Joanna Mulgrew, Managing Director of HBXL Building Software, shares business management advice for building firms wanting to make a proper profit.
- Having hefty fixed costs. Your business is costing you money before you’ve even gone on site or bought a pallet of bricks. It could be insurance, internet, phone bills, your van, equipment repayment, rent and so on. So, you need to keep a close eye on your fixed costs.
- Not having a business plan. Without any direction your business will wander aimlessly from one job to the next which isn’t a money maker. What value jobs do you want to go after? What will make you different? How are you going to finance the business? How will you get paid? What will you personally get paid? £40K? £60K? What’s your personal goal for the future?
- Not having a business model. There’s a subtle difference between this and a business plan. The plan is a written commitment. The model is about the numbers you will need to achieve your financial goals. It’s a spreadsheet forecast for the year – the turnover you expect, your likely costs, and your profit. It’s what you’re going to work towards. You could try a few different versions – such as a business that will give you a £50K annual pre-tax profit – a business that will give you £100K. Either way, start with your breakeven point, and build on that.
- Not charging for everything. This is the 101 of running a business. You charge all the variable costs (the project itself), all the fixed costs in the form of a percentage of your annual overheads, plus wastage, inflation, and then a profit margin. Some tricky calculations there for anyone, so I’d advise using estimating software like EstimatorXpress, that does all the sums for you.
- Not accurately pricing the job. You can’t go putting your hand in your own pocket every time to fund materials you forgot to quote for, the labour you miscalculated or the plant you didn’t allow enough days for. You’re in the red before you’ve even started. If you can’t hold the many variables in your head, then use professional estimating software, such as EstimatorXpress, that has all the latest material prices, and knows what will be needed for every type of residential project, down to the last nail. You do charge for every nail?
- Not accounting for future overheads. This is a tough one! Yes, you should keep outgoings to the minimum when you start out but you should quote as though you’re already where you want to be. Quote your overhead percentage as though you already have a book-keeper, a small office, a yard, a second van, and so on. Just because your running costs are lean now, it’s not good business to pass those savings on to the customer. And you’ll never have the funds to grow. Established competitors will have these overheads already – guaranteed. Don’t look cheap in comparison. Start as you mean to go on.
- Not charging enough profit. This is an article all of its own. Your profit margin – the percentage you slap on at the end – isn’t there to cover everything other than the cost of the materials etc. It’s not for your outgoings (or your salary). That’s all in your overhead percentage. Your profit margin is for upgrading equipment, expansion, marketing, paying off finance, bonuses, pensions, and importantly, reserves for leaner times and bad payers. 10% is unlikely to be sufficient to keep your business in profit – and importantly – sustainable. 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.
- Looking at your accounts just once a year. You can’t stuff all your receipts in a carrier bag and present them to the accountant once a year to do the tax return. That will be way too late to discover that things haven’t gone to plan. You should look at your profit and loss quarterly, if not monthly, so you can change tack accordingly. A retained accountant would be money well spent. They can look at your business model and see how your actual income and expenditure are measuring up.
- Not managing cashflow. This is the main reason businesses go under. You need to know exactly when bills are due and when you’re going to be paid. With that knowledge you know how much you need in the bank at any one time to cover your costs. If your spending outstrips your income then you will start struggling to pay your suppliers or lenders. Every couple of weeks assess cash in and out for a couple of months ahead. A part-time book keeper could do this for you. And incidentally, an EstimatorXpress estimate pack includes a cashflow forecast, which is massively helpful.
- The wrong mindset. At the start I mentioned courage. You need more than that. You need to be unwavering in the belief that the only kind of jobs worth going for are the ones that will return the profit you committed to in your business plan and business model. Work for the sake of work is the wrong mindset. If it means a quiet month or two, that could be less of a blow than subbing the customer by paying for some of the materials, plant or labour out of your own pocket, or not paying yourself. Yes, you also need to have good credentials and present a professional image to win good work. Yes, you need to market yourself well to catch the eye of customers with larger projects. But with the right mindset and good business management, the rest will follow.
Look out for the free Estimating and Business Skills Bootcamps HBXL runs in conjunction with the Department for Education. And you can put EstimatorXpress to the test during a free 14-day trial – download it instantly from the HBXL website at Free Building Software Trial – HBXL Building Software.
