Early one Saturday morning, two friends were having a cup of coffee together doing what businessmen do - discussing business. Despite both being concrete contractors, their backgrounds, businesses and successes could hardly be different.
John Gains runs a $20 million business that serves the commercial, industrial and institutional markets. He founded his company 20 years ago with his brother Ted. They started out pouring patios, sidewalks, and driveways for home builders and home owners. John bought out his brother 10 years ago, switched the company's focus and grew his company into the machine it is today.
Terry Fulton had a far different introduction to the concrete business. His father owned and operated a small concrete company. Terry went to work for his father in the field at age 16 but moved onto other companies after dropping out of high school. He continued to work in the field forming, pouring and finishing concrete during his teens and twenties. For years, Terry rejected his father's invitations to join the family business.
10 years ago, after being frustrated by the poor leadership and unsteady hours of the companies he worked for, Terry changed his mind and joined his father. His confidence as a businessman grew so much over five years that he ended up buying his father out. The company pours residential foundations, driveways and patios. Terry's company has topped out at $2 million in sales.
During this morning's conversation with John, Terry revealed that despite hitting his financial goals most years, he really doesn't have any idea what individual jobs cost him. John sympathized with Terry's plight.
He remembered how much harder it was to track costs back when his company was doing jobs that ran between one and two days. Today, his typical project runs several weeks. His team tracks all costs per job, he knows each job's profitability and his estimators excel at cost prediction. John had discovered a truth about job costing - the smaller the average job, the harder it is to track costs in a meaningful way.
John took a slow drink of coffee and decided to try and help Terry out. "What is keeping you from knowing your project costs?"
Terry explained. "When we run a job cost report from our accounting system it shows the labor charges assigned to the job and the materials that were delivered to the job. The report doesn't include material taken from inventory such as nails, wood, plastic sheets and gravel. The report doesn't include the cost of our equipment, such as our Bobcat, nor labor burden, nor overhead."
Terry's answer told John everything he needed to know about Terry's approach to job costing. It was filled with holes. John proceeded with his questioning.
"How do you estimate jobs," John asked?
"I predict the labor time and material costs then add in overhead. I double check the cost per square foot or cubic yard against our averages to make sure I didn't blow a calculatioin. Dad had so much experience he could look at a job and just know. I can't do that," said Terry.
"Okay. More questions. How are you tracking time," asked John?
"My foremen write down the hours each worker worked and what job they worked on. Many of our jobs span two days, so the foremen note the time the crew finishes the first job and moves on to the next," Terry responded.
From his own experience with small residential jobs, John knew most of Terry's jobs varied greatly in preparation, forming and finishing. Terry wasn't tracking the labor in a useful way. John continued on.
"Does the time required for base preparation, layout and forming per square foot run consistent or does it vary greatly," asked John?
"The average varies greatly between driveways, patios, and sidewalks and it even varies quite a bit within each category. Curved driveways and sidewalks throw all the averages off," said Terry.