Keep track of your company's numbers

Many construction business owners don’t know how much money they make, or what it takes to break even and hit annual goals. You cannot rely on someone else to care about your finances more than you do. Often, owners don’t like to be bothered with the numbers. So, they pass off financial matters to an untrained bookkeeper or caring spouse to manage their money and worry about making payroll and paying bills. To make matters worse, many bookkeepers don’t understand construction accounting, and have never been trained or even read a book on the basic requirements of contractor accounting and financial management. You can have someone else pay your bills, send out invoices, prepare financial reports and do accounting, but the owner must be responsible to understand and track the numbers. The following are some of the numbers every contractor must have on his/her financial scoreboard.

1. Monthly Income Statement

The income statement is your scorecard, which shows how well your company does every month. It shows the earned income, construction job costs, gross profit, overhead and net profit. This report must be reviewed in detail no later than 15 days after month end.

  • Sales revenue billed (including retention)
  • Direct job-cost expenses
  • Gross overhead and profit margin
  • Gross margin percentage
  • Markup percentage
  • Company overhead
  • Net profit

2. Monthly Work in Progress

Top business owners know their contract and estimated final cost numbers for every project they have under construction or completed. They also track gross and net profit projected or earned for every job, how well they did over the past year and how well they are currently performing on every project.

To manage your numbers, you need to prepare and review monthly updated work in progress schedule (WIP) and completed contract schedules, listing all of your completed and current projects under construction and completed.

Be sure to track bid markup versus final markup achieved to see if you are making what you estimated. The WIP schedule is a detailed list of all your projects. It shows how well they are doing compared to the original budget. The WIP also shows your estimated final cost of each project, overbilled and underbilled amounts, contract backlog and gross profit backlog.

3. Monthly Job-Cost Reports

Every month, complete a project-specificjob-cost report (also known as a consolidate cost report) to determine how well you are doing versus your budget. The monthly report should include the current updated project budget versus committed costs, estimated costs to complete and the estimated final cost for every line item.

4. Monthly Completed Contracts Schedule

Use a completed contracts schedule to show the final results for all your completed projects for the year. Items that should be included are an original contract amount, final contract, final profit made for each job versus the original bid amount and markup bid versus actual earned.

5. Monthly Financial Statement

Your financial statement is your scorecard, showing your company assets, liabilities and the net equity or net worth of your business. The goal is to increase your assets, which will enable you to grow bonding capacity and business valuation.

  • Current assets
  • Long-term assets
  • Total assets
  • Current liabilities
    • Long-term liabilities
    • Line of credit
    • Equipment loans
    • Real estate loans
    • Credit card balances
    • Taxes due
    • Other loans/debts
  • Stockholder capital/equity
  • Return on equity
  • Working capital (current assets minus current liabilities)

6. Weekly Accounts Receivable Aging Report

If someone in your company isn’t accountable or responsible for keeping track of who owes money and then collect it, you cannot expect to stay in business for long. Stop letting customers take advantage of your easygoing nature and control your cash flow.
You did the work, and your contracts say they’ll pay you within a specific amount of time. Keep a list for each project of the timeframe allowed to submit your invoice and how long customers have to pay. Read your contracts, and follow the detailed chain of events required to get paid.

  • Current receivables
  • Receivables over 30 days
  • Retention
  • Accounts receivable total

7. Weekly Cash Report

Cash is the lifeblood of your business. You need to know what cash you have to work with in order to make good decisions. Get a report of your cash position every week.

  • Cash in bank
  • Line of credit drawn
  • Weekly payroll—Overhead
  • Weekly payroll—Field
  • Employee head count
    • Field crew
    • Foremen and superintendents
    • Project managers and estimators
    • Office and admin
    • Total employees

8. Weekly Field Production Job-Cost Tracking Scorecard

Tracking field production labor and equipment weekly must be a top priority for every contractor to implement. Install field production tracking systems to keep your jobs on track. To track labor hours, productivity and equipment on projects, implement a weekly, job-cost production scorecard for your supervisors to review. Every week, create an overall scorecard for all of your jobs under construction to see which projects are on budget and which aren’t. Review the results with your foremen and superintendents, and discuss what improvements they can make.

9. Monthly Sales Award Tracking Report

Less than 20 percent of construction business owners track their annual sales volume awarded versus their goals. Do you know your sales goals needed at the gross margin you can achieve to cover your annual overhead and make a net profit? How often do you track your sales numbers, and what do you do to hit your goals?

Trying to build a construction business without organized financial management tools is like building a house with an empty toolbox and no plans. Make it a priority to install the best possible financial systems, technology and tracking systems.