In your experience with custom cabinets in particular, where is the most money lost? I know this is a general question. Slow workers, inefficient shop set up with great workers, prices too low, overhead too high etc. I've been buying equipment, investing in training etc, but not creating enough profit. I can here you saying "welcome to custom cabinet making". My business covers everything but not enough to be done with a line of credit and build a reserve to use as my own line of credit. I'm trying to improve all areas of business but just curious if you guys have one area that really gets you. I should also add that my business is only 3 years old and in a growth mode. I have myself and 5 full time guys with me.
You are gonna have to track every dime. The easiest method is to make a work order/purchase sheet and write a purchase down to a vendor, or a work order to a client. Check the cost or the estimated work - is it all accounted for ? Is it exactly what you need ?
We have 12 people and 20k sq feet it is a material eating machine, but I only keep on hand what I need for a week and sometimes that can be too much.
Are you making notes on the jobs for the problems and addressing them to reduce work and trips. Are you overstaffed ?
Is the office driving the floor or is the floor stopping the office for lot's of clarifications ?
I know one thing that's getting me is lack of communication from me to the guys. Not for lack of trying but just so much to do and implement these systems. I'm working on it though. I analyze my financials but not knowing where things are out of line I'm trying to improve everywhere. My guys are the greatest and they respect me and I them. I'm sure waste (time, materials, lack of communication) is a big factor.
I generally agree with what Pat has said, but sometimes when a large job, with its subsequent draws and thresholds, spans more than a day/week/month, it may be hard to determine what a “break even point” actually is.
Overhead is one of those areas where I think items are often misappropriated, as it becomes a catch-all for those costs which have not been posted to a particular job. If there is anything at all that is job-specific, that needs to be accounted for in the job costing, so that the mindset about overhead is not being miscalculated across the board.
As for labor, if someone needs “something to do” for an hour before quitting, and are told to “help out” on someone else’s job, and their time is posted to a job where they are doing nothing other than watching the clock, this can be misleading as to the amount of real labor being put forth to a particular job. I have seen this often enough when I worked on a bench.
I don’t know the nature of your operation, but if your employees require a level of supervision that you can’t provide while you do other things, someone responsible needs to be made a working foreman, who is always in the shop and is answerable to the question “Why did this take so long?”
As for shop programs, I have always thought that “lean” was nothing more than a sense of working efficiently, something that developed as you learned your trade. I could watch someone work and determine if they were being efficient, if they were milking the job, or somewhere in between. Systems are nice if you make variations of the same thing in different sizes and call it custom, but if the projects themselves are varied such that this one is nothing like the last one, it is difficult to have a program in place for every contingency. Yes, they are all a series of processes, but ask Toyota to make an Abrams tank or a locomotive immediately after making a Camry and you may redefine “lean” to something that is more reflective of the work you do.
As Pat says, you may make more money with fewer employees. Watch to see who is working efficiently, keep them and cull the rest, and you may find that your gross is almost the same with fewer employees, which almost has to increase your net, which I think was the original question.
I agree with what others have said. How do you job cost? Many small shops underestimate their costs and price too low. Never buy a job. Develop a system of work flow. If you do work outside of that system it will cost you more.
OK, I do job cost but it's not that easy to translate that to something meaningful for decisions, but I'm working on that. I think you have great advice. I looked at one particular builder I have over a 5 job stretch. According to my accounting I had a 15% difference between actual rev. and Actual cost. 15% to the positive. I had other jobs also during that time that also realized positive results. One telling thing was that over the course of a year I had 20k in shop improvement and shop clean up. I have the guys check into that category for various reasons. Running new air lines, moving machines to more efficient locations, building benches, building carts, building storage racks, this is mostly labor but also materials for these infrastructure type things etc. But man that seems bad to me. That's 1600/month in those costs. Last year I had 20% net income on the Profit and Loss report. Which seems OK. I'm very close to having the CNC operational also.
