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Taking the Plunge on People and Equipment

682 views 0 replies 1 participant last post by  ReubenD 
#1 · (Edited by Moderator)
One of the hardest decisions to make in any business is when to hire new people or people with specialized skills, and when to invest in new equipment. Not hiring the people can cost you money, jobs, and profit. Every time you need to hire outside of your company for work being done you are adding another level of somebody else needing to make a profit into your overall expenses and reducing your potential profit on a job. By the same token, adding too much in overhead and expense can cost you your business.This applies equally to hiring skilled help like a plumber, electrician, or framing specialist and to new equipment in general.

While it seems like you are always needing an electrician or excavator before you can hire or purchase one you need to take a very close look at how many hours you can actually provide for them in a week. If you cannot keep them busy full time they are going to cost you far more money than they save. Depending on what type of business you run, you may be able to find a way to not only hire additional help or purchase an additional piece of equipment that will allow you to save costs on some jobs or bid on jobs you could not before, but you may be able to find an additional profit source as well.

My philosophy on hiring people or buying equipment is simple. Treat every new hire or new equipment purchase as opening a new company. If you look at every individual and each piece of equipment as a company by it/themselves then you can look at what will the cost be vs. what the potential profit could be. As long as you are being realistic, this type of simple analysis will answer the question for you. To answer it realistically however, you need to have an understanding of the market you are working in.

Add up the total hours or days you have hired somebody else to do the job you would want from the person or equipment in the last year. That one is very simple and will take just a few minutes if you have decent records for expenses from jobs. Then really look at the bids and jobs you have bid on in the last year. How many did you decline to bid on based on lacking that person or item? How many do you honestly think you could have picked up if you had not added the extra cost of bringing in the specialist sub-contractor onto the estimate? If you were under bid by a very large amount then it would not have made the difference anyway so that cannot be counted as potential business.

Look at your competitors that are beating you on bids and learn enough about them to figure out what they are doing differently if the same places are beating you on a regular basis. Do they have that ability on their crew or are they subcontracting it as well? If you have bid on building 25 garages 15 additions and the same place beat you 18 times, do they do their own site prep and excavation? If you are bidding based on subcontracting that out and building on top and they are doing the site and excavation themselves then maybe you can look at that as potential area you are not being competitive in.

There is one other area to look at for additional revenue from specialty equipment or skills. Can you subcontract that out to others that do not have that capability? On the same example, while you may not have enough work to justify a $40k excavator for yourself, and you do not believe you could get enough additional work or could not win enough additional work from lost bids for that investment can you treat it as another business on its own and sub-contract it out to help pay for itself?

To answer this look at the cost and wait times of the last few jobs you did when you had to hire a subcontractor for that portion of the job. If it was very difficult to get scheduled in and the cost is a lot higher than it should be then odds are you could hire it out as well were you to invest in it and while you might only need 20-30 hours a week on average, if you could hire it out at a profit for an additional 20-30 hours that changes the entire picture. If you are shopping for heavy equipment do not just consider what it might be able to save you on your next job, or even what extra jobs you might be able to bid on if you had that equipment. Also take into consideration what you might be able to earn by subcontracting it out on its own merit.

This applies equally to specialist like plumbers or electricians. Maybe your general remodeling business that specializes in kitchens and bathrooms does not need a full time electrician on the crew, but if you had one could you also get business sub-contracting them 2 or 3 days a week doing small electrical jobs for homeowners or subcontracting to another contractor?

When you look at each piece of equipment and employee as an individual business opportunity for profit and weigh out the involved expenses it may open up new opportunities for you or at the very least after looking into it in detail you may feel a lot better about the next time you have to hire that portion of the job out since you know the facts behind it.
 
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