Construction Today - Volume 16, Issue 2 - 27

BEST PRACTICES
Firms must ensure they have
enough money to cover
labor and materials.

«

STEPS TO SUCCESS
W
There are four keys to get your firm's finances in order. BY MICHAEL BURDICK

hile there are countless
ways for a business to fail,
many of the most common
causes stem from poor
financial management. Construction firms
are no exception.
Underscoring these hardships, Bloomberg
BNA's 2014 survey of 200 in-house tax and accounting professionals found that construction and manufacturing firms are the most
likely to experience procedural accounting
and tax errors.
Between budgeting and tracking project
expenses, recognizing revenue, attracting
clients and dealing with weather-related
delays, the construction world is rife with
challenges. And then there is the significant amount of paper - reams upon reams
of dead trees - that construction firms
regularly burn through. Many construction
firms fail to embrace digital tools to get their

finances in order; they prefer to live and die
by paperwork.
It is surprisingly easy to treat your
finances as an afterthought, but accurate
financial reporting is particularly important
in an industry characterized by slim profit
margins and a high degree of uncertainty.

Financial Hurdles
In my experience, many construction
clients use improper accounting methods
and fail to recognize revenue correctly. They
sorely lack digitization, and they rarely use
experienced bookkeepers to handle their
finances. This dated approach leads to a
myriad of problems.
For example, we worked with one
client that counted a customer's deposit as
revenue even though work on the project
had not started. Instead of counting this
upfront deposit as income, this client

should have put it on the balance sheet as
a liability.
Considering that most construction
firms juggle 10 to 15 projects in a given
year, it is no surprise that things get jumbled up when it comes to bookkeeping.
This is particularly true of firms that fail to
properly track expenses according to project. Firms must ensure they have enough
money to cover materials and labor until
each project is complete, and it would
be easy to unintentionally blow beyond
a budget without detailed and updated
financial information.
One client was completely unable to track
the profitability of particular projects until we
went in and cleaned up its historic expenses
to include relevant details. It was a massive
undertaking, but the end result gave our
client tremendous insight into its past work.
Armed with this information, this client was

27

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Table of Contents for the Digital Edition of Construction Today - Volume 16, Issue 2

Contents
Construction Today - Volume 16, Issue 2 - Cover1
Construction Today - Volume 16, Issue 2 - Cover2
Construction Today - Volume 16, Issue 2 - 1
Construction Today - Volume 16, Issue 2 - Contents
Construction Today - Volume 16, Issue 2 - 3
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