Happy Tuesday Folks!

Welcome back to another edition of The Contractor Finance Playbook.

This week I walk you through very a real senario that happens very often to contractors. It’s a situation that happens too ofter and many contractors don’t catch it until its too late.

Let’s dive on in!

Quick note before we get into this one. This story isn’t based on a specific business or client, but its a real scenario that play’s out often.

Quick note before we get into this one. This story isn't based on a specific business or client, but it's a real scenario that plays out often.

Steve is the owner operator of an HVAC company. It has 11 employees, brings in around $2.8M in annual revenue with a 60/40 split between residential and light commercial work. Service Titan is his business management platform and QuickBooks Online is his accounting software.

He recently closed the single largest job he's had all year by a wide margin. It's a commercial retrofit, four rooftop units, full ductwork overhaul on a 12,000 square-foot building. It came through a property manager that Steve has known and built a relationship with for two years. He wanted to win this job badly so he bid it low enough he would make money on it but it wasn't padded either.

He bid the job the way he always did. Pulled his equipment costs, priced out materials, estimated labor hours based on how long similar jobs had taken him to do. He built in his markup and everything looked right. Good margin. Not the best but it was solid and he signed the contract.

The job started on schedule and the first week went well. But then hours started slipping.

Steve had his best crew on the job. The issue wasn't the crew itself, they were great. It was the building that was causing a lot of the issues.

The first rooftop unit took the tech lead four hours longer than expected. The existing curb didn't line up with the new unit and had to be modified onsite. Not a huge deal but that's four hours gone.

For the ductwork, the drawings that the building owner gave them didn't match what was actually in the ceiling. Installers had to reroute two runs that had been quoted as straightforward pulls. On top of that the rerouting had pushed the schedule back three days. On the fourth day to recover the schedule Steve expedited a specialty fitting from a supplier that didn't stock it locally but had it shipped. Overnight freight plus the expedited fee cost $1,800.

Then one of his service techs called out sick during the most critical installation window. If the timeline gets pushed back then it potentially damages the relationship with the property manager. Instead Steve decides to pull one of his residential installers off a smaller job and put him at the commercial site at overtime.

Three days after the job had been completed the building owner called because one of the units started throwing a fault code. Steve sent out his lead tech and one installer back out for the full day. A wiring issue with the controls got overlooked during commissioning. [incomplete sentence — please finish this thought]

Each situation had a reasonable explanation and got handled in the moment. When you're in the moment sometimes you have to take care of business and do what you have to do. I completely understand. However, while this was all going on, no one stopped to think how much extra this costs.

Meanwhile, Steve was simultaneously coordinating equipment deliveries, answering a question on a residential job and trying to close a commercial lead. He didn't have the bandwidth to watch the hours on this job while it was going. This is what it looks like when a company takes on a job that's at the edge of its operational capacity.

Here's what the numbers looked like when it was all said and done.

Original Estimate

Actual Cost

Final Breakdown

He went into the job expecting to clear $23,560 and walked away with $11,282. This is why tracking gross profit by job is so important. Not just after the job is complete but also during it.

This is also where good bookkeeping gives visibility to spot these issues earlier before it's too late. Service Titan had the crew's hours and the costs were recorded in QuickBooks and had purchase orders for each piece of equipment. What he didn't have was the setup that pulled all of these numbers into one place for an estimated vs. actual costs analysis while the job was still running. The tech was there but wasn't setup to give that visibility.

If Steve had been comparing estimated costs vs. actual costs he would have been able to see the gap building in real time, and could have taken steps to recover at least part of the margin that was lost.

The job wasn't a failure. The work was done correctly and on time. The customer was happy and Steve landed a relationship with a new property manager that also manages more buildings throughout the area.

But he worked six weeks, put his best crew on it and walked away with half of what he was expecting. Before Steve knew what it made, he felt like it was one of his biggest wins in years.

Every field decision has a price. Most contractors know that in theory. What they don't have is a system that keeps up with it in real time, so by the time the invoice clears it's way too late.

Tracking job costs while the job is in progress isn't extra work. It's the only way to make sure a project is still on track before it's too late to do anything about it.

That's all for this week folks!

Til next time, cheers!

Preston