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Clarity of the Plan is Key to Knowing What to do and How to do it

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How an Operating System Can Help Your Construction Company Navigate the Business Fog

The past couple of weeks we’ve discussed how an operating system can help you build a successful business and a list of what should be included in a standard operating procedure. This week we’ll look at style and formatting ideas for putting together a plan for operating your company.

It takes thousands of pieces to construct a building. If these pieces aren’t put together in the right place and in the right order, the end project is not what was expected. It might even lead to the building collapsing.

This can be avoided with a clear plan and good communication.

The same is true for a business. There are thousands of pieces that need to be put together in the right place and in the right order if the company is going to survive and become successful.

You don’t want your business to collapse, do you?

A Standard Operating Procedure (SOP) is the current hot title for this document. I will agree that these three words do a pretty good job of summarizing what this is, but don’t want to get caught up in what it’s called. You can call it whatever you want.

Just like you can call it what you want, you can design it however you want. Here are some ideas that you might want to include in your operating system.

  • Determine the format – This can be as simple or as complex as you want it to be.
  • Gather the relevant stakeholders – When you start discussing the system you should include anyone who has a stake in the process.
  • Define the structure – Bigger companies will likely have a more formal structure and startups, or smaller companies may use a more informal process.
  • Determine the scope – Keep in mind that you should have a clearly defined scope. It may involve multiple areas and people but be sure to not lose focus on your goals.
  • Be consistent in style – This makes it easier for the person who’s going to be using it if it’s a clear consistent style throughout the whole document.
  • Include all steps of the process – Record all steps that are required to complete a certain process.
  • Choose the right metrics for measuring success – To understand if you’re achieving your target results, you need to determine what the key performance indicators are.
  • Test the process – To make sure that your system is good or to make any final edits and tweaks, ask some of the team who will be using it for their feedback.
  • Implement the process – Once you’ve completed the above steps, you’re ready to implement. Keep in mind that these procedures are dynamic and will change with time.
  • Plan for regular reviews and updates – Since the construction industry and your business processes are changing all the time, your standard operating procedures should too!

An SOP is not a document to be made and forgotten about. It’s a manual that people use daily. So…it must be reliable.

Revising your SOPs every 6 or 12 months is a must if you want to stay on top of any changes and keep on delivering the best possible results.

As the owner or operator of a construction company, your head probably feels like it’s going to explode with all the things you’re trying to keep track of and do. Wouldn’t it be great if you had some help doing some of those things?

The problem with this is…now you have to teach and train them, and either you or they are going to forget something. Wouldn’t it be nice if there was an operating manual that they could refer to?

There could be. You just have to decide if you want to continue doing things the way we’ve always done it, hit and miss way. Or use the better, clear plan that can be implemented by a new hire or used by the most experienced team member.

If you would like to discuss this more set up a free 30-minute construction company consultation.

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

The Time Spent on Clear Communication is Worth Every Second

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So, if it’s Worth It…Why is it Not Done?

You probably guessed it already; this week’s topic is COMMUNICATION and the all-too-common lack of it. Because poor communication is such a big issue, I’ve written about it a lot.

In a production meeting with a customer yesterday I was once again reminded of the importance of clear communication and…the lack of it. The conversation revolved around how the subcontractors were doing.

The customers were very happy with their work and pleased with the effort to put plastic over door openings and to cover furniture in the work area. But she said, “We’ve never had an interior construction project done before.

I wish I had known how much dust was created, and I would have covered some additional things.”

Keep in mind that after forty plus years of doing construction, I knew that this was a very clean job site. The point is this…she didn’t know what to expect, and I should have let her know.

I should have communicated better.

Let’s look at reasons, results, and remedies for…

  • Misunderstandings due to poor or no communication
  • Being blindsided by cost overruns or hidden costs
  • Completed projects not being what you wanted or expected
  • Not understanding construction terminology

What is communication?

According to the Britannica Dictionary, communication is:

            “…the act or process of using words, sounds, signs, or behaviors to express or exchange information or to express your ideas, thoughts, feelings, etc., to someone else”

We all have our own perceptions and understanding of words, phrases, and gestures. I presume I know what you mean, and you do the same thing. This happens with spouses, family, close friends, and people we know well. If it happens in these relationships, it only makes sense that it will be more common with strangers.

Reasons people don’t communicate:

  • Takes time – People now expect things instantaneously. We have high speed internet at the tips of our fingers. Photos are developed the moment they’re taken and can be printed instantly via a wireless connection to a printer. We don’t have time to prepare or read through a multi-page document explaining a construction project.
  • Overwhelming – Reading through pages and pages of descriptions and explanations of construction legalese is a daunting task. As a customer, I probably won’t understand half of it. It’ll be easier to just go ahead and start. We’ll figure out the details as we go. I know what I want and I’m sure the contractor does too…NOT!
  • Lost skill – Communication is a two-way process. It requires both giving and receiving, speaking and hearing, writing and reading, expressing and understanding. If we don’t know how to use these skills, we can’t communicate effectively. Good communication requires more than emojis and hashtags.
  • Don’t like conflict – Most people don’t like conflict, but it can be positive. Conflict is always difficult but can lead to growth and change. It indicates commitment and can lead to better outcomes. It allows us to see the other side’s position. We should be willing to discuss disagreements without our feelings being hurt.

Results of poor communication:

  • Project wasn’t what you expected – You have a vision of how your finished project is going to look. You can see it in your mind. When you come home one evening, excited to see what has been done and then…it doesn’t look anything like the picture in your mind. What happened?
  • Cost overruns – You’ve saved and/or borrowed the money you think you’ll need to do the upcoming construction project. You get an estimate of what it’s going to cost. Sure, it’s more than you expected, but that’s alright; it will be worth it in the end, right. Then you get the final bill, and it’s a lot more than expected. Now what? Where are you going to find the additional money?
  • Time overruns – The contractor says, “Your project will be done in no time.” “This won’t take too long.” “We’ll be finished by the end of the month.” “This project will only take a few weeks.” This sounds great, but how long is too long, by the end of which month, how many weeks is a few? Trust me, your contractor’s definition of time idea is most likely different than yours.
  • Not knowing what’s going on – As you’re talking with your contractor, he’s telling you how this thingamajig is going to support that doohickey. We use the newest and best gadget to build our gizmos. All the while you are nodding your head as if you know exactly what he’s talking about. When, in reality, you have no clue. Wouldn’t it be worth it to ask some questions?

Poor communication can be solved with time and effort.

Trust me, clear communication is worth every second spent so just do it.

Updated post from 9/23/19

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.

A Proposed Change Order for a Construction Project is as Important as a Proposal

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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:

  • Proposals
  • Contracts
  • Change Orders
  • Payment Applications
  • Profit Comparisons
  • Job Cost
  • Six-week Cash Flow
  • Savings Account Transfers
  • Etc.

This Business BUILDing Toolbox (future link) is just one part of the 5-step Business BUILDing Plan.

Fixing problems such as neglecting to do a proposed change order as discussed above comes down to –

  • Being aware that there are problems
  • Understanding those problems
  • Getting the Information about and Instruction of systems and processes needed to solve those problems
  • Learning to use those systems and processes
  • Delivery of your DREAM business

Check back to find out when the tools are in the toolbox and ready to go.

How to Bring a Construction Proposal to a Conclusion with a Contract

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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.

Previously we laid out the “Blueprint for Building a Better Proposal” going over the different parts of the system, explaining the system, gathering of information, writing a scope of work, putting a price to the project and finally how to put all of the pieces together into a proposal ready to present to the customer.

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.