All New Small Business
case study

We gave this small family-owned custom home construction company a new cash flow outlook and real clarity on their margins for each client.

the story

Small 4-Year Old Custom Home
Construction Company

Our client is a small custom home construction company that builds about 8 to 12 houses a year. So, what this means, is they can't afford to have a costly mistake on any of their projects. If one project loses money, it can take 3-4 projects to recover. So, just one failed project can wipe out the whole year and potentially the company.

This company has been around 4 years and has a good reputation in their town. It is a family-owned operation and they do very little marketing. The majority of the work is from referrals.

Though they're experts in construction, they lack formal business training in bookkeeping, budgeting, forecasting, and pricing. We came in and helped them excel in these areas. This case study will show the
results of that effort.
With rising material costs, fuel costs, and labor problems starting to become an issue, the company started to slow down and realize that some of the jobs and projects they were doing were not nearly as profitable as they thought. Even though they were busy, they knew that they weren't making as much money as they thought, but they couldn't figure out why.

the goal

Get them profitable as quickly as possible

The task was to find out why they were no longer profitable and quickly reverse that while increasing margins well beyond where they were originally.

"Getting profitable was going to be a real challenge, with rising costs, labor issues, and no clear understanding of why margins were shrinking."

the solution

A multi-phased process

The first thing we did was look at their P&L over the last couple of years. As they expected, they were not making any money or hitting the expected margin targets for their projects. We realized it was not an overhead problem; meaning that they did not spend a lot of money on rent or inventory or even payroll. 

Once we realized this was not an overhead problem but more of the cost of goods or pricing issue we started a deeper dive Into individual jobs/projects from start to finish. How were the projects estimated? How did they perform during the process of the build? Did they take longer than usual? Were they tracking change orders properly? Were they collecting the money they were expecting? This is for us a standard process that we run on all of our clients finances regardless of their industry.

As we dug deeper we uncovered a few critical issues:

1. They weren’t  disciplined in our pricing, we weren't using the proper markup in all aspects of the job and we were not checking some of the sales guys as they altered estimates

2. They were not tracking their expense for each job/project correctly; meaning that we may have spent money for job a but it was marked as job so we didn't have real clarity on how much they were actually spending on each individual job/project.

3. We had no discipline in any of the change orders that happened throughout the project we did not price them accordingly and it sometimes did not even price at all

The first thing we did was develop a monthly budget and forecast to make sure they can track spending and manage cash flow. They got into a bad habit where new jobs were help paying for old jobs that no longer existed.

Next we developed a process for pricing the job sign off on the pricing of the job and then tracking the job throughout its life to maintain the budget for that job.

Their pricing model now takes into consideration not only all the estimate of the material in the labor plus contingencies but also contemplates and overhead portion and ensures that they have the proper markup in all aspects of the job once we have a fair estimate the CFO and the CEO have to sign off on it and the salesperson is no longer allowed to touch it after the fact.

Next we watch progress and track their spending meticulously through QuickBooks and BuilderTREND and we make sure that they are getting the proper return on every single aspect of the job.

As change orders come in, the pricing of the change order has to be signed off again by the CEO and gets added to the original estimate so we can start tracking it is just like we do the base job.
At the end of every job when it is complete and they receive final payment from the customer, we do a final review and track the original estimate against the actuals of the job. We look for the differences. we win some we lose some and then we make sure that We got the proper return of the job and if we did not get the proper return Why did we not if we see material issues with our pricing or a estimate we will now correct that going forward and their necks estimate

the results

A much more profitable pipeline & a thriving business

 Now the pipeline is much more profitable than the previous pipeline. Working the current pipeline shows they'll be in the black for the entire year. The entire team has a new positive outlook as they have clarity on each job and know the exact amount of margin to expect...it's no longer a guessing game that leaves them in the red.
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