Tecta America Roofing Redefined. Estimating is from Venus Financials are from Mars

Transcription

1 Tecta America Roofing Redefined Estimating is from Venus Financials are from Mars

2 Introductions Leslie Shiner Owner of The ShinerGroup Financial & management consultant for over 25 years MBA in Accounting and Finance from U.C. Berkeley Certifications QuickBooks Advanced ProAdvisor Sage Certified Consultant Author: A Simple Guide to Turning a Profit as a Contractor (MoneyMazeBooks.com) Rob McNamara President, F.J.A. Christiansen Roofing/Tecta America J.D. and B.S. (Accounting Major) from Marquette University Former President, NRCA Past Convention Speaker Author in Professional Roofing

3 Learning Objectives Structure your Financials, Estimating and Job Costing so they speak the same language Determine all costs that should be included in a fully burdened labor rate Uncover ways to structure your Profit and Loss Statement to better analyze job profitability

4 Financial Results, Estimating and Job Costing P&L, Estimating and Job Costing must use the same structure and level of detail to compare results Too many companies use differing structures and levels of detail P&L lots of detail, structure A Estimate lots of detail, structure B Job Costing little detail, structure C How can you compare?

5 Financial Results, Estimating and Job Costing Start with the Big Picture: Your Profit & Loss/Income Statement

6 Basic Income Statement (P&L) Multi-Step Financial Statement Revenue $XXX 100% (Direct Job Expenses or COS) $(XX) xx% Gross Profit $XXX Gross Margin (Overhead Expenses) $(XX) xx% Net Income $XXX xx% All field labor costs belong above the line! The Line

7 Are You Happy With Your Gross Margin? Which company is more profitable? Company A Income 4,000,000 COS (2,100,000) Gross Profit 1,900,000 Company B Income 4,000,000 COS (2,700,000) Gross Profit 1,300,000 Gross Margin 33% Gross Margin 48%

8 Is the Answer Still the Same? Company A Income 4,000,000 COGS (2,100,000) Gross Profit 1,900,000 Gross Margin 48% Overhead General Overhead (1,000,000) Labor/Burden (700,000) Net Profit 200,000 5% Company B Income 4,000,000 COGS (including burden) (2,700,000) Gross Profit 1,300,000 Gross Margin 33% Overhead General Overhead (1,000,000) Labor/Burden inc above Net Profit 300,000 8% Is your gross margin overstated?

9 Detailed Income Statement (P&L) Financial Statement for Specialty Trades Revenue $XXX 100% (Direct Job Expenses or COS) $(XX) Contract Margin $XXX xx% (Indirect Expenses) $(XX) Gross Profit/Margin $XXX xx% (SG&A Expenses) $(XX) Net Income $XXX xx% Differentiate direct field costs, indirect field costs and Selling, General & Admin. costs!

10 Specialty Trades Chart of Accounts No. Name Income/Balance Indirect 1111 Roofing - Replacement Income Statement 1112 Roofing - Service Income Statement 1113 Roofing - Other Income Statement 1114 Labor Income Statement 1115 Labor - Direct Burden Income Statement 1116 Material Income Statement 1117 Subcontractors Income Statement 1118 Equipment Rental Income Statement 1119 Auto - Operating Expense Income Statement 1120 Bonuses Income Statement 1121 Depreciation - Auto Income Statement 1122 Education/Training Income Statement 1123 Insurance - P & C Income Statement 1124 Insurance - Worker's Comp Income Statement 1125 Repairs - Mach & Equip Income Statement 1126 Small Tools Income Statement 1127 Taxes - Payroll Income Statement 1128 Telephone Income Statement 1129 Travel Income Statement 1130 Truck - Lease Expense Income Statement 1131 Truck - Operating Expense Income Statement 1132 Utilities Income Statement 1133 Wages - Education/Safety Income Statement 1134 Wages - Light Duty Income Statement

11 Directs, Indirects and SG&A Directs labor, material, subcontractors directly allocable to a project Indirects field related costs not directly allocable to a project Examples: Supervision Equipment/Fleet Repairs Small Tools & Supplies Insurance Field Training

