’s the same answer I would have given if I’d been asked why I started SMR Construction.”, agrees John. “It wasn’t until I realized that to have a successful and profitable business, one that I was running rather than it running me, I needed to make some changes. One of those was to answer that question.”
“The WHY is more important than the HOW. Maybe your why is to make a lot of money, the enjoyment of building, the control that comes with owning your own company, something completely different or a combination of things.”
“Do you love what you do? In your current situation, do you even like it?”
Now Gene has another unanswered question to ponder. Does he like what he does? Life sure was easier when he worked for John. What was it that prompted him to go into business?
John interrupted Gene’s thinking, “Gene, you probably won’t get the full answer to these questions today, and we’ve already been discussing this for a while now. I would suggest that you take some time to think about these questions and dig down deep to find the answers.”
“The answer to these questions is the foundation your business will be built on.”
“Before we run out of time today, let’s move on to the topic you came for, a better proposal system. Here’s an overview of the proposal system that we’ll go over today. These are yours to make notes on and take with you.”
“Just like the why question for your business, you should answer the why question about proposals.”
“Why do we need to do proposals?
“Gene, there is a huge misunderstanding between construction companies and customers. The biggest part of this gap is poor communication. Even when attempting to communicate clearly, it often goes badly. Let me give you an example.”
“Several years ago, I met with a customer early in the process of building a new home. The customer pointed out that the distance from the electric meter to the house was more than the 50’ allowance, as per the agreement. He asked if this was a problem. I told him it wasn’t a problem. Guess what…”
“It was a problem.”
“The problem didn’t surface until later when the customer was billed for the additional 100’. After some research, the communication breakdown was uncovered. The customer asked, “if it was a problem”. What he was really asking was…”is it going to cost more?”.”
“The response ‘in reality’ was, “It’s no problem to dig the additional 100’, but it will cost you more.” Neither party intended nor expected this to be a problem. It was a simple matter of misunderstanding…a lack of communication.”
If you follow along on the overview, on page 2 you can see the importance of a proposal system and why you need it. Page 3 has reasons for and common reasons against doing proposals. Page 4 is a list of documents included in the system and descriptions of how they work. Pages 5 and 6 are an overview of the proposal system.”
“As we wrap up today, Gene, I would recommend that we schedule some time weekly to work through the proposal system. I know that you don’t feel like you can spare the time, but I would point out that if you want things to be different, it’s going to require you to do some things differently.”
Gene thought about this for a few minutes, “I get excited about the possibilities for my future every time we talk about this. Let’s do it. How does next Saturday sound, same time and place work for you?
“If I don’t commit to doing something different, nothing will change.”
John smiled wide and remembered when he had made this same decision. He was encouraged about Gene’s future and excited to be a part of it. “Remember when you called me a few weeks back and how frustrated you were? And then in the next call we discussed the possibilities for your future? Think on these things and your why as you study the pages from today. When we get together next week, I want to hear about your why, and we’ll go deeper into the Building a Better Proposal system.
“As you go through these pages write down any questions you have, and we’ll discuss them next week.”
If you’re interested in the Building A Better Proposal system that John and Gene are working on, check out Solution Building’sBusiness BUILDing Toolbox. To discuss how the proposal system could help your construction company, you can schedule a meeting with me here. As always, feel free to post any questions you have in the comments!
If So Many Issues Come from Not Doing Change Orders, Why Are They Not Done?
A Proposed Change Order is another very important tool that should be in the business toolbox of every construction company. However, it’s probably used less than almost any other business tool. Its lack of use causes as many, or even more, problems than any other tool.
If it’s that important, why is it not used?
We’ve discussed multiple times the reasons for doing Proposals for construction projects and the importance of communication with construction customers.
Proposed Change Orders are just as important.
If Proposed Change Orders are so important why are the done less?
The main reason for paperwork not being done is time. Time is the one thing that there is a limited amount of. There is more of everything else in construction. We can look for and find more help, job materials, money, etc. But, no matter how hard we look we can never get more time.
This time limitation is the main reason paperwork isn’t done. It’s easy to see the direct connection between production and revenue. Paperwork…not so much.
Doing a proposal or estimate is done before any construction agreement is made. This has a direct connection to the cash flow and increases time being spent on them. If we don’t have construction work to do, we don’t get paid.
After the project is started though, our focus shifts to the construction of the project. From that point forward paperwork takes a back seat on the priority bus.
Like any tool…it costs more money if you don’t use it.
I was speaking with my mechanic earlier this week and he told me a story about a contractor that he knew, that took a $15,000 hit on a job because he neglected to provide the customer with a Change Order.
The contractor and customer agreed on the work that was to be done and a price of $20,000. While the contractor was working on the project, the customer asked for some additional work to be done. The contractor did the extra work.
When finished the contractor gave the customer a invoice for $35,000. The customer was furious and would not pay the additional $15,000.
