This simple tool can streamline your estimating,
purchasing, and job-costing — and boost your bottom
For its first several years of business, when my remodeling
company did only one job at a time, I was able to keep all
relevant business data in my head. I could remember which
materials had been ordered and which hadn't. And when an
invoice came in from a sub or supplier, I immediately knew if
the amount was right or wrong.
But about six years ago we started doing multiple projects, and
it wasn't long before there were more details than I could
personally keep track of. At that time, I still placed the
material orders for all jobs. If a crew ran short of materials,
I'd run out and buy the missing item so everyone could keep
working. But when it got to the point where I was making runs
to the lumberyard almost every day, I knew something had to
My first response was to make lead carpenters responsible for
ordering missing items. This approach was only partially
successful. With my leads — rather than me —
running to the lumberyard, I had more time to devote to
estimating jobs and operating the business. However, when the
lead left the job site, there was no one there to run the job.
In addition, it was a terrible waste to spend $75 of carpentry
labor to pick up $30 worth of studs. And my leads, like most
carpenters, were not big on paperwork. When bills arrived at
the end of the month, I had a hard time matching purchases with
the proper jobs and tasks.
Ultimately, we solved these and other problems by instituting a
What Is a Purchase Order?
A purchase order — or PO — is a contract that
records the terms and details of an agreement to purchase
material or labor from a supplier or sub. The main feature of a
PO system is that the PO is written and entered in the books at
the moment the purchase decision is made.
Why use a PO system? A purchase-order
system offers a building company many benefits. First, POs can
help you control costs by providing real-time spending data
that is coded to the correct budget category. This makes it
easier to do accurate job-costing, allowing future estimates to
be based on real numbers, not guesses.
POs also make it easier to manage cash flow. Requiring vendors
to price invoices right away means you'll know in advance what
each vendor is going to bill you for at the end of the month.
POs can improve cash flow, too. On time-and-materials (T&M)
projects, POs make it possible to bill customers earlier so you
can run the project with their cash, not yours.
Finally, POs can help with logistics and scheduling. If you
write all the POs for a job up-front, they can serve as a road
map for how to schedule deliveries and organize the job.
Who can it help? A PO system will
work with any size company. It may not be worthwhile if you're
a one-man shop doing one job at a time, but using POs has been
very beneficial to me as my company has grown. We're now doing
about $800,000 of business per year with a staff that consists
of me, a part-time office person, and two to three lead
carpenters at any one time.
Accounting software. Many accounting
programs can generate and manage purchase orders. The examples
in this story come from QuickBooks Pro, the program we use.
Accounting software can make it easier to run a PO system, but
you could also run a simple version with pencil and paper. The
important thing is to have a system for creating a job budget
and tracking spending against it.
Even if all you track is who ordered what, how much it cost,
and when it was received, you'll be well down the road toward
gaining control of costs.
Tracking Purchases by Site
Since we thought it would be disruptive to institute a
full-blown PO system all at once, we introduced it one step at
a time. Our first priority was to track day-to-day purchases by
our leads, so we updated our supplier agreements to require a
job name and PO number on every purchase.
PO number required. Under the new
system, if the lead wants to buy something, he first has to
call the office to get a PO number. Before we give it to him,
he has to tell us the first few items he's going to buy and
what job and task they are for. That way, if there's a foul-up
— say, the PO number gets transposed — we can
identify the transaction by the first few items bought. As long
as it's unique to that purchase, the actual PO number can be
anything; our accounting program assigns numbers
When the lead gets to the sales counter, he gives the PO number
to the salesperson, who puts it on the sales slip. The same PO
number appears later on the bill that comes to us. The lead
asks the salesperson to immediately price out the slip. We
require leads to fax the sales slips to the office once a day.
If the lead orders by phone, we ask the supplier to fax a
priced-out copy of the sales slip to our office by the end of
Back at the office. The purpose of
the PO is to track a particular purchase, so there's no need to
write separate POs for different budget categories. When a
sales slip comes into the office, we code each line item to the
correct budget category and enter it in the books. It's no
different than what we'd do without a PO system; we're just
doing it early instead of waiting till the end of the month.
This allows us to run a report and see how much we owe our
vendors at any point. Also, with PO numbers assigned to each
purchase, it's much easier to sort things out when invoices
The PO exists electronically, but we also print out hard copies
for the lead carpenter's field notebook and to back up our
computer data. Using PO numbers ensures that only authorized
purchases are made on our accounts. I suppose someone could
make up a fake PO number, but the fabrication would be obvious
once the bill came in.
Creating a Framework for the
The next step in our company's development of the system was to
start writing POs for the entire job before the project began.
Since I have to do takeoffs anyway, I now use that time to
decide which items need to be delivered at the same time, and
group those items on the same PO. The POs contain enough detail
that, when it's time to order, we can send them to vendors and
get the materials we want. To avoid having everything show up
at the same time, I write more than one PO per supplier. For
example, on a cramped job site, I might split the lumber order
into separate POs for the floor, wall, and roof drops.
Lock in pricing. To request pricing,
I print out POs with the header changed to "Price Quote
Request" and send them to the vendors (see Figure 1). Because
the header is just a template, it's easy to change. When a
price comes in, we record it on the PO. Later, when we order
that material, we send the same PO back to the vendor; it
indicates what we want and how much the vendor agreed to sell
Figure 1.When the author does a takeoff, he breaks
the job into material orders and writes them up as POs. To
price materials, he prints the PO with a header that reads
"Price Quote Request" (1) and sends it to suppliers; it comes
back as a materials estimate (2). When the author finds a price
he likes, he changes the header back to "Purchase Order" and
places the order by sending the completed PO (3) back to the
vendor. Eventually, the vendor sends a bill (4). The data is
entered just once, and the same materials, prices, and PO
numbers appear on every document, providing efficiency and
Helping Lead Carpenters Do
Once the new PO system was in place, the lead carpenters began
ordering all their own materials. Typically, the process works
like this: At the beginning of each job, I give the lead
carpenter copies of the POs I wrote when I did the takeoff.
When it's time to order material, the lead sends the
appropriate PO to the vendor. Our company policy is that these
are the materials the lead has to work with on this job. If he
thinks the quantities are wrong, he needs to tell me right
away. I expect the lead to hit the budget and I don't want him
using an estimating or takeoff error as an excuse for going