6 Financial Mistakes That New Contractors Make Part 2
For many people, dealing with company financials is not fun. We may not be comfortable with numbers or have a general disdain for math. You know what else is not fun? Going out of business because you don’t have an accurate picture of what your company is making or spending. Having a basic understanding of the financial concepts that govern your business is vital because it allows you to see potential issues in their initial stages. If labor costs are increasing dramatically, it’s important to know that and be able to make the appropriate adjustments.
In the first part of this series, we discussed a trio of common financial mistakes that hamper construction companies. In this part, our Florida construction attorneys will provide three more mistakes to avoid.
Not Understanding Profits
Sounds simple, but many people mistake having cash in hand for having a profit. Not understanding this concept can lead to an inaccurate count of what your company actually makes. You may have received payment from several jobs at the end of the month. While that’s great, expenses have to be counted against those revenues to determine if a profit or loss has occurred.
Contractors that are new to the construction industry often price their services inaccurately when bidding on jobs. There’s a natural tendency to undercut prices in order to win the bid. This is a dangerous practice that can cause you to receive little to no profit on a project. It’s important to understand your costs, the true value of your work, and create proposals based on those numbers. With accurate numbers, you can give yourself a better chance of receiving a profit on all jobs.
Not Factoring Overhead Properly
When trying to make a profit on construction projects it’s easy to inaccurately estimate the cost of overhead items. No one wants to overspend, but it’s critical that contractors are honest about the costs inherent in running their business. It’s also helpful to continually evaluate your overhead rate to ensure that it’s in keeping with your current costs.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.