Yes, I understand volume to break even, but that can be ascertained only once the jobs are complete and you know what the margins actually are. I'm not sure how you would determine a real time break-even point on a by-the-day, or by-the-week basis, if you do not have the expenditures for those time periods to calculate against sales, which may be the case for a job that drags on for months. It would also be difficult to calculate percentage of work completed against percentage of total sales price in real time.
To me, what you are talking about is more of an after-the fact calculation, rather than a current check of sales vs. costs. Any attempt at real time numbers would have to take certain assumptions into consideration, and these assumptions may not be borne out by the accounting that is done once all the numbers are in.
I always had a gut check that told me if a job was over or under, and while a gut check is difficult to quantify or qualify, I "knew" when something was not right. I still had to wait for post-project cost accounting to tell me if I was right, and if so, why.
The first thing to recognize is that you don't make any money building cabinets. You make ALL your money selling them.
Building cabinets just takes the money out of your pocket. You want, therefore, to spend the least amount of time building cabinets.
The purpose of job costing is not to track what your expenses are but rather to decrease them. You can already assume you are inefficient at every part of the process. You don't need job costing to tell you that.
Take this energy you apply to retroactive analysis and direct it instead toward pro-active cost containment. This exact focus will, coincidentally, increase your current capacity and allow you to get done by Thursday what used to take until Friday.
That's like adding 20% to your shop space or 4 more days to your work month.
Pat is right about most of the losses being in labor. You don't, however, want to dismiss cost savings associated with materials. Materials tend to get ignored because there is very little drama associated with materials. It's not in your face like a looming deadline or a bad decision.
The costs of material are much greater than just what you write a check to your vendor for. The cost of materials also include all the minutes you spend getting the material from the first phone call all the way into the cabinet.
Materials represent 30% of every dollar coming into the building and are the only thing in your whole sphere of influence that actually agrees to be compliant.
I had 8 guys on the floor at one time and we did 900K a year. I lost money year after year until I really started to look at what types of jobs we could do well and what types of jobs we couldn't do well. I am down to 2 guys plus me a we make more money than i ever did with lots of people. If your not doing 150K in sales per employee you are losing money... its that simple. so your gross sales should be 900k + if you want to have any left to buy stuff and start using your own money vs the banks.
It's topics like this that remind me how great wood web is . just last week we sat down and asked ourselves the exact words "where does the money go".
Like everyone here there are the obvious problems , we are a custom shop . never building the same thing twice is inefficient.
We had forgotten how much we pay out on a monthly basis in the way of over head . but we are already at the top of how high we can raise our price .
Paul Downs book said something to the effect that we are a proud trade good at what we do but we are not business men.
for the first time in 30 years we bought in cabinet doors. We know we are probably the only shop that still makes every facet of the project . and that's my point we realize the problem and are to proud too change .
I think if you look at guys that buy their parts from a supplier this gives them a direct cost of what that door,drawer box,etc will cost them. If you have an employee that doesn't feel good , had a fight with his wife and is just not keeping up to speed it cost you money.I always say if you could hire 2 plus guys like your self business would be great. So I think the auto industry has a control over this with how they pay and charge for repairs if it takes let say 1.5 hrs to build a cabinet with a door on it complete. You charge that to the client at an hourly rate that includes everything. This allows your employee to book more time in the shop than he is really there and you as an owner get paid no matter what. Now if he takes 2 hrs to do this he still get paid for 1.5 hrs and if this becomes repetitive you can weed out people that just can't keep up and should not be in the trade maybe. I know this sounds easier than it is but your cost need to be control in today's world.
What Ryan Said is spot on! Find out what your really good at, only do that and be really good at it.
"I had 8 guys on the floor at one time and we did 900K a year. I lost money year after year until I really started to look at what types of jobs we could do well and what types of jobs we couldn't do well. I am down to 2 guys plus me a we make more money than i ever did with lots of people. If your not doing 150K in sales per employee you are losing money... its that simple. so your gross sales should be 900k + if you want to have any left to buy stuff and start using your own money vs the banks."
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