All in Agreement
Money Divided By Time
Subcontractors in effect lend money to their customers in the form of labor, material and equipment in hopes of being reimbursed for their expenses each month. The goal is to get your money back with a little profit to boot. Unlike a bank, you don’t know if you’re going to make a profit. Banks are basically guaranteed to make a profit if the borrower pays as promised. Banks insure their position by taking collateral on the borrower’s assets. It may be the borrower’s home, stocks, equipment or receivables, as well as a personal guarantee. Subcontractors don’t receive collateral or personal guarantees, however it would be nice if we did.
Subcontractors are in a high-risk money- lending business. We may as well maximize our profit-making potential in a different way.
Time testedIf time is money, then profit divided by time is your return on investment. The less time it takes to get your money the better the return. If you do a job and invest $20,000 and end up with a $5,000 profit in 30 days, you’ve done well. That’s a 25-percent return on your money in 30 days if you’ve collected it. You won’t find a bank that will pay 25 percent monthly interest on your savings. If you completed the job and collected all of your money in 90 days, you earned 8.33 percent per month on your investment. If it took six months to complete the job and collect all your money, your return is only 4.16 percent monthly. You pay your bills monthly and should get paid monthly in full. My personal opinion is that monthly yields really tell the profit story.
The point is that your potential earnings could be much higher if you get the job done sooner than later and collect the money sooner than later. One of the keys to making a greater return is scheduling.
Residential schedulingMany residential drywall and plastering contractors don’t seem to be concerned about how long it takes to do a job. Many like to work at their own pace while enjoying the benefits of a flexible schedule. If a flexible schedule makes you happy and you’re content working this way, that’s great. However, if you are working to maximize your profit a schedule is critical.
It appears the residential subcontractor is generally driven to complete his or her work by either the GC’s insistence or the subcontractor’s next customer who is waiting for them to get started on the next job.
It seems to me that some residential subcontractors don’t consider themselves important in the whole scheme of things. It seems that many think their time is not as valuable as the GC’s or owner’s time. It also appears to me that residential subcontractors feel as though they don’t have the right to be pushy or aggressive in getting the job done. I don’t think residential subcontractors value themselves or their businesses as highly as they should.
One method of change is to develop a schedule for every job and have the customer as well as the employees buy into the schedule. Meet with a customer and ask, “When will you have everything ready for me to start?” before creating a schedule.
Base your schedule on the customer’s start date. If you’re a plastering contractor, determine how many days it will take to perform each phase of work. It may be one day to stock, five days for lath, three days for scratch, four days to brown, 30 days to cure and seven days to finish for a total of: one stocking day, 19 crew days and 30 cure days.
A drywall schedule may be: one stocking day, seven days to hang, one day to tape, one day for metal, two days to double coat, one day to dry, three days to finish, one day to sand and touch up, one day to prime and one day to texture for a total of: one stocking day, seven hanging days, 10 taping days and one drying day.
This exercise should generate a completion date, which you can share with employees. A schedule equates to hours worked and if you keep customers and employees on schedule you will better control cost and time, which maximizes profit.
The residential market is a prime market for those who want to maximize profits by being highly organized. Know any residential subcontractors who closely schedule each job to maximize profits?
Finally, a schedule is more than a scheduling tool. Use it to prove that your scaffold has been sitting for three weeks because of some owner’s or GC’s decision to change something. With a defined start date and schedule, one should be able to prove using a schedule an impact by higher scaffolding costs due to the GC’s delay.
Commercial schedulingCommercial subcontractors are normally tied to a schedule. However, because we are tied to an ugly, nasty contract, the schedule may be affected by contract language. The GCs in the commercial market normally develop the schedules we have to live by. If the GC is wise or feels like it, he or she may ask for subcontractor input. Otherwise, they will estimate the durations themselves and ship the schedule off to all the subcontractors. Some subcontractors promptly file the schedule away without analyzing it.
Don’t let others schedule _your work
It is vitally important to analyze the schedule. Make sure the GC has allowed enough time to complete work with the crew size anticipated. If the GC didn’t give enough time, tell them! By sitting on the schedule without making a comment, the GC is thinking that he or she did a great job putting the schedule together because nobody is complaining. Then, after you start the job you find yourself sitting in the GC’s office asking for more time. What do you think the GC is going to say? “Why wait until now to tell me you don’t have enough time? You’ve had the schedule for months.”
General contractors have a habit of giving themselves plenty of time to perform their own work, such as concrete. Many times, they will have their superintendent review the job and give them an idea of how much time they need for the concrete work. Any good GC superintendent is going to ask for as much time as he or she can get. Once that amount of time is inserted into the schedule, it is just a matter of using whatever is left over for the subcontractors.
As all trades approach the end of the job, the subcontractors begin scrambling because the GC and owner are screaming that they must have their building on time or heads will roll. If you agreed to a liquidated damage clause, you may end up paying for each day the job is behind schedule.
If GCs are allowed to cram the subcontractors’ work into a shorter duration than what is needed, you will suffer in terms of liability and maximizing profits. Who knows better than you how long your work will take? Who knows better than you how to maximize your profits?
If we allow owners and GC’s to make our schedules, we are putting ourselves in a very vulnerable position. Subcontracting is the same as any other business when you consider that we are doing the work, to get a return on our investment of time and money. Your time and money is just as important as any GC’s or owner’s.
I suggest that every quote you submit include language that states that your bid is “subject to a mutually acceptable schedule prior to entering a mutually acceptable subcontract.”
Nothing new under the sunAt one time or another in our lives we have heard someone say, “time is money.” Time divided by profit equals your annual return on investment. You must decide what you want for an annual return. Years ago, someone I know was bragging that his average profit margin was 30 percent per job. The question I should have asked was, “How much work did you do for the year and did you collect all the money you had coming in that year?” Twenty or 30 percent means nothing unless you can collect it all in a reasonable amount of time. What is reasonable depends on how much you want to maximize your profits.
Don’t allow yourself to be deceived: There is nothing new on the planet that will change the fact that “time is money” and that your time is just as important as the GC’s or owner’s.
Remember: Teamwork begins with a fair contract!