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22 NOVEMBER 2014 COATINGSPROMAG.COM Money Matters I f I came by your ofce and told you I could increase your profts by 90 percent, you would proba- bly be pretty excited. Ten why don't people get just as worked up when they lose 90 percent of their profts? I see it all the time, and some of you shrug it of like it's part of doing business. It's not. Doing work twice is costing you more than you think, and it doesn't have to happen. When It Goes Right Yours may be a little diferent, but most cost structures in specialty construc- tion companies, such as those in the coatings industry, look something like what's shown in Graph 1. Simply put, when you complete a contract for a $10,000 job, it usually breaks down like this: $7,000 is spent on labor and material, and $3,000 goes into your bank account for the monthly bills (unless the customer holds retain- age). Out of the $3,000 (sometimes called Gross Contribution), $2,000 is spent on salaries, insurance, mainte- nance, sales, rent, etc., which hopefully leaves $1,000 (Gross Proft) to go in your pocket at some point toward the end of the fscal year. When It Goes Wrong You thought your last job was fnished, but the phone rings this morning, and that awesome customer asks you to please send your guys back for a little rework. Maybe it's touchup, or cleanup, or you missed a few spots. Regardless, it's not good for your bottom line. You can't get a crew in a truck and touch up anything in less than half a day. If your $10,000 job originally took one week to complete, half a day's work is 10 percent. Let's work with that scenario to make the math simple. Remember you spent $7,000 in labor and material to "fnish " the job the frst time around, and now you're doing 10 percent more work, which would mean it's going to cost $700 more. You might say, "Tat's simple, Travis…$1,000 profts – $700 added costs = $300 still left in profts." But wait — didn't you have to schedule that work, drive to the job, pay the insurance and rent, and pay other overhead during that day? Yes you did, and you're doing that w ithout any Gross Contribution from a new job to pay for it. W hen we account for the lost 20 percent overhead contribution, $700 in rework costs $900. You could have been out doing new and fully proftable work. But you weren't. You just installed a $10,000 job for $100 proft instead of $1,000 — a 90 percent reduction. Concerned yet? Many contractors just hope the good jobs outnumber the bad, which is the painting industry's version of "spray and pray." GRAPH 1. TYPICAL COST STRATEGY By Travis LeFever, CEO of iRio Group, LLC. Cut the Rework and Increase Your Net Proft