Nothing is more frustrating than to work hard only to find out your business isn’t making money. Sometimes it’s little details that are falling through the cracks, but some of those details can make a big difference on your bottom line. The ones I’m talking about today concern employees.
Written Job Descriptions
Many contractors hire employees without a clearly defined job description. Clearly defined means in writing; verbal communication isn’t clear. Do your employees know what their job is?
You need a written job description for everyone in the company, including the owner. You can’t expect an employee to do a job they do not know they’re supposed to be doing. A written job description eliminates possible conflict when two or more employees think something is or isn’t their job.
I was consulting with a construction business some time back and, as I always do, I interviewed each of the key employees. After I was done, I sat down with the owner to discuss the employees and he told me he was very upset that “Joe” wasn’t doing his job as foreman of the cabinet shop.
But Joe didn’t know he was supposed to be acting foreman. Joe had told me his job was to fill in wherever he was needed. No one had ever said to him, “Joe, you’re the foreman of the cabinet shop, make it happen.” In fact, Joe told me that he didn’t want to be in charge of anything, let alone be named a foreman or superintendent.
At another company, I watched as it took three different people to post a job assignment for one of the employees on a white board. Why? None of the office staff had a written job description, so they were all doing parts of a job but no one was doing the complete job. As a result the office was grossly overstaffed and very inefficient.
You need to write a clear job description for every employee. It would be wise to have it reviewed by a second party. Then sit with each employee and review their job description. Make sure they know and understand what you expect of them.
Short Labor Estimates
Too often, business owners worry about not being able to make payroll. One reason this happens is because they hired employees, put them on the jobs, but didn’t account for the cost of those employees when they quoted the job. All labor required to build a job must be included in the estimate before the price is prepared and presented to a potential client.
The same holds for office or supervisory staff. Their time (hourly wage or salary) is accounted for in the markup before the employee is hired, not after. If you increase your overhead by hiring employees but don’t adjust your markup, you’ll have cash flow problems. We discuss this in our book Estimating Construction Profitably.
Too Many Employees
Another reason a business owner might not be able to make payroll is having too many employees for the volume of work. In our book Markup and Profit; A Contractor’s Guide Revisited, we talk about the amount of business that should be produced to keep a good balance between the number of employees and the volume of business sold, built and collected. All too often this gets out of balance. When you have too many employees for the amount of work being produced, cash flow goes right in the toilet.
If you haven’t checked your ratio of employees to volume recently, today would be a good time. This is one of those ratios we hate to think about, but keeping on top of it is the difference between being profitable and not being able to pay your bills.
You aren’t in business to employ people. You’re in business to provide a service and make a profit doing it. When you make a profit, your business is stable and the employees you have gain security. When your business doesn’t make a profit, everyone’s job is at risk. Make your business secure by maintaining the proper balance of employees to volume of work, and everyone wins.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations as needed.
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