Background: We do residential and commercial custom cabinets and refacing.
Dilemma/question: Over the years we have done several small commercial projects. All with some sort aspect that required special attention or service. Now we are getting request to quote larger and larger projects that are more cookie cutter. I know these require tight numbers. I am not as automated as the big guys but know how to run high production. What are the unseen issues in this type of work? How do you quote numbers without taking days and days? Formulas? Insights?
As stated, MONEY will be the biggest issue. Carrying the material costs from day 1 can really hurt on a big job, but then you have to carry the labor for some time as well. Since you aren't as automated, you'll need more labor for the same delivery time. That means lots of overtime payout. That's overtime the big shops don't have to pay. There was a time when you only had to bid against regional shops, now you can look forward to bidding against highly automated national shops.
Alan has it. I run a smaller commercial only shop. I limit the size of jobs we will do and how much we will have in the works for any one contractor. I won't accept the contractors "normal" contract terms which often include "if the contractor doesn't get paid he doesn't owe me anything." BS, I have no control over who he choses to do business with. The layers of paperwork, meetings, change orders etc. can get to be really expensive in terms of trying to schedule. Change orders are a particular beef of mine. They can be very disruptive.
In 1995, I got a call from a larger commercial contractor in our area and he wanted us to bid on an assisted living project they were working on and I set up a meeting with one of the owners. As we were discussing the job, I told him I might not be as competitive as some of the larger cabinet shops in the area.
We were standing over his desk, looking at the plans and when I said that, he looked at me, dropped the pencil he had in his hand onto the plans and said to me, "I have used all of those companies, and they are all the same. They don't finish the job." He said, "You will have 10% held back until you are completed and so do I have 10% held back until the job is completed. For you, it might be $5,000, for me it might be $250,000."
He went on to say that he had heard good things about us and if our numbers were close, he wanted to try working with us. That started a great relationship. We still work with them, they use other shops and we have always been paid. The largest job we did with them was in 2003 for $225,000 and we worked directly with he architect choosing colors and materials.
As for payments, explain your situation to them, if they want you, they will work with you. We usually require some deposit and progress payments, even if the cabinets have not been delivered. As long as we can show that they have been built.
As for a rule about size of a job vs. yearly volume, I have never heard that. And, I would not let that stop me from bidding a job. Over the last 28 years, I have had two jobs of about $750,000 each and we have never grossed more than 1.1 million. Both of those jobs spanned over two years, but they were definitely more than 10% of our gross. Both of those jobs were residential, and we made really good margins on both of those jobs.
I would not worry about bidding it low. They will tell you where they want you to be and it will usually be less than your bid. Then, you just have to review your numbers and maybe you stand firm and maybe you come down a bit.
As for collecting, these are usually large companies and they have a reputation. If they have been in court for collection. don't do business with them. As for making money, if you do get paid, you will make more money with the larger job. Whether it is a large job or a small job, you have to go through the same steps, but the larger job makes it easier to cover your overhead costs like drawing and engineering.
I would say, don't do a job without a substantial deposit and progress payments.
I am with Paul on taking large jobs. Tell them where you are and what you can and cannot do. If they are willing to work with you, jump in. I am still a small shop but taking jobs that were larger then my annual revenue is how I have grown to the point were I can take home 6 figures. It is a gamble and one needs to be prepared to loose the bet. But when everything is said and done, the large sum of money that you had plans to deal with not getting comes in, you are able to get that thing that you believe will make your shop more efficient. The next time a job like that comes up, it is no longer a gamble because you have more of the tools or space you need.
It is a matter of deciding if you want to swim up stream or stay in your current pond.
I don't have an exact # of days from invoice to payment received but I'd guess it is just slightly longer than Alan's 77 days. Larger jobs always allow progress payments, but I've never seen up front money on larger jobs. You can bill for your startup costs but they will still be about 80 days out. They will hold the 10% until the job is finished. If our part is $500K that means they still have $50k of my $ often for months after my final delivery. If the job goes to litigation (nothing to do with us) our final payment can easily take a year, been there.
This business is a gamble, but I TRY to control the odds.
Pat you may be correct that me and Paul are an anomaly in the woodworking field. But that is how most large businesses that are not publicly traded got large. It is not so much about good business practice, which I would agree it is not. It is more about getting where you want to be. As a business owner we need to rat-hole money for when opportunities present themselves. A rat-hole of cash also got me though the tough times, which in itself was a way of growing. By holding out longer then my competitors I was able to pick up their customers and raise my prices.
Also, if large commercial/govt job, you may be subject to Davis Bacon, so be prepared for PW and higher labor costs.
And definitely scour their contract docs- which will be heavily slanted in their favor; esp the clause about if they don't get paid for whatever reason, you don't get paid.!!
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