Many moving pieces need to work together to successfully manage a construction firm.
Here, we list 5 key elements to help capture insights that are important to running an efficient and lucrative construction firm. If you can create a plan where these 5 crucial pieces are in place, you’ll be setting yourself up for clarity in your finances, which can lead to increased productivity and profitability.
5 Key Elements for Internal Business Visibility
- Inclusive Reporting for Construction Success
A fundamental aspect of managing a construction firm is the ability to collect, summarize, and analyze data from various projects. This encompasses a wide range of information. This includes the comparison of contract costs against actual project expenses, monitoring the debt-to-equity ratio, tracking the time taken to collect receivables, and keeping a record of safety issues on job sites. Such detailed reporting is not only essential for internal management but also crucial for providing necessary data to financial institutions during audits. For firms like Plumb, the emphasis on detailed and strategic reporting is key to providing clients with a clear financial picture and actionable insights.
Enhanced reporting also involves efficient management of accounts receivable. Construction firms often handle large invoices and extended payment terms, making the time it takes to collect receivables a key metric. Efficient reporting in this area helps in cash flow forecasting and in identifying potential issues with client payments or billing processes. A firm grasp of these elements can significantly influence the profitability of a construction business.
- Real-Time Monitoring for Proactive Management
Real-time access to what’s happening on your projects and in your firm can help you course correct as needed. Understanding key aspects like labor productivity, gross profit margins, and even if one of your subs has insurance that’s about to expire are of vital importance to the health of your business. This allows quick course corrections and proactive management. Being able to monitor in real-time contributes positively to the sustainability of the business. This also extends to supply chain and inventory management. Whereby, it allows firms to track the status of material orders, deliveries, and inventory levels. This level of insight helps in avoiding delays due to material shortages and enables better coordination with suppliers and subcontractors.
Real-time monitoring also affects risk management and regulatory compliance. It involves keeping track of safety standards adherence on the job site, environmental regulation compliance, and quality control measures. Immediate access to this information allows firms to swiftly address any potential safety issues or compliance lapses, reducing the risk of accidents, fines, and legal complications.
- Analyzing Projects for Future Success
Looking back and being able to conclude what worked and what didn’t work can help guide plans and decisions in the future for better outcomes. Understanding the type of work that is most profitable, which subcontractors are the best performers, how change orders impact the bottom line, and how far off your estimates are from your actuals are all tremendously valuable and necessary data points to have.
Understanding current market trends is another important aspect of strategic analysis. This includes studying shifts in construction methodologies, emerging technologies, changes in regulatory landscapes, and evolving client preferences. Keeping ahead of these trends enables construction firms to adapt their strategies, adopt new technologies, and stay ahead of competitors.
- Predictive Analysis for Risk Management
Understanding historical trends and data can help you forecast the future. Additionally, running the numbers to understand the impact of different scenarios – e.g. renting equipment or buying, or what happens if your labor costs are consistently running over by X% - can help prepare you for potential pitfalls. Preventing a job from going sideways is well worth the additional time spent on these types of predictive analyses.
An important aspect of analyzing is identifying potential risks before they materialize. This could include risks related to project sites, such as geological or weather-related risks, or risks associated with supply chain disruptions. By identifying these risks early, firms can develop targeted mitigation strategies, such as securing alternative material sources or adjusting project timelines. Also, by analyzing cash flow trends, expense patterns, and revenue forecasts, firms can anticipate financial challenges and take steps to bolster their financial resilience. This can include adjusting project portfolios or securing additional financing.
- Mobilizing Financial Data in a Digital World
We live in an “access anywhere, at any time” world. Your construction accounting and finances are no exception. You should be able to pull up a dashboard of KPIs on your mobile so decisions can be made at any point, from any location. With this flexibility, it ensures agility and responsiveness in the fast-paced construction environment.
This ties in to mobile access of financial data that enhances collaboration among team members, stakeholders, and clients. It ensures that everyone involved in a project has access to the same real-time information, fostering transparency and trust. This collaborative approach to financial management helps in aligning goals, clarifying expectations, and making collective decisions based on current data.
At Plumb, we have a narrow focus on a few key industries. Construction & Real Estate are among these key industries. We also have an extensive knowledge of the construction software solutions we offer and a commitment to serving our clients. We can help take your business to the next level. We are here to help guide you through the outsourced accounting and accounting software process and to answer any questions you may have. Please let us know if you’d like to schedule time for a free consultation. We’d love to help.
