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.

  • The Definition of the Different Types of Residential Contractors

    The Definition of the Different Types of Residential Contractors
    There are about a half a dozen types of residential contractors. Each has a different function and goal, this article describes the different types of residential contractors and provides guidance to the reader in understanding the corresponding definition.
  • The Financial Truth about Flipping Houses

    The Financial Truth about Flipping Houses
    These two partners in Texas bought a house, fixed it up, and then sold the house. The show illustrated that they made $52,000 from the deal. Really? I have yet to see a deal like that in my accounting experience.
  • Use Phase Accounting in Construction – Part I

    Use Phase Accounting in Construction - Part I
    The most effective form of a financial feedback loop in residential construction is phase accounting. Phase accounting is a subset of cost accounting and generates accurate information in the world of new home and residential additions for small contractors building up to 20 houses per year.
  • Use Phase Accounting in Construction – Part II (Trades)

    Use Phase Accounting in Construction - Part II (Trades)
    This section covers the three traditional trades that require a license from their respective state. This is your HVAC installer, the electrician and the plumber. In some contractor may wish to include the septic tank and water well installer. However, I prefer these two be included in the site development phase as they do impact ...
  • Use Phase Accounting in Construction – Part III (Walls & Flooring)

    Use Phase Accounting in Construction – Part III (Walls & Flooring)
    The primary goal of phase accounting is to break out the construction costs into distinct groups in order to assist management in identifying issues related to cost overruns or profitability. This is a function of the feedback loop method of management which I am advocating to all readers.
  • Using Cash in Construction

    Using Cash in Construction
    There is a notion in business that using cash to pay for materials or service is illegal. IT IS NOT ILLEGAL TO PAY FOR MATERIALS OR SERVICE WITH CASH. It is illegal to do this if you do not properly document the transaction. This is especially true in the construction industry.
  • Using QuickBooks in Construction Accounting

    Using QuickBooks in Construction Accounting
    The key to the software is to properly set up QuickBooks to meet your needs. You lay out a chart of accounting accounts, buckets to dump data into, then identify your classes of work, create the nine phases of costs (QuickBooks uses item numbers) and finally identify the projects.
  • What is a ‘Spec’ House?

    What is a ‘Spec’ House?
    When a builder constructs a house without a contract, it is known as a spec house or a speculation home. There are several advantages to the builder to build a spec house including timing, financial gains and workforce retention. There are advantages to the buyer to purchase a spec house as well.  These include no delay ...
  • What is a Reasonable Profit in Construction?

    What is a Reasonable Profit in Construction?
    For any company, profit is based on the risk reward concept. With construction, what should be the profit (reward) given the risk? What is a reasonable expectation given the industry and the particular business? There is no single correct answer. The construction industry is divided into several significant branches. This article is focused on the residential contractor.  From ...
  • Work in Process as a Control Account

    Work in Process as a Control Account
    A control account in the Chart of Accounts is used when there is a need to separate multiple third parties with a similar function. Work in process works perfectly as a control account.

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