The Hidden Value in Your Schedule of Values
Posted March 31st, 2021
A construction contractor’s Schedule of Values is just as important to the project’s success as the bid. It also can help you get paid faster, retain more margin, improve your cash flow, and even improve your team’s performance.
That’s a lot VALUE hidden in your Schedule of Values. To cash in on all of that power, you need to build your Schedule of Values with the same strategic consideration that you apply to your initial bid.
Building a Valuable Schedule of Values
Get granular. If you are installing the windows in a five-story apartment building, think about the time it takes to haul windows up to the second, third, fourth, and fifth floor. How many times does a crew member have to come back down? If you have the same labor rate and time for each floor then you are going to lose money on one or more of those floors. After all, it takes more time for your team to get up and down, wait on the elevator, deliver material, or even just run back to the truck from the higher floors.
Get specific. Make sure your ability to invoice isn’t contingent on another contractor’s performance. If your plumbing company is laying underground or foundational piping and the original Schedule of Values defines “complete” as “Capped & Sealed,” your invoice might very well be reliant on the concrete pour schedule. Align your Schedule of Values as close to your job schedule as possible, so you get paid for the actual work you did during that application period (i.e. month).
Get confident. Just like your bid, you need to be able to show your work when you submit a Schedule of Values and it needs to be easily verified as complete so you can get PAID. Leave as little room for subjective interpretation on the line items as possible. Be thinking, “To do a great job I need my money to be paid to me in order to maintain the quality work you expect of my company.”
Be Careful Where You Put Your Margin
Are you putting most of your project’s margin in material line items? It seems like an easy win, especially if you can negotiate good supplier terms.
Unless something goes wrong, like the cost of material goes up, or materials get cut from the job, or the General Contractor decides to buy the materials themselves.
Don’t leave your profit margin up to chance! If you put your profit margin in certain line items and remove it from others, then you need to make SURE the overall margin you intend to make is still there when you invoice.
It’s construction; a lot can go wrong, and at least one thing definitely will. You need to make sure that you are able to get some profit billed into every invoice it’s the life blood of your business.
Also, if you are putting your margin in certain line items, you better let your Project Manager know. They need to be aware of how that next materials order, or any Change Orders they receive, will affect the margin on the job.
How else do you spread your margin? You could add a percentage to every line item, or you could boldly list it in your bid. This is a power move. It says to the GC, “I know what my company is worth and what it takes to do the work we do.”
If that route feels a little too bold, take a look at your project’s Cash Flow Projection (you have one, right?) and spread your margin across line items so that your project cash flows itself faster and stays profitable throughout.
Complete Your Schedule of Values with Cash in Mind
How would you do the job if money were no object? It’s not just a daydream; it’s the first question you should ask when creating your bid and your Schedule of Values. If money was no issue would you run the schedule of the job differently and would it allow you to make more money by saving time and being more efficient?
It’s not just a matter of WHAT your profit margin is but WHEN you make it. If your margin is too thin or locked up in retainage, you’re impairing your team’s ability to perform at their peak and limiting your company’s ability to grow, or worse you may even be putting your company in jeopardy by limiting the free cash flow to the overall business needs.
What would the project’s cash flow need to look like to increase efficiency in the project? What would it take for you to start the job with materials on hand and a full-size crew? What would two weeks of saved labor costs do to your bottom dollar?
It can make a REAL difference. Take the 5 minutes and watch this video to see what we mean.
You can do this, too. All it takes is asking the right questions.
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