Quietly Re-Thinking Out Loud

My syllabus starts with The E-Myth Contractor: Why Most Contractors’ Businesses Don’t Work and What to Do About It
.

However on further thinking it might be a good idea to read The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It
first so that you get a better more thorough grasp about the importance of what the book is getting at.

What is The EMyth all about and what are the two books getting at? They’re teaching you that you have to approach designing and setting up your business operation as a "turnkey" business operation and can operate by itself without you in it. Seems nuts to even think about it that way when your setting out on your own for the first time but there is very good reasoning and logic behind that thinking.

New on this list (added October, 2008) I’m inserting Run Your Business So It Doesn’t Run You by Linda Leigh Francis

While the E-Myth books are about the concept that most contracting businesses fail because the founders are technicians (trades men and women) that were inspired to start a business but didn’t have the business knowledge about how to run a successful businesses Run Your Business So It Doesn’t Run You teaches you the same lessons but also provides some actual plans (checklists) and management tools for you to work with in making sure you develop your own systems and don’t fall prey to the "Entrepreneurial Trap" .

The next two book on my list are all about the numbers. The basic understanding of finance and the nuts and bolts behind figuring out what you need to charge for your services. Where Did The Money Go?- Easy Accounting Basics for the Business Owner Who Hates Numbers
$19.99 and How Much Should I Charge?: Pricing Basics for Making Money Doing What You Lovealso $19.99 were written by Ellen Rohr who is a well known writer and lecturer to readers of the roofing, electrical and HVAC trade magazines but the principles apply to any contracting business.

You can also order them through her Bare Bones Business web site and one of the great things about getting them than way is in addition to getting a paperback version of her books sent to you you wont have to wait for them to arrive in that right after purchasing the books she’ll send you an email with a URL where you can download a PDF version of the books and start in on reading them right away.

"Where Did the Money Go? will teach you the accounting basics you need to keep track of your business…and find out where the money goes!". In it you’ll follow a character Bob Bird as he sets out on his own as a first time business-owner-contractor and it will give you a basic overview of the accounting principles you absolutely need to know and understand. In the section of the book entitled If My Accounting System Is Computerized, Do I Need To Know This Stuff? she writes " You don’t need to know everything about accounting. You do need to know everything in this book…as a bare minimum!" and with that I wholeheartedly agree.

When you’re ready to get down to the actual work of setting you hourly rate there is an Excel spreadsheet I created that you can download from the Shareware section on my 360 Difference Software site. It’s called the "The Capacity Based Markup Worksheet (aka the PILAO Worksheet)" which is an acronym for PROOF/Indexed/Labor Allocated Overhead. It works right along with the principles that Ellen Rohr talks about in her books and Irv Chasen of PROOF Management Consultants talks about in his seminars. Thinking of that you’ll probably want to read an article Mr. Chasen wrote about this type of markup method in last January’s JLC called Allocating Overhead to Labor Makes Financial Sense.

I think the stuff I’ve mentioned up to this point while perhaps the most important stuff for someone just starting out is not necessarily what really interests them but BELIEVE me when I say IT IS THE MOST IMPORTANT STUFF TO GET DOWN AND UNDER YOUR BELT, it is!

Then you can move on to David Gerstel’s Running a Successful Construction Company. One of the really good things you’ll find in this book is in the first or second chapter he he presents a suggested step-by-step month-by-month plan for setting up a company with things to do and take care of before you really takeoff. I have a few changes and additions I would make to the order of things he presents but it pretty close to perfect for where you’re at as far as a getting a startup plan of action.

Look over and read The Contractor’s Legal Kit: The Complete User-Friendly Legal Guide for Home Builders and Remodelers
by Gary Ransone. There are some excellent sample agreements in this book with instructions on how he suggests you should use them and after looking at them and thinking about them you can go to you attorney and talk to him or her intelligently about any modifications he or she thinks you should make with them. Do not just go out and literally use them without having an attorney look them over first though because different regions of the county have different laws that you will need to comply with.

And while we’re on it another good book on the legal aspect of contracting is Smart Business for Contractors: A Guide to Money and the Law (For Pros by Pros)
by Jim Kramon. This has some really great information on insurance that doesn’t appear in any of the other books that I can think of in addition to it’s general content.

Managing the Small Construction Business
is compilation of JLC articles with builders and remodelers describing the techniques that have worked for them. Just a general great resource. It could also very well be titled the best of The Journal of Light Construction Management Articles.

As an alternative to this book you might might want to consider a JLC Online Membership which give you access to all the article ever published by the Journal of Light Construction either though their website, or via a CD or DVD data disk, or both. With a JLC Membership you’ll have not only the selected business articles that are in Managing the Small Construction Business but all of them along with all the article on trade and construction techniques too.

Mastering the Business of Remodeling, An Action Plan for Profit, Progress and Peace of Mind by Linda Case A good overview of the business of remodeling that will introduce you to marketing your services in addition to what it has to say about the general managing and operation of the business.

Linda Case also has another book entitled The Remodeler’s Guide To Making & Managing Money: A Common Sense Approach To Optimizing Compensation & Profit
which I will group together on the end of this list with Michael C. Stone’s book Markup & Profit: A Contractor’s Guide.

