Editor's Note: This article is the fourth in a series of twelve to lead you toward entrepreneurial excellence by our regular contributor George Hedley, owner of Hedley Construction and Hardhat Presentations. To read part three, click here . To read part five, click here .
As your construction business grows, you get to the point where you can't do it all yourself.
You really don't like paperwork, accounting or bookkeeping. But you have to pay your bills, balance your checkbook and collect your receivables to keep your doors open.
So you try and pawn off the accounting to your spouse or a friend you met at church who once did accounts payables for a retail store. This works for a while, until you finally realize you know more about construction accounting, job costs, receivables and cash-flow than they do. Now what?
This is a major crossroads for most construction company owners. Should you hire a professional full charge construction accounting manager to be your bookkeeper, controller and chief financial officer? Or do you continue to limp along with an untrained, behind the times, part-time accounts payable clerk managing your money?
As we discussed in previous articles on entrepreneurial excellence, step one begins with a picture of what you want. You want a business built on sound financial principles, systems and controls. Step two is to always make a profit. The only way to make a profit is to know your numbers and make them a top priority in your construction business. Step three is to develop and install solid organizational systems that produce consistent bottom-line results. Step four is to get control of your finances.
Hire a Pro Now!
As your business grows, one of your most important hires must be a professional accounting manager. This is a necessary investment in your future and required to build an excellent company. Without a "pro" managing your finances, you business can't reach its full potential or grow profitably. Hiring a qualified and experienced full-charge manager to run your accounting department is just as important as hiring a professional estimator and more valuable than any good superintendent or foreman.
A professional accounting manager knows construction accounting. This includes how to manage and control your accounts payables, accounts receivables, lien releases, financial reports, balance sheets, income statements, payroll, job costing, retention, collections, bonding, banking, month-end close-out, bank reconciliations and cash-flow projections. A professional accounting manager knows what software your company needs, can supervise its installation and fully maximize your return on investment. A professional accounting manager stays abreast of the latest construction tax and contract laws, construction accounting methods, industry financial trends, software upgrades, attends the Construction Financial Management Association training seminars and conferences and becomes a trusted partner in your business growth.
Install Financial Systems Now
Trying to build a construction business without organized and systemized financial management tools and controls in place is like building a project with an empty toolbox and no set of plans. You can't do it. You must also make it a priority to install the best possible systems, technology, reporting methods and tracking systems. This will allow you to make good decisions, hold people accountable, keep your eyes on the bottom-line and have time to focus on what makes the most money for your operation.
The construction business is tough. There is nothing in your control. It is even harder when you don't know what your finances and job costs are. Financial systems and controls are required to build an excellent business and hit your goals. Let's start with the basics. In order to run a successful and profitable construction company you must know where you stand at all times including:
- Equity and working capital
- Overhead and fixed costs
- Company and job profit
- Job costs and cost to complete
- Labor and equipment costs
- Accounts receivable
- Accounts payable
- Cash and cash-flow
Construction Accounting Made Simple!
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