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The importance of quotes and estimates

The first webinar in the Business Staples series was held on Tuesday 22 March and presented by Graeme Bratty of BizAssist. The insightful session provided practical tips and guidance for fencing contractors to improve their chances of getting paid.

Quotes and estimates are an essential but often under-utilised business tool that provide business owners and their customers with peace of mind. They are the template by which a job is completed – and go a long way to ensuring that the customer is happy that you delivered what they asked for, thereby drastically reducing your chances of not getting paid. Where cashflow is king, quotes are the royal advisors that get the work done!

What’s the difference?

The terms quotes and estimates are often used interchangeably but in actuality they are very different. They both hold a different legal definition which means that it is incredibly important that the right phrase and documentation are used.

The definitions as per NZ Government website consumerprotection.govt.nz are:

Estimate

An estimate is not a set price. An estimate is roughly how much the contractor thinks the job will cost, based on skill and past experience.

An estimate can be verbal or in writing – there’s no legal difference between a written or verbal estimate. It’s a best guess. The actual price may be more or less, but it is commonly expected that it should be within 10 to 15 percent of the final cost.

Quote

A quote is an offer to do a job for an exact price. Once you accept a quote, the contractor can’t charge you more than the agreed price unless you agree to extra work, or the scope of the job changes while it is underway. Legally, this is known as a variation to your contract.

Be very careful that you are using the correct wording for any information sent through about a potential job – especially if you use the word “quote” on what is essentially an “estimate”.

Why quote?

Always provide a quote on every job – whether it is for new or existing customers. Providing a quote to customers assures them that you are a reputable business and it helps protect you if the customer doesn’t pay. It not only locks in the scope of the work but it also gives you the opportunity to advise existing customers of any price increases and potential changes to terms of trade including payment terms.

Providing Quotes – best practice

1. Provide the quote in writing
According to the Commerce Commission, there is no distinction in the law between an oral or written quote or estimate. For your own protection providing a written quote allows you to go back to the customer to discuss the quote should any variations or questions arise. When talking with a customer on-site let them know that you’ll be sending them a written quote. This is known in many business circles as C.Y.A (cover your a%$&).

2. Include enough detail
While every job and customer need will differ, you should consider providing enough detail to be able
to discern when the scope has moved and a variation may be required, yet not so much that you are hamstrung by the commitment. Your quote may include:
• a breakdown of labour and material costs
• dates the work needs to be started or completed
• the type of contract (full, labour-only, or managed labour-only)
• deposit requirements

3. Specify the Scope of Works
When providing a quote to a customer, clarity around the wording of the scope of work is incredibly important as it forms a large part of the contract with the client. Should there be any queries (from either side) then the scope is the part of the document that is most valuable.

4. Include an expiry date
With supply chain issues and unprecedented price fluctuations it is well worth including an expiry date in your quote. This helps to manage the customer’s cost and timing expectations and provides you with the security of knowing that you won’t be present with a quote that is many years out of date. This “valid until” date is arbitrary so set it based on your business needs – many opt for 60 or 90 days.

5. Attach your Terms of Trade
Often called T’s & C’s or Terms of Engagement, Terms of trade are as important to your business as any other document. The Terms set out the key components or trading with your business such as payment terms, conditions, limitations, liabilities, obligations etc. They should also specify how variations might be handled. When terms are agreed upfront it is less likely there will be a dispute later on.

6. Get it accepted in writing
Ensure your customer accepts both the quote and your Terms of Trade in writing. This can be as formal as having them sign the document/s
and send them back to you or confirming by email that they accept both. An example of the email wording could be:

Please find attached the quote and terms of trade for the above work. You don’t need to countersign this, just confirm acceptance by return email. Do let me know if you have any questions.

How to handle variations

A variation is when the scope of work is altered from the original quote. This is most often due to the customer changing design and/or material requirements. Your terms of trade should cover how variations will be handled.

The simplest way to handle a variation is to carry a variation book with you. Take notes while you are with the customer and have them sign it straight away. Follow up with an email and use a tweaked version of the suggested email above. If you are not with the customer or don’t have a variation book, email the details of the variation to the customer including the time and cost implications. This could be in an email or a branded company document if you prefer. If possible, don’t begin work on the variation until it has been accepted in writing.

Quote Tools

There are a number of tools available for the creation of quotes. You will usually find quote templates built into accounting tools such as MYOB and Xero. Alternatively, a Word or Excel template can work just as well. Try to use the same tool for your quotes as you do for your invoices.

TIP: always send documentation through as a PDF not Word or Excel. Not sure how to do that? Save as PDF should be one of your print options.

When should I send an estimate?

Estimates are particularly useful as a “ball-park” figure for a job. They allow the customer to go away and finalise the details of their project before coming back to you. Often in the early phases of project planning, customers will look to an estimate to form their decision making. Estimates are much quicker to prepare than quotes due to the reduced level of information contained.

Communicate, communicate, communicate

The most fundamentally important behaviour for running a successful business is regular communication with your customers and suppliers. Sending quotes, terms of trade and variations are simply another form of communicating with your customer. Great communication in the early stages, and throughout the project means that potentially awkward conversations later are much less likely
to happen.

 

Read other business best-practice articles here: FCANZ Business Staples Articles

Watch the webinar here: FCANZ Business Staples Webinars