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....

Our Promises
We love the construction industry. We believe in aggressive business and talent development balanced with conservative operations and financial management. We make six promises to the industry, to our clients, to each other, and to ourselves:
Definition - Decentralization
Decentralization is the delegation of entrepreneurial levels of decision rights in an organization for leadership development, scalability, sustainability, and succession.
Collections and Retention Trend Metric
Assuming that a contractor’s project team has done an effective job of aggressively billing the project, the biggest variable that remains for cash flow is the effectiveness of collections.