You’re not broke because you’re a bad contractor; you’re broke because you’re a bad mathematician. Real business math – knowing your overhead, mastering job costing, and pricing for profit – is the only way to stop being a “glorified employee” and start being a business owner who actually makes money.
The Fear of the Number
Most of you drive around in beautiful trucks, looking like you’ve got it all dialed in, while secretly praying the next check clears before the supply house bill hits. You avoid your numbers because you’re afraid of looking like a fraud. You’ve been told money is taboo, so you don’t talk about it—not even to yourself.
But here’s the reality: business math isn’t some high-level calculus. If you passed the fourth grade, you have the skills to run a multi-million dollar company. It’s just addition and subtraction. The “monster under your bed” is just a lack of information.
How do I calculate overhead for a small contracting business?
Overhead is the cost of staying in business whether the phone rings or not. To find yours, list every constant expense: cell phone, electric, fuel, office supplies, insurance, and your own salary. If you don’t know what it costs to start your truck every morning, you’re just throwing darts at a board and hoping you don’t go broke.
How much should I charge per day to be profitable in construction?
Steve Shinn Holzer once challenged Derek to figure out what it cost to run his business for one day. At the time, it was $1,200. If you want a 50% profit margin, you have to double that number before adding the cost of goods. If your “nut” is $1,200 and you sell a job for $800, you just paid $400 for the privilege of working all day. Stop paying to work.
Why am I busy but still have no money in the bank?
You’re “busy being busy”. You have cash flow, which is not the same as profit. Money flows in from Job B to pay for the materials on Job A, and you’re caught in a cycle of grinding without ever slowing down to fix what’s broken. If you don’t track where every cent goes, your money will leak out the back door in inefficiencies and overspent materials.
What is post-job costing and why does it matter?
You have to perform a “post-mortem” on your jobs. Did the job live or die?. Go back to your last three jobs and break them down: labor, materials, and overhead. If you realized you only made a 9% margin when you needed 50%, you can’t keep charging that way. You have to track your man-hours and material costs in real-time to make corrections before the job ends.
How do I track job expenses without complicated software?
If you’re intimidated by CRMs, start with a manila folder. Write the job name on the outside. Every time you buy a piece of PVC or a bag of mulch, write the price on the folder and shove the receipt inside. At the end of the job, tally it up. It’s the “envelope system” your grandmother used for the electric bill, and it works just as well for a construction site.
What is the difference between cash and accrual accounting for contractors?
Cash-based accounting is looking at the $200,000 in your bank and thinking you’re rich. Accrual-based accounting is looking at that same $200,000 and realizing $150,000 of it is already spoken for by payroll, taxes, and vendor bills. You have to look at the money and ask, “How far is this actually going to get me?”.
How do I explain higher prices to my customers?
Confidence comes from the numbers. When you know that $63,000 is the actual cost to install a specific area of sod, you don’t stutter when you say the price. If the customer says no, you understand. But you don’t lower your price just to “be busy” because you know that doing it for $32,000 would literally cost you money. The number is the number.
How can I get my team to stop overspending on materials?
You have to be the watchdog for your money. Your team isn’t trying to rob you, but they don’t have a rhythm for when to spend. Have conversations about inventory. Don’t just hand over a credit card and hope for the best. Watch your transactions daily to catch double-billings or over-charges at the register.
The Bottom Line: Own Your Crap
Knowing your numbers makes your business worth more—not just in cash flow, but in resale value. Banks and buyers love a business with a structure, a system, and dialed-in math.
Stop letting your business run you. Get in the room, get in your bank account, and start running the damn thing yourself.
How do I calculate overhead for a small contracting business?
To calculate overhead, you must identify every recurring expense that exists regardless of whether you have an active job. This includes cell phone bills, electricity, fuel, office supplies, insurance, and a set salary for yourself. Tallying these for a 12-month period allows you to understand your daily “burn rate” or the minimum amount required to keep your business operational.
What is the difference between cash and accrual accounting for contractors?
Cash accounting focuses on the literal balance in your bank account at any given moment. Accrual accounting tracks income and expenses as they are incurred, providing a clearer picture of what money is already allocated for future bills, such as payroll and taxes, even if that money hasn’t left your account yet.
How much should I charge per day to be profitable in construction?
Profitability requires charging enough to cover your daily overhead plus a significant margin for profit and cost of goods. For example, if it costs $1,200 a day to run your trucks and office, you may need to charge $2,400 per day plus materials to achieve a 50% profit margin. Charging less than your daily overhead results in losing money for every day you work.
Why am I busy but still have no money in the bank?
This often happens when a contractor focuses on cash flow rather than profit. Being “busy being busy” means you are moving money around to cover old debts but aren’t charging enough to keep a profit. Without tracking exact job costs and overhead, money “leaks” through inefficiencies and underpriced labor.
What is post-job costing and why does it matter?
Post-job costing is the process of analyzing a completed project to see if it was actually profitable compared to the initial estimate. By breaking down the actual labor hours and material costs, you can identify where you lost money and adjust your future pricing to ensure you don’t repeat the same mistakes.
How do I track job expenses without complicated software?
A simple manual method is to use a manila folder for each job. Write the job name on the outside and record every expense as it occurs, such as material purchases or subcontractor fees. Store all relevant receipts inside the folder. At the end of the project, tally these figures against what you were paid to determine your net profit.
What is a healthy profit margin for a residential contractor?
While it varies, many successful contractors aim for a 50% margin to ensure they cover overhead and build a sustainable future. Analyzing past jobs to see if you were operating at a lower margin (e.g., 9% or 20%) can help you determine how much you need to raise prices to reach your goals.
How do I explain higher prices to my customers?
Confidence in pricing comes from knowing your math. When you have a “menu” of set prices based on real costs, you can state your number clearly without hesitation. If you know that doing the work for less would result in a loss, it becomes easier to stand firm on your quote and let unprofitable customers walk away.
What are the biggest financial leaks in a contracting business?
Common leaks include not tracking man-hours accurately, overpaying for materials due to lack of inventory management, and failing to account for processing fees like credit card charges. Regularly reviewing bank transactions and receipts helps identify these inefficiencies before they drain your profit.
How can I get my team to stop overspending on materials?
Clear communication and inventory control are key. Set a rhythm for purchases and require approval for larger orders. Educate your team on the “number” for each job so they understand that staying within the material budget is essential for the company’s—and their own—success.