When done well, automating the accounting tasks involved in running a construction business can certainly result in efficiency gains. Here’s the hitch though: a lack of understanding about your financial operations, and errors in your current approach, will gunk up efforts to automate. Read on for pointers.
Accuracy and Efficiency
In construction, being knowledgeable about the finances of your business, and especially cash flow, is the bedrock of your ability to remain stable, and, ideally, grow. With a solid understanding of your finances, you can make more informed decisions about everything, including how to properly automate accounting tasks, and avoid common problems like “duplicated revenue figures, inaccurate cost tracking, and tax reporting issues.” As Shauna Huntington of Small Business Bootcamp explains, having and using accurate financial reports is important all year long–not just during tax season:
Key performance indicators (KPIs) like job profitability, equipment utilization, and labor efficiency help contractors make informed decisions. If you’re not monitoring your job costs and profit margins, you could be taking on projects that lose money. For example, tracking material and labor costs closely ensures you’re pricing jobs appropriately. If material costs increase and you don’t adjust your estimates accordingly, your profit margins will shrink. Similarly, understanding seasonal trends can help you plan staffing levels and equipment investments. It’s important to consider product pricing and cost structures, track month-over-month changes for seasonality insights, and understand performance. It’s also important to analyze your balance sheet, perform accurate cash flow forecasting, and keep reconciliations up to date. Proper accounting processes prevent misclassified transactions from skewing financial reports.
Huntington encourages small business owners to develop effective daily, weekly and monthly processes, so that potential issues can be captured in real time. Specific examples of monitoring and validating financial data regularly include:
Daily or Weekly Tasks
- Reconcile job costs, invoices, and bank transactions.
- Review automated transactions for discrepancies.
Month-End Close Tasks
- Reconcile all accounts to month-end supporting documentation (statements, reports, etc.)
- Analyze job profitability and financial trends to make data-driven decisions.
- Verify that all expenses are categorized correctly to prevent misreporting.
At GB Financial Services, Gary Bartecki also urges construction business owners to ensure cash is flowing in by adhering to routine processes. He underscores that best practice means always being able to estimate cash receipts and payroll, as well as fixed and other payments. Quickly converting short-term assets into cash, according to Bartecki, makes a world of difference in construction, so try following these pointers:
- Cash needs to be on a worksheet by week including dates when payments are due.
- Cash needs to be prioritized so you make the right payments at the right time.
- Review the billing process to see if you can speed up invoices by a week or two.
- Be told what checks or payments came in that day and whether they have been deposited.
- Actively chase your money.
- Immediately resolve any billing issues.Track days it takes to collect ( 30-40 day range)
- Calculate days sales outstanding and review monthly.
- Assign responsibility for these tasks.
Remember, CASH IS KING, but more cash is better.
Solid Foundation: Surety Bonds
In construction, surety bonds are more than mere paperwork; they’re a testament to your financial stability and commitment to completing projects. Colonial Surety Company helps construction companies of all sizes improve bidding capacity, and demonstrate reliability. Our Hometown Bond Program provides local builders with credit based underwriting bonds for up to $250k—no financial statements required.
Got something bigger in mind? No problem. We’ve got something special for you too.
Receive Free Business Credit Scores instantly, just for submitting an easy, speedy Pre-Qual for a surety line of credit in writing. Once qualified, welcome new projects in, as you leverage all the benefits of The Partnership Account® for Contractors, including:
- Written Bonding Limits: Receive your single and aggregate bonding limits in writing.
- Instant Bid Bond Issuance: Gain the ability to issue your own bid bonds within minutes, using our powers of attorney.
- Real-Time Visibility: Use your private dashboard to view your underwriting profile and insightful financial data in real-time.
Surety Bond programs for construction businesses of every size are right here:
Bonding Programs at Colonial Surety Company
Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed. Let’s connect today: Colonial Surety.