Not communicating with the customer before the work was done cost the contractor $15,000.
Spending the time to do a Proposed Change Order would have been worth it.
A Proposed Change Order is like a proposal…it lets the customer know what to expect. It gives both the contractor and the customer clear expectations before costing either.
In my forty plus years in construction I have witnessed this story happen too many times.
In addition to the time needed to do a Proposed Change Order another reason for them not being done is simply not having a process in place for doing them.
This is common in the construction industry. Most people running construction companies were taught construction…not paperwork.
It doesn’t have to be this way.
That’s why we’re in the process filling up a Business BUILDing Toolbox with ready to use templates, fill-in-the-blank worksheets, instructions, and examples of:
Putting A Period at The End of the Construction Proposal
The discussion of “Building a Better Proposal” began with the problems that arise from poor communication. We talked about this being the responsibility of the contractor and some of the reasons this is a problem.
Once you have a signed Proposal, you should conclude with a Contract.
The Contract completes the Proposal process and covers things beyond construction. Things like funding, additional documents, property boundaries, time within which the project will be started, and terms and conditions.
Construction Funds – This isn’t something that is relevant to every project but will be to some. If it is, the information would be included in this section of the contract.
Description of the Work – A complete and full Scope of Work could be included here but not needed if the customer has been presented a Proposal. If so then a brief description of the project can be inserted and a reference to the specific Proposal and any other additional documentation, i.e. blueprints, drawings, spec sheets, governing body documents, etc.
Property Lines – This is another category that isn’t relevant to every project but certainly can be. If working inside of city limits, normally there are set back requirements and easements, this makes it critical to know where the property boundaries are or to have a licensed surveyor make this determination.
Payment – Like the description of work above, this should be in the Proposal. If no Proposal was given to the customer, then this should be specified here. If a Proposal was given, repeat it again here.
Time for the Completion of Work – The duration of the work from start to finish is typically expressed in the Proposal. Due to the varying number of Proposals prepared and presented to customers, there’s no way of knowing what order they will be signed and returned. With the Proposal being signed and returned prior to the preparation of the Contract, the start date of the project can be determined and specified here.
Terms and Conditions – An in-depth explanation of specifications, descriptions, expectations, insurance, warranty, media permissions, etc. These will be specific to your company, type of work, and location.
I would recommend that you have a legal expert or attorney review your Proposal and Contract templates as well as any other agreement document to make sure they are sufficient and protect you and your customer.
We’ve gone through the process of meeting with a customer all the way to getting a signed Contract. Now it’s time to do the “construction” part of the project.
Just because you have a signed Proposal and Contract, don’t think the communication is done.
In most construction projects changes occur. These changes need to be treated like separate sub-projects of the original project with Change Orders. This is a topic of discussion for a different day…one that we’ll have in the future.
If you know anyone in a construction trade or related industry that you think would benefit from Business BUILDing Tools or learning about those tools and how to use them, feel free to share this Weekly Solution with them. For additional articles about other construction business topics go to the Solution Building website.
The sense of control that comes from pulling the trigger on a power tool is amazing. We feel like we are in control of our destiny. There’s no task too big. We can conquer the world.
There’s no doubt that power tools make construction projects go faster and easier than using hand tools. (And there are a lot of cool new tools that we’d like in our toolbox.)
Of all the tools out there, which is the most powerful?
This is a question that could be debated forever.
I would argue that the most powerful tool isn’t a tool in the normal sense of the word.
If the purpose of power tools is to increase control and be more productive, then having a power tool that would 10x these things would be worth 10 times what you paid for the most expensive tool you have.
Increasing your profit margin just 10% on a $5000 project and the tool has paid for itself.
What kind of tool could have this kind of return on investment?
The tool that I’m talking about is affordable and won’t wear out like other tools.
Most construction companies are great at “constructing” but are overwhelmed by the business side of things. This is not where their heart is.
You don’t need a master’s degree in business to be successful if you have the right tools.
A tool for doing clear and accurate construction proposals is this kind of tool.
Without a tool for doing proposals, a lot of contractors make mistakes that cost them a fortune. Unexpected costs, changes to projects after they’re started and poor communication are a lot more expensive than the cost of the tool.
Those mistakes include:
Lack of clarity with both the customer and the production crews
No budgets for customers and production crews
Losing money
Not doing accurate proposals due to a lack of time
Just like power tools make construction projects easier…there’s a “power tool” that will make doing construction proposals easier, allowing you to reduce stress, be more profitable and build a successful business.
You’re not in business to lose money, so get this tool.
We’re currently running a special Holiday offer for our Blueprint for Building a Better Proposal system. The reduced Holiday price is $497, including some additional bonus templates.
In addition to this special offer, we’re having a drawing for building contractors.
One lucky winner will receive a DeWalt cordless tool combo kit valued at more than $700.
Your opportunity to win starts now and ends at midnight 12/3/21.
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