While overall they are both good books I think the markup and pricing methodology that they describe and advocate which I often refer too as a Uniform Percentage Markup is tragically flawed and could be a silent but deadly killer to a contractor just starting out. See my the QROL post The Potential Problem Using a Traditional Volume Based Markup to learn more about just what that problem is. (Instead consult Ellen Rohr’s How Much Should I Charge? and David Gerstel’s The Builders Guide to Running a Successful Construction Company for a markup and pricing methodology.)

Still the two books have a lot of good general information on all the other aspects of running a small building and or remodeling business so they’re worth the putting in your library.

by: Jerrald Hayes

It’s been my observation over the years that framers often quote prices for their projects based on the project’s Square Footage which I’ve always considered a bad idea due to the inherent lack of accuracy (see The Hidden Danger of Square Foot Estimating). Then when they try to move on to bid interior finishing projects the often meet with disastrous results. It’s not that ’square foot’ estimating works for framing and just doesn’t work for interior finish because in reality it doesn’t work for either. It is perhaps just that the dire financial consequences are far greater using ’square foot’ estimating on an interior finish bid than they are for framing.

The finish contractor would either lose their shirt pretty quickly or the better and smarter GCs would recognize that you were out of your league and didn’t know what you doing.

And likewise if the GC is looking for a SF price either they either don’t know what they are doing or they are looking for a finish contractor they can take advantage of because there is absolutely no correlation between the SF footprint of a house and the cost of architectural woodwork installation. Most trim work (although not all of it) is based on linear footage (i.e. baseboard crown etc.) or by the piece, assembly, or unit (such as doors) and when a ’square foot’ unit cost does come into play it has nothing to do with the square footage of the structure and instead relates to the square footage of the material being installed.

Okay those warning and admonitions aside the key to estimating trim is producing an accurate project takeoff. Think about what you need to include in your estimate. Did the GC give you a scope of work document to tell you just what he or she was looking for you to do? Finish carpentry includes such items as:

• doors and door frame
• finish hardware installation
• cabinets and shelving
• milled trim
• non-milled but exposed to view trim
• wall paneling
• stairs and stair railings

And you need to takeoff and plan for fasteners, biscuits, dowels, glues, putty, bondo etc. even if they aren’t included on the plans and specifications you are looking at.

You need to know if the GC is expecting you to supply all those materials, some of them, or none of them? If you are supplying the materials (maybe not the best idea if this is your first "real" trim project when you’re working for an experienced established GC) then you need to get prices for the items in your takeoff from the various suppliers. Be sure that the time it takes you to perform the take-off and the the time it takes you to shop your materials list is included in your bid in one way or another (otherwise you are giving away your time for free).

You also need to keep in mind what the probable state of completion (fabrication)of the items upon their arrival at the jobsite. In other words are the doors pre-hung or will you be assembling jambs and installing the door in place? Are the cabinets finished and ready to install or are they knock-downs that need assembly on site. Same thing regarding the stairs. Are they site built, a knock-down kit, or are they coming fully assembled and all you have to do is install them. And what about the railings? I think stairs are easy and it’s the railings that are really difficult. Some items such as closets and bookshelves may come in part or pieces all ready to be installed or you may have to cut and fabricate them from materials on site.

Having considered all the materials you now need to look at the labor involved. You need to both think of a labor cost related to each and every associated item on your takeoff and also:

• Unloading of materials from trucks, handling and temporary storage and protection
• Special tools equipment and scaffolding
• Handling and hoisting materials from storage to final position. (generally applies to stairs but can apply to other things too such as safes or large cabinets)
• Incidental associated items of work such as backing in partitions for the securing of cabinets and trim.
• Who is going to prime or seal the trim before installation?

Arguably another good idea, especially on the intricately detailed jobs is to take off the number of cuts your crews will need to make to install and fit the trim. While you still need the linear footage of the trim to calculate just how much trim your cost of labor is more realistically ties to the number and difficulty of the cuts your crew needs to make (see Cost Driver and Cost Estimating Relationship for the technical terminology describing those relationships). Typically we price trim installation by the linear foot and add a ‘per cut’ cost modifier only when the particular project or room exceeds what we feel is a ‘typical installation’.

In some of the discussions I’ve been involved with online with neophyte interior finish contractors I’ve recommended that they go out an purchase a Craftsman Books - National Renovation & Insurance Repair Estimator and use the Man-Hour labor estimates that are in there as they apply for the kinds of work you’ll be performing times your Loaded Hourly Billing Rate. I recommend the NR&IRE book as opposed to some of the other ones out there for finish work in that that book has the widest range of finish items that I have seen.

I say to use the Man-Hour calculations rather than the labor costs that they have computed out because your Hourly Rate is unique and I think most every ones Hourly Rate is. They may average around a certain number in a certain range for a certain kind of work but we all have different schedules of overhead calculations and there are regional differences too.

You also might want to check out Jim Tolpin’s Finish Carpenter’s Manual. One of the real good things about the book is at the end of each chapter he gives some of his own man-hour figures for the task he has just described and there a good foundation to start from in building your own. Also check out the new edition of Gary Katz’s Finish Carpentry: Efficient Techniques for Custom Interiors, No man-hour figures in it but it’s full of great technique ideas. I now use both those books as training manuals for new hires.

There are certainly more subtleties involved in producing and interior finish carpentry estimate but this presents a good foundation to build on.

by: Jerrald Hayes