12 Directs, Indirects and SG&A Selling, General & Admin. costs relating to estimating/sales/acctg./admin. functions Examples: Payroll for sales/estimating staff Office-related rent/facility costs Entertainment Meetings Legal & Accounting

13 Back to Detailed Income Statement (P&L) Income Statement for Specialty Trades Revenue $XXX 100% Less: Directs/COS Labor Materials $XX $XX Subcontractors $XX $(XX) Contract Margin $XXX xx% Less: Indirect Expenses $(XX) Gross Profit/Margin $XXX xx% Less: SG&A Expenses $(XX) Net Income $XXX xx%

14 Financials are NOT from Mars Income Statement for Specialty Trades Revenue $ % Less: Directs/COS Labor 30 Materials 28 Subcontractors $ 4 $(62) Contract Margin $38 38% Less: Indirect Expenses $(15) Gross Profit/Margin $23 23% Less: SG&A Expenses $(12) Net Income $11 11%

15 Financial Results, Estimating and Job Costing Financial results and the language we speak Sprechen Sie Estimating?

16 Financial Results, Estimating and Job Costing Start with the Big Picture: Your Profit & Loss/Income Statement Move onto the Smaller Picture: Your Estimating Template

17 Why Create an Estimate? Establishes a budget that provides a basis for: Comparing estimated costs to actual costs Managing the project Evaluating the project after completion Provides the basis for the proposal and subsequent progress billing Provides cost breakdowns for Job costing by line item Purchase Orders for material procurement Hours budget for labor management

18 Job Budgets Detail vs. summary the great debate! Estimates for pricing need detail But, what s best for job costing? Less detail is better 80/20 rule Material example Estimate breaks down??? First invoice flat dollar amount How to compare?

19 The 80/20 Rule Pareto s Principle The 80/20 rule means that in anything, 20% is vital and 80% is trivial Focus on that 20%, don t get lost in the 80% The more complex the estimate, the less value in the report In fact, the more detailed information, the less valuable the reporting becomes Create process that works for both data entry and job review

20 Estimating is NOT from Venus Estimating Template Specialty Trades Materials Labor Subcontract/Other Costs $XX $XX $XX Total Contract Costs $XXX xx%(cm) Add: Indirects $XXX Gross Project Cost $XX xx% Gross Margin $XX xx% Sell Price $XXX 100%

21 Estimating is NOT from Venus Estimating Template Specialty Trades Materials $28 Labor (1 hr.) $30 Subcontract/Other Costs $ 4 Total Contract Costs $62 38%(CM) Add: Indirects $15 Gross Project Cost $77 Gross Margin $23 23% Sell Price $ %

22 Estimating and Financials are from Planet Earth

23 Estimating and Financials are from Planet Earth

24 Navigating Between Venus and Mars Some things to consider How do we estimate Indirects $ s for a given project? 1. Indirects must be allocated/spread across multiple projects. 2. One means to allocate is based on relative direct hours: Step 1: Estimate/budget total indirect costs for yr. Step 2: Estimate/budget total direct hrs. for yr. Step 3: Divide (total indirect costs)/(total direct hrs.) This determines indirect $ s per direct labor hour.

25 Navigating Between Venus and Mars Some things to consider How do we estimate Indirects $ s for a given project? Step 1: Estimate/budget total indirect costs for yr. $240,000 Step 2: Estimate/budget total direct hrs. for yr. 16,000 Step 3: Divide (total indirect costs)/(total direct hrs.) $240,000/16,000 hrs. = $15/hour

26 Estimating and Financials are from Planet Earth

27 Navigating Between Venus and Mars Some things to consider Financials, Estimating, Job Costing are Based on Margin not Markup Mark-up Margin Gross Project Cost - $77 GP Mark-up at 23% x 1.23 Sell Price $94.71 Gross Project Cost - $77 GP Margin at 23% Div. by(1-.23 =.77) Sell Price $100

28 Estimating and Financials are from Planet Earth Margin Gross Project Cost - $77 GP Margin at 23% Div. by(1-.23 =.77) Sell Price $100

29 Navigating Between Venus and Mars Some Things to Consider Estimating Template Differing Margins Materials $28 Labor (1 hr.) $30 Subcontract/Other Costs $ 4 Total Contract Costs $62 38% (CM) Add: Indirects $15 Gross Project Cost $77 Gross Margin $23 23% Sell Price $ % Replacement New Construction Repair/Maintenance

30 The Importance Of Job Costing If you aren t job costing, you can t measure margins Create the end result (job cost reports) to begin the process of job costing What do you really want to track? Labor has the most risk Are you tracking labor dollars and labor hours?

