Cost creep can rear its ugly head during the selections process if you do not have proper systems and procedures to guide the client. Once construction starts, increases in labor, material, or trade contractor costs can force you to exceed budget.
To control costs during growth you need purchasing procedures, job cost budgets, and a system to identify variances from budget including a closed-loop management-by-exception procedure to allow consistent application of the established cost control purchasing policies. Two-minute reports, timely and accurate financial information, individual and departmental variance reviews, and regular evaluation of recent and historical trend results against established cost control benchmarks also help grow your custom building company while maintaining cost control.
It makes no sense to double your volume if profits decline 50 percent. You will end up doing more work, dealing with more stress, and making the same money. Growth can be good if you are ready for it, but without the proper systems to handle it you may end up with a severe case of growing pains.
Steve Maltzman, CPA, is president of SMA Consulting in Colton, Calif. Visit him at www.smaconsulting.net.
