ProTip #6 - Understanding Time & Money (Part 2)

Last month we brought you the first of two key denominators in any fitout project, time. Today let’s talk about money.

Money
The second key denominator, money also spans the entire fitout process and one that requires accountant-like control. Money will form a part of every decision you make - from what property to lease to the type of furniture you select, down to the signage on your entry door. Money needs to be controlled and a strict budget set based on your business planning and future forecasting.

The big financial commitments of the project need to be addressed at the very start of the project. They will generally be nominated as the lease and the fitout. It’s important to have your budget in writing and agreed upon by your business directors before you start the building process.

Factor in all the costs
The lease, of course is an ongoing monthly commitment by the business and when you are paying approximately $350 - $500 per metre squared per annum to rent that floor space the financial commitment quickly adds up. E.g., 425(m2) x $350 = $127,500 per year. Multiply that by the term of the lease (say a minimum of three years) and you are committed to $382,500.

The other big commitment, is of course, the building cost. Let’s assume you have leased the 425 m2 of clear office space with carpet, ceilings, lights and air conditioning in position. Depending on your business’s specific requirements, the cost to fitout this space in a standard arrangement will be between $950 - $1500 m2 e.g., 425 m2 x $950 = $403,750.

That is money that will need to be paid in a very short-term, once the business has committed to the new lease. It’s essential that the money is set aside by the business.

The very first phone conversation I have with a prospect is usually around them asking how much will it cost to construct an office fitout. This depends on a number of factors and it’s like buying a new car.

How much do you want to spend?
You choose the model of car but the level of options and extras you select can take the price to double the base price very quickly. Office fitout costs can do exactly the same.

This is where you need to have a wish list of all the items you want in your new office so that when you are getting pricing for construction you can provide clear and precise details of what you want.

Some people like to quote squared metre rates over the phone - this is without seeing any plans, visiting the site or meeting with the client to obtain a better scope of what is required. Just how valid is that price going to be without further details?

What they’re really doing?
They are using the old door-to-door salesman trick of getting a foot in the door. The problem is if you base your construction budget on this quote then you start off with a very low base. You will soon find that just like buying a car, to get the features you want will cost a lot more than the advertised square metre price.

Don’t fall into the low square metre trap; like most things you only ever get what you pay for. It’s true - pay peanuts and you will get monkeys.

Can you actually pay too much for a fitout? Absolutely. I have won projects where I have applied our standard overhead and margin rates and found out from the client that I had comfortably won the job on price by more than 40 per cent. I was 40 per cent cheaper than my opposition yet we priced the same thing and I had not cut any of my standard mark-ups and margin. So why is that?

There are several factors that come into play as a builder when pricing a job and you need to be aware of these.

• If the builder is busy they might lift margins so if they win the job it becomes a very profitable job for them. Problem is, if they are too busy you may end up paying a lot and still not get great service because they are so busy.

• If the builder is busy, they might take on your job but stretch their subcontractors or bring in new contractors who they have not used before, which can lead to problems keeping to the program.

• Some builders are quite picky. If your job is on a difficult site or has some inherent work problems like really tall ceilings, then builders will make additional allowances that can be excessive, lifting the cost of the quote.

Monitor well
You need to monitor, manage and control the costs of the project and this can be done in many project reporting software packages that you may already use. A simple excel spreadsheet will also do the trick.

• Keep a hard copy of all the bills you receive for payment in one file so that you have an instant record of everything you have received. Ideally you will also stamp them when you approved payment and added the cost against your budget.

• By maintaining a hard copy of all the bills you receive, it will avoid any confusion when you receive a second or third bill from the same supplier. It is not unusual for some suppliers to send out multiple copies of the same invoice, making it easy to pay for the same thing twice. Should you get multiple invoices then you can cross-check the invoice numbers to ensure there is no double up.

As the project manager, your role will always involve money and the best way to ensure peace of mind in your role is the following:

• You have an understanding of the business’s financial commitment and your role in it.

• You have budget agreed to in writing by all the stakeholders.

• You have a way of tracking and maintaining your budget throughout the project.

• You obtain fixed written quotations from all providers clearly detailing the product or service that they will provide.

Summary

• Get organised early with reference to the two most critical factors in your build – time and money.

• A construction program keeps everyone honest.

• Go on-site – judge progress for yourself at least once a week.

• Keep minutes – well-documented with action and persons responsible.

• Get the budget sorted out early on and in writing.

• Keep a vice-like grip on costs and understand early on the full commitment you are making.

• The costs come down to the options you choose.

• Get quotes based on the same information.

• Keep accurate files and check what’s happening weekly.

Contact George Gatt to talk about your next office fitout project, george@officebuilders.com.au.

Back To The Assistant