31 Manage Labor Costs As a roofing contractor, majority of costs are labor Billing rates need to cover gross wage, labor burden and overhead and still leave money for profit Burdened labor: gross pay to employees plus all the costs associated with paying employees Job cost fully burdened labor means: More accurate job costing Higher COGS, lower overhead Better understanding of true costs! Allows accurate breakeven analysis and planning for growth

32 Job Cost Your Labor With Burdens Standard Other typical Additional fringe benefits Variable overhead or indirects Payroll taxes Workers compensation Health insurance Vehicle expenses Liability insurance Pension and 401K Tools, communication equipment Vacation and sick Union costs Allocated overhead

33 Consider Other Costs? Variable overhead or Indirect Direct Communication equipment, cell phones Vehicle costs Small tools/supplies/consumables Unbillable time, down time, windshield time Safety meetings, production meetings Education, training and certifications All costs that belong to employees Ask yourself: If I hired another person, what costs would go up?

34 Vehicle Calculations Total spent on field vehicles Include: Fuel Maintenance and repairs Fees Depreciation Divide by total productive hours Determine rate per hour Often approximately $4 - $8 per hour

35 Think About Hourly vs. Monthly Costs You do the math Assume health insurance cost of $420 per month Assume 4.2 average weeks per month Cost is approximately $100 per week Hourly cost is $2.50 per hour $ = $2.50

36 Understand Monthly Costs But what happens when it rains? Or there is a delay? Or there are only 5 hours work one day? If you pay for only 32 hours in a week, it now costs $3.13 per hour What if your employee takes a week off unpaid? It still costs the same per month But it costs more per hour!

37 Let s Run Some Numbers Costs that are a percentage of wages

38 Let s Run Some Numbers Costs that are monthly or yearly

39 Determine Burdened Cost Per Hour Gross: $25.00 Burdened: $50.61 Burdened with 55% utilization: $92.02

40 Track Employee Utilization Total number of billable hours Total number of hours paid Labor Utilization Rate What was it last year? What are you forecasting for this year? What is the upper limit most you can achieve? What is the lower limit least you can accept?

41 Employee Utilization Improve utilization before hiring more staff Increasing employee utilization will increase profitability without increasing expenses Create an employee utilization goal Consider PTO (paid time off), training, production meetings, safety meetings, etc. 85% may be the highest possible number you can achieve

42 Benefits of Increased Utilization Increasing utilization increases gross margin Increasing gross margin increases Ability to increase overhead Ability to increase net profit Ability to grow!

43 Labor Utilization Varies By Type Of Work Service work includes: Higher overhead for dispatching and billing Increased time to stock truck for multiple jobs Increased driving time Lower efficiency Larger contract work includes: Potentially fully productive days Additional costs for Site Superintendent Determine where you can more easily improve utilization

44 Ask Your Employees Poll your employees Where do they see wasted time? What can you do to make them more productive? Are your most expensive employees doing the most difficult tasks? Who goes on the material runs? Do you need to hire more field personal or help your current crews be more efficient? Have you considered temporary labor force?

45 Consider Bonuses Bonuses provide flexibility Wage increases are typically permanent Bonuses based on net profit are difficult to predict What can I do differently today to increase my bonus? Bonuses based on gross profit can improve production Provide estimated hours on job Provide reports to show estimated costs to actual costs Provide incentives to keep jobs on track Can base incentives on time instead of dollars

46 Down to Earth. Estimate Project Costs/Create Budget Project Manage/Job Costing Income Statement/P&L

47 Summary Understand the cost of paying for field employees Find ways to allocate fully burdened costs to jobs Clearly differentiate between direct, indirect and SG&A costs Make sure your estimating process and financial statements work in unison!

48 Questions and Thank You Leslie C. Shiner, MBA Rob McNamara Tecta America Roofing Redefined (415) Group (414)