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. 

You must be a subscriber to have access to any of the articles in this section of businessecon.org. Yes, there is a fee to subscribe. For $19.99, you can utilize this wealth of information for your company. 

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:

Construction Accounting

• Construction Accounting
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  Grants a one year subscription to articles about construction accounting systems, policies and procedures.

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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.

• Margins in Construction

  
  I’ve been asked to identify the average margins in the construction industry. Honestly, there is no such thing. I tried and after several hours of research I couldn’t even get one of the types of contractors to have consistency in their numbers. 

• Mark-Up with Construction

  
  To grasp this concept the reader must first understand some history associated with mark-up. Next, a modern approach is adopted which requires an understanding of hard and soft costs. Once the two types of construction costs are incorporated, the contractor will learn how to read and interpret a basic profit and loss statement. With this ...

• Markup in Construction – Fundamental Understanding

  
  Markup has a very simple definition, it is the amount added onto costs to create a sales price. Notice something really important with that definition, it does not define profit. It merely defines how much to charge over costs so you can make a profit.

• Markup on Materials – Setting the Proper Rate

  
  There is no preset national standard for markup on materials. The Internal Revenue Service’s Construction Industry Audit Technique Guide (May 2009) states that from the Means Contractor’s Pricing Guide include a standard 10% markup on material for profit. However, profit is only one portion of total markup; therefore, markup on materials starts at a minimum ...

• Markup Percentage for Remodelers

  
  In the construction industry, remodelers face a different set of criteria than your traditional new home builder. Because of these issues the markup percentage on costs is generally much higher than other forms of construction. If you are a remodeler, you need to understand the impact of these issues and how to properly markup your job to ...

• Methods to Reduce Costs in New Home Construction

  
  There are two primary methods of reducing costs of construction. The first is cost negotiation and the second is cost shifting. These two methods have several tools in each to achieve overall price reduction. The following describes each method and the respective tools within each method that you can use to achieve overall cost reduction.

• Open Job Cost Status Report

  
  The Open Job Cost Status Report identifies a project’s actual costs of construction, amounts borrowed or financed, and any customer payments made to date. The net result is the contractor’s net investment into the respective project.

• Percentage of Completion Method for Accounting in Construction

  
  In construction accounting, the percentage of completion method is the preferred tool to account for revenues and direct costs of construction. If you are an owner of a contracting business, this is the best method of accounting. 

• Phase Codes and Cost Codes with QuickBooks and Construction Accounting

  
  The whole goal of financial reports is to gain an understanding of financial performance and identify the key issues for changes to make improvements. In accounting we referred to this as a continuous feedback loop method of financial improvement. Insert data, report the data, discover opportunities for improvement; make changes and insert data and begin ...

• Profit Standards for Residential Contractors

  
  Profit standards for residential contractors vary depending on the type of contractor. In general, the net profit standard for contractors in the upper tier of performance range from 5.8% to as high as 9.6% of sales.

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