INTERIORS · INTERIORS AND FINISHES · FIXED BY STEP 07

Peak Payroll and Peak Retention Occur in the Same Quarter

You start in month 10 to 14 of an 18 to 24 month build and install most of your contract in the last stretch, which is when the withheld retention balance is at its highest.

WHY IT'S AN INTERIORS PROBLEM

Trades that work early finish their ramp and then collect retention while payroll is falling. Interiors gets the reverse. The ramp and the punch stack into the same 90 days as the biggest withheld balance. You're also holding the release date for everybody else's retention, because the building doesn't reach final completion until your touch-up, doors, and hardware punch is signed off.

WHAT IT COSTS

The size of it

This is where an interiors sub misses payroll on a job it will ultimately make money on. Peak weekly labor spend and peak withheld receivable collide, and the money is furthest out when the burn is at its highest.

OVERHEAD AT $1M to $5M

13%

CFOS target 12% for interiors.

GROSS MARGIN AT $1M to $5M

19%

CFOS target 22% for interiors.

NET PROFIT AT $1M to $5M

CFOS target 10% for interiors.

Your first day is often month 10 to 14 of an 18 to 24 month build, and 60 to 70 percent of the contract installs in the final quarter of the schedule as crews ramp from a few men to a floor by floor push. Retention at 5 to 10 percent comes off every draw, so the withheld balance is largest in the same weeks the labor spend is steepest. Final release is gated by final completion, and final completion is gated by the punch list, which is your own work. The retention created in those last 90 days gets released 60 to 120 days after that.

WHAT TO DO

Three moves, in order

STEP 01

Build a week by week labor spend curve for the final quarter of every job before you sign it, and plot the projected retention balance on the same chart.

STEP 02

Negotiate retention reduction at 50 percent completion of your scope in the subcontract, since your halfway point falls near the end of the building.

STEP 03

Do your own punch by floor two weeks ahead of the GC's walk, so the final completion date that releases your money isn't waiting on you to find your own work.

THE FIX

Step 07: Monthly cadence

Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month.

CFOS-07 · CHAPTER 7

The monthly close that takes a contractor 5 hours

What this step changes, what it depends on, and how to tell it's installed.

BENCHMARKS

Interiors by revenue band

All 7 bands are published. The CFOS target is beside the figure up to $10M to $25M, and the 4 bands above that are labelled modeled.

ACROSS EVERY TRADE

Profitable on the P&L, out of cash

Your P&L says you made money and your bank account says you didn't. Neither is wrong.

SAME TRADE

What else costs interiors contractors money

INTERIORS · CFOS-01

Your Door Hardware Stays in a Crate for Nine Months

You cut the deposit on doors, frames, and hardware in the spring so hollow metal frames can go in before the walls close, and the leaves and closers stay crated until finishes.

INTERIORS · CFOS-06

Waiting on the Inspector Is Priced Into Nothing

Your crew is mobilized and can't legally cover the wall until MEP rough, blocking, sound batt, and head-of-wall firestopping pass, and the special inspector books elsewhere.

INTERIORS · CFOS-04

The January Board Increase Applies to a Job You Bid in October

Wallboard moves on an announced list increase with a hard effective date, your distributor quote holds about 30 days, and buyout is three months after you signed the contract.

INTERIORS · CFOS-05

Mud and Screws Are Using Up Your Overhead

Joint compound, tape, screws, corner bead, blades, caulk, and plastic come off a revolving supply house account on one monthly statement with no job written on any line.

INTERIORS · CFOS-08

The Callback Comes One Winter After You Left the Job

Nail pops and cracks at door heads appear after the first heating season, the adhered flooring lets go from slab moisture, and the one-year warranty letter is yours.

SAME MECHANISM, OTHER TRADES

The same mechanism in other trades

CIVIL

Your retainage is waiting on 70 percent grass

You finished grading in month three and utilities in month six, and the last 5 to 10 percent of your contract is held behind a seed bed that has to reach 70 percent cover.

CONCRETE

Done in June, Retention Releases When the Building Opens

Footings, foundations, and slab-on-grade are the first real dollar volume on the site, so you bill most of your contract early and then wait on a building you left a year and a half ago.

DEMOLITION

Demo Goes First And Gets Its Retention Back Last

You work five weeks and wait twenty months for the money. Your retention depends on the prime's substantial completion on a building you left before the foundation went in.

QUESTIONS

What interiors owners ask

Payroll peaks right when retention balance is the highest?

You start in month 10 to 14 of an 18 to 24 month build and install most of your contract in the last stretch, which is when the withheld retention balance is at its highest.

What does it cost?

What do I do first?

Build a week by week labor spend curve for the final quarter of every job before you sign it, and plot the projected retention balance on the same chart.

What are interiors contractors supposed to be making?

Interiors has 19% gross margin, 13% overhead and 6% net profit after taxes at $1M to $5M. The all-trade average is 7%, so this trade is 1 point below it. The CFOS target is 10%.

Which part of the system fixes it?

The step is number 07, monthly cadence. Weekly bookkeeping, cost to complete, and one CEO report, on the same days every month. It comes from chapter 7 of CONTROL: C.F.O.S. Construction Financial Operating System.

OR HAVE IT HANDLED

Everything on this page is something you can install yourself, and CONTROL is the order to do it in. If you would rather buy the finished result, SPM The Construction CFO does this work for interiors contractors as a service. It is a separate firm, Sulphur Prairie Management, LLC, led by the same author.

What a fractional CFO does for interiors contractors

AUTHOR

JOSH LUEBKER

MASTER ELECTRICIAN · 150+ PROJECTS · $2.1B+ MANAGED

Wrote CONTROL, the 8 step system behind these figures. More about the author.