Masonry Magazine February 1981 Page. 53
Will your company make any money this year?
Pretty good question, isn't it? With all the talk of recession, inflation, high interest rates and unemployment, what's the bottom line going to look like?
Building as well as mason contractors have traditionally fallen on hard times during recessions and economic downturns. Many economists, accountants and financial advisers blame this on the fact that new construction is the first segment of the American economy to slow down. The situation can be further aggravated by unsound pricing practices in the contracting industry.
Some contractors use the following formula for success: they bid work a nickel cheaper than their competitors and obtain as much work as possible. Then they buy all the materials and expend the labor necessary to complete the job. They hope that at the end of the year they will have more money in the bank than they had a year before.
The mistake in this system is the bidding of competition rather than costs. When work is plentiful, competition is less intense and prices are higher. As fewer and fewer jobs become available, the "nickel-cheaper-than-the-other-guy" method can easily result in a loss which goes unnoticed until the end of the year. The successful contractor must know at what point to say "no."
The most important goal for many contractors is to procure the job. Yet most of the contractors that experience financial difficulty have all the business they can handle. Rarely does a contractor go broke because he doesn't have enough work.
Again we come to the question: are you going to make any money this year? If you can't predict this year's bottom line, you may need to brush up on your day-to-day cost-analysis and pricing practices.
At PROOF (Profit Research on Operating Factors) we have stressed the importance of sound job analysis and overhead mark-up as the basis of sound pricing practices. As a contractor, you must recover the indirect cost on a day-by-day, job-by-job basis. You also must be able to adjust to changes in overhead costs as the number of billable or job-related hours increases or decreases. Obviously, we cannot offer a complete cost-analysis program in a brief article; but we can mention three major areas contractors must be aware of.
First, a contractor must establish and budget reliable overhead-cost figures for the coming year. These figures must be realistic, and may differ from the overhead or operating-expense figures used for tax purposes.
Secondly, a contractor must be able to recover these costs on a job-by-job or hour-by-hour basis. For example, if a contractor expects to spend $200,000 in labor cost and $100,000 in overhead cost, then he will spend 50¢ for overhead on every dollar's worth of labor.
Thirdly, a contractor must be able to adjust to changes in costs. For example, if gasoline increases from 50e to $1.25 per gallon, this increase must be worked into the budget, and the cost figures must be adjusted accordingly. The contractor needs to adjust, not only to changes in actual costs, but also to changes in volume. Should he produce fewer hours of field employment, his per-hour overhead cost will increase because fixed overhead will remain the same, with fewer hours in which to recover this indirect cost.
So there are three vital questions for the financial manager: What will overhead costs be? How can overhead be recovered on a day-by-day basis? How can costs be adjusted to changes in volume?
This article was prepared by PROOF, a cost management consulting firm headquartered in Richmond, Va. It deals exclusively with the recognition and recovery of construction contractors' indirect or overhead costs and how to adjust cost and pricing (bidding) to varying levels of field employment. Its program is designed to help contractors on an individual basis through correspondence or at group seminars. PROOF may be reached at 3445 W. Cary St., Richmond, VA 23221, (804) 355-3446.
REIMANN & GEORGER PLATFORM HOIST
THE MASON'S LIFT
The rugged, dependable, safe way to automatically lift heavy, bulky materials to where you need them.
The Mason's Lift is portable, tough and capable of delivering bricks, mortar or virtually any masonry materials or equipment up to 400 lbs. as high as 44 ft. Two rugged, portable models are available with either gas or electric power to raise and lower work materials quickly and safely.
REIMANN
GEORGER
HOSTING EQUIPMENT
1853 Harlem Road
Buffalo, NY 14212
Colorful Charcoal Black
SANTA FE LAVA
For Stone Fireplaces, Planters, Residences and Commercial Buildings
BOB CRADOCK
314/771-1000
Send for
Free
Brochure
on Lava
Firm
Name.
Address
City
Phone
THE STONE CENTER
3200 BRANNON AVE.
ST. LOUIS, MO 63139
Title
Zip
MASONRY/FEBRUARY, 1981 53