A Typical Project - Project Profitability and Understanding the Basics

It is important for everyone in a construction company to understand the financial basics of a project starting with the razor-thin profitability that contractors operate with at a relatively high risk.

D. Brown Management Profile Picture
Share
Cash Flow: A Typical Project. Understanding the Financial Basics.

Few things to qualify: 

  • Different types of contractors such as GCs, general engineering, MEP and other subcontractors will have different levels of profitability.  This is a general overview. 
  • Each contractor will vary what they call direct costs, indirect costs and overhead.  Pretax net profit as compared to how much capital (cash) they require is the best bottom-line measure when comparing.  
  • For more financial benchmarking information look at CFMA or if your CPA firm has a construction specialty they will often develop benchmarking reports.  

When looking at millions of dollars it is easy to get lost in large numbers.  Let’s break this down to a $1,000 paycheck. You would have $50 left over at the end of the week after you paid all planned expenses.  This would have to cover taxes (40-50%), any unplanned expenses like a car repair and any discretionary spending like going out to dinner.  

Contractors don’t make money by managing millions of dollars in revenue.  They make money through each person on the team managing each of the 480 minutes in a day and each dollar they spend trying to save a few minutes and dollars each day. 


A Typical Project - Project Profitability and Understanding the Basics
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

A Typical Project - Project Profitability and Understanding the Basics
Great cash flow is a key driver of valuation and successful successions. Running out of cash is is the #1 reason contractors fail. Improving cash flow improves your Return on Equity. Protect yourself and never let cash flow be the limitation to your profitable growth....

Doing Something is Worth a Lot
All things must be thought about before they can be built. For more complex ideas they must be talked about with a team to align everyone. Those are both critical prerequisites however without the act of actually doing something they are 100% waste.
Competitive Advantage
A contractor’s market strategy is the most highly leveraged decision leadership can make. Getting this right then executing effectively can easily have a 2X+ positive impact on earnings over the next 5 years.
Leaders Make Things Fun
Leaders are always looking for ways to make really challenging things fun. This stretches teams and builds the relationships that hold teams together in good times and bad.