Joanna Mulgrew, Managing Director of HBXL Building Software, reveals to builders running a small business, some of her Skills Bootcamp training material on finances.
It’s tough running a small building firm… materials, plant hire and labour prices keep rising, and homeowners are getting more forensic about the quotations. Business owners are being squeezed from both ends. In fact, you could be forgiven for considering quoting what you think the customer will be prepared to spend – not what the job is actually worth.
But carry on like that and there’s a good chance you won’t be in business in one/two years’ time…
If your quote covers nothing more than the materials, plant hire and sub-contractors, with a few hundred quid on top for your troubles – spin it any way you like – you are funding your customer’s dream project. And it’s you who will be having the nightmare. Stating the obvious, if you don’t turn a decent profit on every job, then your business will go into decline. And if I’m honest, you should reconsider your business plans soon rather than later.
I am lead coach on the business modules in the government-funded Skills Bootcamps that HBXL run. (We offer free estimating, business management and CAD courses). In my sessions we look at business modelling, profit, overheads and all the other key costs. Just about everyone who attends needs extra time to get to grips with the numbers. It’s not easy adding in all the extra business costs, let alone totting up the project itself. That’s what EstimatorXpress, HBXL’s estimating software, was developed to help with, and continues to do so 24 years on.
Here are a few highlights on the topic of money from the Bootcamp sessions:
1. Account for every single material
All the materials need to be priced. Every single nail. Every piece of tape. Every squeeze of glue… I don’t know of many people who have a spreadsheet so good, it can work out all the calculations without lots of manual input. EstimatorXpress has a calculator for every stage of a residential building project – renovation and retrofit can be particularly fiddly costing-wise. Our calculators won’t forget anything, whereas you might. A quick example; our roof estimating calculator has over 120 lines of items to calculate. Would you remember to include them all?
2. Price your materials accurately
Do you update your spreadsheet every month with the current cost of materials? I question how much time you can realistically devote to this laborious job. I say that because I have a team who, each month, monitor over 6000 prices across the UK using our unique Price Tracker+™ system – and it doesn’t take them five minutes! If the price has increased, and you haven’t allowed for it, guess who ends up covering the cost. Equally if the price comes down, you might miss out on the job for over-quoting.
3. Allow for wastage
Do you apply a wastage factor to your projects? It’s important because otherwise, you’ll be covering the cost of half used bags of sand, breakages and items that goes walkies – yourself. Accurate predictions of wastage can also help you estimate how many skips you’ll need. The software is clever – for example, if you’re using reclaimed bricks on a project, EstimatorXpress automatically allows a higher wastage factor for them.
4. Don’t forget wear and tear
Being set back by a broken mixer is only made worse by knowing you’ll be paying for it out of your own pocket. While EstimatorXpress can’t predict when this may happen, it does allow for wear and tear on plant equipment and includes a small allowance per job for replacements. Protect your bottom line and keep your hard-earned money in your pocket.
5. Consider when the job will start and finish
Delays should be scheduled into your build programme from the outset. A ‘live’ digital version is a huge help. For longer projects, inflation can become a costly, unseen factor that significantly impacts your profit. Calculating the inflation percentage manually, isn’t straightforward, as trainees discover on the Skills Bootcamp. When they use the EstimatorXpress inflation tool it’s simple. And again, it’s a profit safeguard.
6. Are there any ‘hidden’ costs?
In addition to calculating physical build costs, it’s crucial to account for expenses such as the skip licence, legal fees, site surveys, and stamp duty (if it’s a new build). Don’t forget local authority charges, insurance, site accommodation, and security. These ALL need to be included in your budget, and EstimatorXpress guides you through every step.
One builder we know, didn’t allow for site clearance, which was costing him several thousand pounds until he started using EstimatorXpress. The software reminded him on every job, and he now charges his customers for it. Obvious? Not always.
7. Don’t overlook overheads
If we focus on the bare minimum first, someone has to pay for salaries, your pension (dare I say it), mobile phone, van, pick-up, insurance premiums – and it shouldn’t be you. Your customers need you to be able to do the work well and stay in business. It does not come out of the profit. EstimatorXpress factors in a percentage for each job for you. You need to come up with a figure that will, over a year, cover all your costs – and remember these are the costs you need to pay whether you’re busy or not. I’ve talked in this magazine before about how you should quote your overhead percentage as though you already have a book-keeper, a small office, a yard, a second van, and so on. And that’s so you start as you mean to go on. You can bet your bottom dollar other firms are doing this.
8. Finally, and importantly, profit margin
Remember, profit isn’t for your outgoings (or your salary). Your profit margin is for upgrading equipment, expansion, marketing, bonuses, and importantly, reserves for leaner times and bad payers. Profit is the reward for risk and funds a quality service. So, what percentage? It’s a well debated topic in our Bootcamp module. An arbitrary ‘buffer’ will quickly be whittled away by overspends and delays – therefore make sure you add a robust mark-up in the first place. (You’d have to attend one of our workshops to find out what HBXL would recommend!!). EstimatorXpress will do the final sums once you’ve dropped in that all-important percentage number. No business can survive for long without profit as I said at the top of this article. You want a business that could be sold, or handed on, or brought to a close with a decent lump sum to show for it.
So, in conclusion, you can do it the hard way, manually, or you can do it the easy way – and there are two options here: a) don’t do the extra number crunching at all and suffer the consequences or b) let an all-encompassing digital solution do the heavy lifting for you.
You can try EstimatorXpress for free. Download it at https://hbxl.co.uk/try-professional-builder/
