Continuing the chapters about the tools that can be used to help you have a Successful Construction Business. This is also a continuation of Resource Allocation and focuses on allocation of the Human Resource.
We will discuss the field as well as the office. In both areas we can look at staffing as opposed to outsourcing. Everyone reading this is familiar with outsourcing or Sub-contracting.
We are going to look at the office from a number of viewpoints but, in all, focusing on the resource allocation involved. First, there is the financial processes.
Let’s break it down into a few entities. Cash, credit cards, checks, bank accounts and payroll. I know this sounds very basic but, we need to start somewhere and this is the bottom line.
Cash is something you have only to be used for petty cash transactions for 2 reasons. First carrying cash opens you up to theft and, second recording of each transaction becomes a pain.
Credit cards should be used for as large a portion of your transactions as possible. Security tracking is done by each entity issuing credit cards and the transactions are recorded for you so, you always have access to that information. They also dictate your credit worthiness. Having more credit cards and credit transactions that are paid on time gives you a better credit score.
Checks are only used where necessary because they are inconvenient and because you must record the transaction so you will have the record. Also, in some accounting software you can write a check and then delete it as though it was ever written.
Payroll – all the transactions necessary to pay the individual and the taxing entities.
Bank account is the focal point of your finances. If you use online banking you can pay your bills directly from your account rather than writing a check or you can have the bank write a check for you.
The entities containing the transactions that will comprise your financial records are the bank account and your credit card accounts. Recording of transactions in your accounting software should be on a detail level rather than just the payment you make to the credit card company for all the transactions on that card because you need to be able to follow the money. That would mean the only transaction you would record about the credit card is interest or any other fees you might pay on that card. The other accounting is from payroll and the same theory is applicable. That would mean that a transaction should be recorded for each of the payments related to payroll for each employee. So, at the end of every period, the accounting software contains everything necessary to review the state of your business.
All of this could be a sizeable amount of work and will grow as the size of the company grows. It is not only the recording of the data but acquiring and understanding the information that can be gained once this is done.
Today the data,
- expense transactions, including payroll transactions
- revenue transactions
are all available from your bank account and credit card holder account so every transaction can be downloaded directly into the accounting software you use. This can mean a considerable decrease the amount of work necessary.
Let’s consider the dollars paid for the bookkeeper of clerk that records all of this and acquires the reports. In the beginning, there are not very many transactions and, therefore, not many hours of work are needed. This can be a part time task for someone doing other things or for a part time person. As stated before, when the company grows the volume of transactions grows and the number of hours also grows.
If the person responsible for this process is just downloading the transactions from the providers the only real work is review and maintenance of the data as well as producing the reports. That means that, though the transaction volume grows, the work only grows minimally with the exception of payroll.
We need to look at the best bang for the buck. Most accountants will tell you that, when you reach a certain number of employees, payroll processing should be outsourced to a service that does just that because of the amount of effort and expertise necessary for the process. It is easier, faster, less expensive and better for the expert to do it and return to you the transactions to be entered in your accounting. They even write the checks.
This link is to the IRS so you might read what they say on the subject. https://www.irs.gov/businesses/small-businesses-self-employed/outsourcing-payroll-duties
The following is a list of some of the companies that do outsourced payroll processing.
Most accountants will also tell you that at some point you should outsource the bookkeeping and accounting. One might think that is to feather their nests but it is not. It follows the very same resource allocation logic as outsourcing Payroll – easier, faster, less expensive and better for the expert to do it. The time for you to do it should be determined by the tradeoff between the cost of people time against the monthly expense and the expertise that comes with it. That time could be day one of your business or never.
If your transaction processing is just downloading, editing and producing reports you may consider at a periodic conference with your accountant for their expertise in best business practices. Whereas, you might look at that resource tradeoff as beneficial.
Your local accountant should be able to handle this service or the following are some national services that can handle these functions also;
In any case, make sure the vendor with which you deal provides at least the same kind of access and support you would have from employees. Also, make sure they are the kind of operation that will assist in understanding the information acquired, it’s impact on your operation and what to do to improve. Get the expert. You are trading your financial resource. Don’t settle for less than the best.
Below are a few ideas to consider when deciding whether or not to outsource:
- Outsourcing can reduce operating costs. It allows your business to access the knowledge of the outsourcing company and frees up time and resources to focus on your specific business goals and strategy.
