Construction

Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!

As an owner of a construction company, your profits should average 9.4 percent per year after taxes. This profit is net of your personal salary of $100,000 to $140,000 per year. Therefore, if you are contracting around $1.5 million per year, you should be generating no less than $180,000 per year in take home compensation for your efforts. If not, you are not in the upper half of performance within this industry. You are doing something wrong and this section of the website is designed to educate you about the proper organization, systems, policies and procedures you must incorporate in your construction company’s culture.

This section of the website is solely dedicated to contractors. There are over 70 articles covering key aspects of operations and accounting in the construction industry. There is a wealth of knowledge available here. All of the articles are written to help the contractor discover how to improve the bottom line and achieve financial success in this industry. Good modeling measurement tools are taught here; use them to increase overall performance and ultimately the bottom line. Use my experience and learn from my errors and successes to improve your business operation.

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I spent 28 years learning about construction accounting and implementing systems and processes for over 40 different kinds of construction companies. I have spent almost 4,000 hours of time drafting, reviewing and publishing these informative articles. If you wish to subscribe:

The articles below are business related, they are in-depth and educational in nature. The primary goal of each article is to educate and provide insight, guidance and knowledge to the contractor.

If you need help, I’m here to assist you. I have deep knowledge about how to set up cost accounting (project accounting) and tie it to financial accounting. Allow me to identify your needs and render solutions. The changes will greatly impact your bottom line and reduce your stress from the increases with cash flow. Contact me dhoare@comcast.net; I usually respond within a few hours. My rates are reasonable and I’m very responsive.

Estimates, Bids and Proposals – Differences Among Offers in Construction
The construction industry uses three distinct terms to offer their services to customers. Estimates, bids and proposals are terms used to present a dollar value associated with construction work. For less sophisticated contractors, the terms are interchangeable. The reality is far different. Each term has an historical context and legal meaning. Thus, it is prudent ...
Estimating in Construction – Part 1 (Introduction)
The best internal control tool to maximize profit in construction is an estimate. Estimates act similar to a dashboard of critical information necessary to evaluate overall performance. In insolation, they serve the purpose of determining the minimum core price to charge the customer in order to deliver enough contribution margin to offset that project’s share ...
Estimating in Construction – Part II (Financial Outcomes Evaluation)
Estimates are a controlling tool to guide the construction management team towards improved profitability. Estimates by themselves do not generate profits; actual performance creates profitability for the contractor. Estimates act as the technical manual for the project. Once the project is completed, the contractor must compare the actual results against the estimate’s values. In effect, ...
Estimating in Construction – Part III (Job Costs by Phase Evaluation Process)
Estimating in construction is prepared utilizing a similar timeline fashion as project milestones with an overall section to cover those costs that are ongoing throughout the project’s entire time frame. For the purposes of this lesson, the term ‘Phase’ is used to indicate these respective steps of physical construction. In Parts I and II of ...
Estimating in Construction – Part IV (Concepts, Tenets, and Principles)
Well developed, accurate and timely estimates are the best tool ensuring profitability in the construction industry. No other internal control mechanism is as valuable to the contractor as the estimate. Good estimating systems in construction provide the management team with the necessary confidence to make long-term decisions benefiting all parties involved with the company. Customers ...
Estimating in Construction – Part V (Cost Drivers and Application Principles)
The core tenet of an estimate is that each is unique. This uniqueness is driven by hard costs of construction. There are five distinct hard cost drivers in every estimate. Each cost driver has different application principles (introduced in this lesson), different sources of value and final markup formulas to determine the final estimated hard ...
Flipping Houses – Proper Inventory Turnover Rate
In your typical business operation, turning the inventory over as often as possible has several benefits. First, it generally reduces overall costs, secondly, it generates greater profits and third, by increasing the profitability, the company has a greater return on equity. OK, this seems all well and good, but does turning the inventory over in the ...
Hard and Soft Costs With Construction
All hard costs are directly assignable to a job. These costs are most often tangible in nature, but there are many intangible costs that can be directly assigned to the job. Thus some intangible costs are ‘Hard’ costs. A contractor must understand the difference between hard and soft costs in order to properly markup assignable costs ...
House Flipping – Business Dynamics
There is a lot of misinformation about flipping real estate on the internet and on television. I’m mostly shocked by the lack of detailed information related to the entire cost of the project and the adjusted sales price. I have yet to read a single article that goes into the details of the business dynamics of flipping ...
How to Calculate the Best Markup for a Construction Project
Every construction project has costs beyond the direct costs and the contractor wants to earn a profit. To cover these costs he must have an appropriate markup. The contractor must give consideration to many variables and circumstances to calculate the best markup for a construction project. To determine the best markup percentage on costs, the contractor ...