be suitable in the current environment. Work with your PMs
to revisit project contracts, and make adjustments where
If new contracts have waned, work with your PMs to schedule
and manage project backlog. Seek your PMs’ input regarding
the feasibility of staff reductions and whether or not your current project timelines are still reasonable.
In addition, find out how much insurance and payroll is
required for each project to ensure adequate funding while
reducing expenses, if warranted. This critical step could help
prevent a loss in profits of 50% or more.
Conduct Due Diligence on Prospective Clients
Many businesses are eager to obtain any and all clients. However, not every client is a revenue-generator. Conduct your
due diligence (i.e., prequalify new accounts and monitor existing clients’ credit ratings) to avoid clients in default.
Research a prospective client’s payment history and credit
score (and/or rating) before starting or continuing a project.
Previous credit problems should be a loud and clear signal to
move on. Otherwise, you’ll spend more time and money trying to recoup payment than making a profit.
Conduct Due Diligence on Current Clients
Unfortunately, past clients who paid on time might not do so
today. Set up a schedule to periodically review current A/R,
including accounts at 30, 60, and 90 days past due to ensure
profitability and timely payment. Implement policies and procedures that address delinquent accounts (e.g., contact them
after a missed payment, create payment plans for accounts in
Regularly check in with each client so that you can detect
problems before they escalate. After all, clients will be more
inclined to pay your company before others if they know you
will be calling at the first sign of delinquency.
Silence isn’t always golden, so vigilance is the key to reducing defaults and delinquencies. For a typical 24-month project, due diligence and proper A/R management could save
your company 10-15% on a project.
Compute Labor Burden Correctly
Arguably a contractor’s largest cost, labor burden includes all
employee-related costs, excluding salary. Bear in mind that
contractors must be able to project future labor and non-employee costs in order to develop accurate labor burden
calculations and ensure profitability when bidding or estimating a job. Depending on a company’s size and scope,
labor burden typically ranges between 35-55%. (See below.)
Refine Accounting Practices
Organization and consistency are essential to good accounting
practices. Though the need to close accounting records
monthly, address cost overruns, review job cost schedules for
profitability, assess A/P and job backlog schedules for efficiency,
and analyze A/R reports for delinquent payments seem obvious,
it’s easy to become complacent or distracted, and therefore
neglect these critical tasks. Steps to circumvent this problem
• The use of secure, adaptable accounting software;
• Regular account reconciliation;
• Timely reporting of accounts and system entries;
• Consolidations; and
• Thorough monthly and annual closes.
Once these steps are accomplished, you’ll be able to:
• Invoice on a timelier basis;
• Reduce costs, if necessary, before a problem occurs;
• Decrease unreported A/P and budget overruns; and
continued on page 20
Except for salary, add all employee costs (such as
payroll taxes, health care, auto reimbursement,
employee-sponsored retirement accounts, workers’
comp insurance, and other employee benefits).
Then, divide by the total salaries of all employees
involved in the project.
Example: Employee costs per employee
(except for salary) = $27,500 x 10 employees
involved on the job = $275,000
10 employees (with salaries of $50,000 each) = $500,000