- Outsourcing your bookkeeping payroll and accounting functions makes sense economically and operationally.
- Do you only need your bookkeeping four days a week? Consider opting out of that position as salaried and consider outsourcing it instead – making this a variable cost instead of a fixed cost.
It is very critical that you do not give accountability away to the outside resource.
The following is a brief overview of what you need to be doing at least weekly; https://www.sba.gov/blogs/3-essential-financial-statements-your-small-business
Courses in basic financials is available from numerous sources. The following are a few.
In addition, there are numerous books that can help., the following is one of many sources.
If you want your company to be financially successful it is up to you.
Another business necessity is your telephone service. It is critical that the outside world be able to reach you to give you business as well as for many other reasons. It is inexcusable for your phone service to have no voicemail or for the mailbox to be full or for you to not return phone calls if you want a successful business.
If I call some business and there is no voice mail or if the mailbox is full my automatic response is that they cannot give me the professional results I require if they cannot do it for themselves and I move on. If I leave a message and the call is not returned, I will not try again for the very same reason. Think of how many dollars you might lose because of missing one call or how many dollars you might spend recovering from a change because you missed the call from you client or how many possibilities you might miss just by being rude and not professional when calls are not returned promptly.
The other consideration is the message your phone service sends you audience. Does it say that you are a one-man-band who hasn’t figured out how to run a business yet or does it communicate your professionalism. As we discussed in part 1, then only thing you have to sell is value so your communication with the outside world must portray that value. If you do not allocate the financial resources to this you are killing your business.
For a very small amount you can have a phone service that communicates whatever you want and does not miss anything. Consider this for as little as $5/month https://www.google.com/googlevoice/about.html. You can make your company look like a large business with extensions for each person that are, in essence, forwards to their cell phones. The price expands as the services you request do and this is only one of many vendors of that kind of service.
You might, instead, want to use an executive suite for that purpose because it also has the meeting room for you and your prospect or client to meet in when necessary. These services range from $75/month up but allocation of this resource makes you look a bit better to the prospect than meeting in the coffee shop. It says you thought enough of yourself to present a value proposition.
There is only 1 first impression. What do you want yours to be?
The Job Site
The first question is whether you are a sub or general contractor. Let’s talk about general contractors whether you are officially categorized as such. Remodelers and builders fit into this category and the size of the operation does not matter. When doing a job there are numerous tasks and they range in variety from carpentry or masonry or mechanical, etc. As a small business you are probably not licensed in all of the trades and, therefore, must determine how complex each of the tasks is and whether your company has the talent for the task. Looking at this purely from the resource allocation prospective, it would be a matter of bang for the buck. What you should do about the parts of the work you self-perform or sub-contract would be based on how much it would cost for each and what the talent pool is for each.
This is only one part of the decision making. A good principle to use when dealing with most things in life is to always have a plan B. Having one person that we depend upon for carpentry leaves us without carpentry if they are ill or, for any other reason, not available. This principle should be applied across the board with resources. You might consider backup for your employee carpenter is a sub or visa-versa.
What that means is vetting the resources extensively and creating the mix of employees and subcontractors to support your work in any circumstance.
This principle will also keep you sure that you are not bidding on projects you aren’t equipped to handle. It keeps you out of the mode of focusing more on getting the lowest bid from subs rather than making sure they were capable of adequately performing the work.
The construction industry is cyclical and construction spending goes up and down. This means that you must be more thorough in prequalification of employees and subs. Times produce skilled worker shortages as well as work shortages and you must be prepared for both so your mix of employees and subs must reflect what might happen at each end of the cycle.
As a general contractor, you have to be just as selective when it comes to the employees hire and subcontractors you work with. On the subcontractor side, you want to choose companies that have a dependable skilled workforce, strong management, financial stability and can perform quality work to your company’s standards. As with any business decision, picking subcontractors to work with requires you to do your due diligence. You should be prequalifying every subcontractor you are considering working with to reduce risks that could impact your business such as subcontractor default or substandard work.
Maybe you have a stable of subcontractors you routinely do business with, but what happens when you decide to take on a project in another state or all of your regular subcontractors are unavailable. At some point, you are going to work with a subcontractor that you have little to no experience working with. Prequalifying subcontractors before you solicit pricing or sub bids can lead to mutually beneficial partnerships for years to come.
We will discuss the proper vetting of both in future chapters but the bottom line is the still the major decision making criteria.