Communication also includes training. Use the trade agreement and the scope of work as a training tool for your internal staff, the trade contractor, and the trade contractors’ crews. Carry the agreements with you. Point out the aspects specifically impacting today’s problem. Encourage all to read, review, and use the agreements on a daily basis.
For custom builders who maintain their own crews the keys to success are the same as with your trades: Make sure that you are properly setting expectations with your internal team members.
Purchasing and Estimating. The best custom builders have implemented a purchase order system for cost control. A good purchase order system starts with a tight job estimate. Obtain written bids from as many trade partners as possible before finalizing an estimate. Develop a detailed specification list so that your trade partners know exactly what they are bidding. For materials it is best to spend the time to take off a detailed material list from the plans and bid out the material list to get pricing.
The biggest problem that custom builders encounter in this area is estimating a job before the plans are fully complete or before they have all of the specifications and selections from the client. I have seen builders take control over this area by setting customer expectations up front so the customer does not expect a final bid until the plans, selections, and specifications are complete.
Implementing a purchase order system can be a painstaking process since it may entail making major changes in the way a builder does business with trades and suppliers. A custom builder with whom I worked held several breakfast meetings with his trade partners to describe the new procedures and show how they would help the trade’s accounting process.
As a bonus, a purchase order system should be able to improve the reports a builder gets on his jobs. Instead of just looking at estimates versus actual costs or actual costs incurred, he can focus on variance reports. These reports are available in some integrated accounting systems. However, even without an integrated system that provides a variance report, it is easy to develop one in a spreadsheet. Simply log the variance purchase orders issued and sort by variance reason and vendor. This report should be reviewed weekly with a discussion as to what went wrong (or right), why it went wrong (or right), and what can be done to prevent the variance from recurring.
Steve Maltzman, CPA, is president of SMA Consulting in Redlands, Calif.
