At the beginning of your career as a builder, you are likely, (as the old industry adage has it), to “wear all the hats.” You are a salesperson, estimator, office manager, bookkeeper, project manager, carpenter, and laborer.
You may stay with your one-person show for a long while. It can be fun! You can make a good living by producing first-class work. But as time passes and your body begins to give out, or your brain requires a fresh challenger, you may want to enlarge your company and hand off some of the hats. First, field production and routine office work, then your other functions.
You may find it possible – even desirable – with the trades becoming so complex. Even routine office work demanding serious computer skills, to distribute the hats to subcontractors who are highly efficient specialists in their areas. Perhaps you will prefer developing relationships with a foundation, framing, and finish subcontractors to building a carpentry crew. Maybe you will elect to contract with an accounting service rather than hire an office manager/bookkeeper.
On the other hand, as you grow, you may prefer to take on employees along with subcontractors for the minor amounts of work in each trade may be inefficient. On all projects, you may get better results by dispatching employees to jobs as needed than by trying to get subcontractors to turn up in a timely fashion. Along with control, though it is not often mentioned, comes a social benefit of “employer hood.” A well-run construction company with long-term employees who share a commitment to good work and respectful relationships fills the need of its employees – and their employer – for the community.
A Major, New Responsibility
The new responsibilities that come with employer-hood are huge. First of all, if you are a good employer and can attract good people, you will develop with them a powerful mutual sense of obligation that comes close to that felt between family members. As part of holding up your end of the bargain, you must provide your employees with steady work so that they can eat, pay their rent or mortgage, and support their families. Along with these obligations come very specific financial and accounting responsibilities.
You must have the cash to pay your employees at the end of each payroll period. If you fail to do so (even a few times) you will engender their disappointment, then their distrust, then their justified anger, and finally legal confrontation – which you will lose big time. To make sure you have cash on hand when each payday arrives, you need to maintain an adequate supply of operating capital and monitor cash flow carefully. In addition, you must create systems for punctually making payroll week after week.
You will need procedures for:
- Having time cards filled out
- Withholding and depositing taxes
- Making reports to the tax authorities
- Logging payroll costs in your general ledger and job cost records
Once you have these systems and procedures in place, making payrolls becomes a routine clerical task. Getting them into place requires forethought and decision making.