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Going from small to large commercial.5/6
Background: We do residential and commercial custom cabinets and refacing.
If you have to ask the question...
Rick Thaler used to say never take a job larger than 10% of your annual gross.
The danger is in not getting paid. There are a lot of ways this is caused.
If it is not a WRITTEN signed change order, it is not a change order. And a lot of other things.
The larger the job the more automated the competition.
Proceed with caution.
Public and private work are vastly different so large commercial private and large commercial public are two different animals.
In both cases the lack of control of site conditions, when areas are ready, access and a whole slew of factors beyond your control that affect field costs and delivery.
A TI may have a 12-16 week schedule and you will probably be working on top of other subs to meet the move in date.
Larger jobs details are to match the arch detail or look and feel, not your "standards".
Don't assume you can do what you want, its plans and specs, mostly by the grade rules.
Public works you will probably need to be bonded, same with some private work.
Both have labor and material change orders with fixed markups per contract.
Job meetings, safety requirements and plans, voc docs, mandatory meetings, dedicated PM.
Assume a 65-90 day turn on invoices from a fixed invoice date; retention may be a year or more. The only deposit you may get are on custom made buyouts but that's not always something to count on.
Welcome to The Bank of "Your Company Name"
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.
In full disclosure I would guess that most cabinet shops would disagree with Matt and Paul.
Not that agreement is important. But IMO their experience is an anomaly.
It also depends what part of the country you are talking about. Some parts are more litigious and competitive than others.
You can bill for engineering and mobilizazation.
On larger jobs we bill for stored materials and custom po materials that are not returnable, we bill for where we are in production and send photos and insurance.
On average it takes us about 77 days to get paid from date of invoice. Invoice due on the 15th projected through the end of the month pays about the 20th of July.
You can always submit a schedule of values at time of bid or right at award.
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.