$1.3M LESS REVENUE. MORE PROFIT.
A $4.9M concrete subcontractor felt that something was wrong, because revenue kept rising and cash never reflected it. Overhead was carried on the books at 5 percent when the real number was closer to 12, so every job had been priced against a cost structure that was wrong. We collected $203,000 in the first week, corrected the rate, and rebuilt job costing.
This is the most common failure we find and the least visible one. Overhead was posted in places that kept it out of the overhead line, so the rate loaded into every bid was less than half the real number. The jobs looked healthy at the gross line and the company made almost nothing, which is what an understated overhead rate produces. Correcting it meant every bid going forward carried the real cost of running the business, and the immediate consequence was declining some work. The following year the company did $1.3M less revenue and made more money.
A $4.9M CONCRETE SUB. REVENUE UP, CASH FLAT.
A concrete subcontractor doing $4.9M a year, self performing flatwork and structural concrete for commercial general contractors. Revenue had grown for several years. The owner described the feeling as knowing something was off without being able to point at it, which is the most accurate diagnosis anybody gave us before we started.
GOOD JOBS, NO MONEY.
Each job looked acceptable when it closed. The gross margin was in a range the owner expected and the crews were producing, so there was no obvious failure to investigate. At the end of the year the company had very little to show for $4.9M of work.
Pricing was set from the last similar job plus a feel for the market. Because the overhead rate in the estimate was understated, the bids were competitive for a reason nobody understood, which is that the company was absorbing part of its own cost of doing business on every award.
There was also $203,000 of overdue receivables that had aged without a routine, and the owner had never been able to pay profit sharing despite wanting to for years.
AN UNDERSTATED OVERHEAD RATE.
Overhead on the books read 5 percent of revenue. Rebuilt from the actual trailing twelve months, the real figure was closer to 12 percent, because costs that belonged in overhead had been coded into job costs and other accounts. Every estimate for years had loaded roughly 7 points less overhead than the business consumed.
The chain ran from a miscoded chart of accounts, into an understated overhead rate, into systematically underpriced bids, into a gross margin that looked normal and a net margin that was near zero. The Job Profitability System was the module that wasn't running, and this is the failure it exists to catch, because a company can't price work correctly against a cost structure it has recorded wrong.
WHAT CHANGED, WEEK BY WEEK.
THE NUMBERS, NOT THE FEELING.
The following year the company took $1.3M less revenue and made more money than it had at its peak, because the work it declined had been the work that was losing. The owner paid $130,000 in profit sharing for the first time.
Total time from first call to a corrected overhead rate running inside live bids: about 10 weeks. The revenue reduction and the profit increase both showed in the following full year.
DOES THIS SOUND FAMILIAR?
Contractors carrying this failure tend to recognise the same set of things. Revenue has grown and the bank balance hasn't moved with it. Individual jobs look fine at the gross line while the year produces almost no net. Nobody has recalculated the overhead rate in the estimate for at least a year. And the company wins a suspiciously high percentage of what it bids.
That last one is the tell most owners read as a strength. Winning most of your bids usually means you're the cheapest for a reason inside your own numbers.
See how CFOS applies to concrete subcontractors specifically on theConcrete Operating System page, or book a 20 minute call and bring your own numbers.
FREQUENTLY ASKED.
