Construction

Business Economics - A Library of InformationINTRODUCTORY SLIDE SHOW

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New Home 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 residential contracting business your profits should average 5 to 9 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 60 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. 

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 increase in cash flow. Contact me dhoare@comcast.net; I usually respond within a few hours. My rates are reasonable and I’m very responsive.

  • Construction Accounting Terminology

    Construction Accounting Terminology
    In construction accounting accountants and bookkeepers use certain terms and there are distinct meanings associated with these terms. This article is designed to introduce beginner accountants and contractors to these terms from the perspective of financial reporting.
  • Construction Draw Schedule

    Construction Draw Schedule
    A construction draw schedule is a financial tool used by contractors in identifying percentage of completion points in the project for the bank to advance proceeds to the contractor. The construction draw schedule is instrumental in keeping the project moving along. 
  • Construction Draw Schedule – Ranch Model Home

    Construction Draw Schedule – Ranch Model Home
    This is a basic draw schedule explanation for an A-frame ranch model home. This article details the draw schedule format illustrated below. It details the approximate percentages for the respective phases of construction and explains how the draw schedule is laid out and works.
  • Construction Management Fee – What is a Good Rate to Charge?

    Construction Management Fee - What is a Good Rate to Charge?
    With the management fee style of construction, the question for the contractor is: what is reasonable and fair rate to charge as a percentage of costs to build the home? 
  • Contractor’s Audit Guide – Introduction to IRS Audits

    Contractor's Audit Guide - Introduction to IRS Audits
    In 2009, the Internal Revenue Service issued the Construction Industry Audit Technique Guide (ATG) for use by IRS agents and for contractors. The contractor’s audit guide explains the processes and methods the IRS uses to examine a contractor. The end goal is to verify actual taxable income over an assigned tax year for a contractor. The IRS recognizes ...
  • Contractor’s Chart of Accounts – Completed Contract or Percentage of Completion Method

    Contractor's Chart of Accounts - Completed Contract or Percentage of Completion Method
    The  contractor’s chart of accounts is significantly different than the traditional chart of accounts. First off, the layout is more dependent on the balance sheet than the income statement (profit and loss) accounts. Furthermore, the income statement accounts are laid out to present a resource based costing presentation than a job costing format. To add another layer of ...
  • Contractor’s Profitability

    Contractor’s Profitability
    It costs a lot more than you realize to build a home or perform residential repairs. This article looks at both the homeowner’s and contractor’s perspective of what one perceives and the other actually incurs.
  • Control Equals Profit in the Construction Industry (Introduction)

    Control Equals Profit in the Construction Industry (Introduction)
    Success in construction requires control at both the organizational and field operations level. The owner must set the culture; put into place a structure, create policies, implement systems and use procedures to control the end result. Control the outcome and the contractor will earn a good profit and achieve success.
  • Cost Accounting – Case Study

    Cost Accounting - Case Study
    Cost accounting is an effective internal accounting process to evaluate company performance at the product/project level.
  • Cost Codes – Subset of Item Codes

    Cost Codes - Subset of Item Codes
    Cost codes are unique identifiers assigned to items in an inventory sold individually or as a part of an assembly. The goal is to track the final outcome of the item(s) sold against the original estimated cost of the item. It is used in both financial and cost accounting.

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