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With the US economy improving and construction activity picking up, we are starting to see more small contractor startups. Just having the "guts," technical knowhow, and what the M.B.A.-types call "an entrepreneurial spirit" aren't enough to be successful-you have to follow some basic good business practices. When I talk of good business practices, such as projecting cash flows, I do not intend to suggest that you must have a crew of accountants and bookkeepers running a complex computerized operation. Even if your business is small enough to be managed from a kitchen table, you still must follow certain basic, tried-and-true principles to stay in business and grow.
One of the most important aspects of running a business is money management. You should be able to use the money management basics discussed in this article as a guide for tailoring a system that will work for you. You need a system that you will be comfortable with and that you will follow on a regular basis: it has to be one that you will actually use.
For this discussion, let's assume that you are in business, have satisfied all of the legal and regulatory requirements, and are performing basic business functions (paying bills, collecting receivables, etc.).
COST CONTROL
To stay in business, you (obviously) must make a profit. In today's market, you can't allow yourself to wait until you get the last payment to find out whether or not a job were profitable.
If we accept that the contract price, whether bid or negotiated, must include the reasonable cost of the work to be performed, the incidental project costs or job overheads, the cost of running the business (home office overhead or general and administrative costs), and a reasonable profit built into it, then the...