How many times, in diet-obsessed America are we bombarded with advertisements and infomercials promising us dramatic weight loss and six-pack abs … in just weeks? A pill, a morning shake, the no-carb/high-carb/all-protein/low-protein diet is all it takes to turn around years of unhealthy eating and sedentary habits. Please! We all know it takes hard work and lifestyle changes to really make a difference over the long haul.
- Avoid Spreadsheet Dependency
- Hire Expert Construction Advisors
- Understand and Use Management-Level Reports
- Fine-Tune Project Management Reports
- Improve Communication between Office and Field
- Minimize Resistance to Change
- Owner, Open Your Eyes
- Commit to Ongoing Education
And so it is likewise with the financial and accounting health of a business. Owners looking for quick fixes or instant, revenue-boosting results will be as disappointed as the yo-yo dieter. Realistically, you need to invest time and effort to reap long-lasting rewards. What follows is an eight-step plan to improve the financial health of your company. It comes with no promise of miraculous double-digit profits or financial utopia. But it will force you to make the necessary changes to help your company become, well, better next year. Think of it as an exercise regimen that will slowly and gradually reduce inefficiencies and excesses, while increasing your company’s competitive advantages and profit-building opportunities.
Whether your organization operates at the height of efficiency or back in the Stone Age, there is always room for improvement. As the construction industry continues to become more sophisticated and complex, contractors will undoubtedly face stiffer competition for jobs, slimmer profit margins, and greater reporting challenges. The stakes are high for business owners who operate at status quo.
Below is an introduction to my 8-step plan. I will explore each in greater detail in subsequent issues of Construction Business Owner.
1. Avoid Spreadsheet Dependency
Many small contractors, in an effort to stay on top of their expanding projects, become overly-dependent on their spreadsheet programs. Easy-to-use and extremely flexible for the small company, spreadsheets tend to morph out of control as a business grows. How do companies know if they’ve become too spreadsheet-dependent? When more time is spent creating spreadsheets than analyzing the data, when there is no consolidated source of data, when accuracy of the data comes into question or when access to financial information rests in the hands of a few key personnel are all signs of trouble. Reaching this point, contractors need to consider more sophisticated software tools for financial reporting.
2. Hire Expert Construction Advisors
Part of learning how to succeed in business has to do with seeking help in areas outside your expertise, such as law, accounting or technology. Equally important is choosing an advisor with expertise in the field of construction—a highly complex industry that imposes detailed legal, regulatory and bidding requirements. A construction-experienced CPA, for example, can add tremendous value to your company’s profitability by helping owners with financial and tax planning, bonding and financing issues, cash flow analysis, succession planning, and construction accounting software selection. Hire an expert advisor, and you'll get more than just a consultant. You get a business partner.
3. Understand and Use Management-Level Reports
Many construction owners are experts at their trade but pay little attention to the business side of their business. They produce financial statements when required but don’t understand them well enough to make sense of the numbers. They are often unaware of the value that construction-specific management reports such as over/under Billing, cash flow by job or overhead allocation can bring to their understanding of the company’s current financial standing. Meanwhile, contractors who know how to read and interpret management-level reports can see, from a bird’s eye-view how well or poorly they are doing at any point in time. By using this number knowledge, they can actually influence their company’s financial success. Fortunately, there are many things contractors can do to achieve financial literacy and better manage the financial side of their business.
4. Fine-Tune Project Management Reports
At the job level, owners and managers need to produce reports that will do the following: a) identify where the job stands today, b) predict where the job is headed and c) create a database of history, which contractors can use for future bidding, evaluation of jobs and better decision making. The type of work a contractor does and the length of their projects will determine the type of reporting needed. In order to be effective, however, it is essential that these reports are timely and provide the level of detail that will help project managers stay on track and stay accountable throughout the life of the job.
5. Improve Communication Between Office and Field:
Because contracting is a project-based business, project-control procedures and record-keeping methods are both indispensable tools for management. But the two often don’t work in harmony. The multi-tasking project manager may not appreciate how accurate job cost tracking affects bonding reports or over/under billing. The busy financial manager perhaps doesn’t appreciate that the paperwork required in the field can seem like burdensome work, unrelated to the job (especially if the accounting program isn’t producing the kind of reports needed to run the job.) The field and the office cannot work independent of one another. And the best way to ensure that two-way communication happens is to plan for it.
6. Minimize Resistance to Change
In business today—any business—change is a given. But one of the biggest obstacles to change is people. The best idea or new product innovation means nothing without the full support of the people hired to use it or carry it out. Employees need to be involved, they need to have a clear understanding of how the change affects them, and they need to see management’s full support. Sometimes, owners might have to face difficult decisions when it comes to employees who are either unable or unwilling to change. Without the complete buy-in and acceptance from all employees, there is virtually no chance for success.
7. Owner, Open Your Eyes
Many construction owners make changes only when it’s forced upon them. But successful contractors have their eyes wide open to new possibilities for profit and growth. Although difficult at times, the job of an owner is to constantly look for better ways of doing things. Two main areas to look at are people and processes.
8. Commit to Ongoing Education
Ongoing education is required in many industries and trades to show that a person is competent and follows industry-standard rules. Why then do we skimp on training and education for some of construction’s most challenging jobs, such as accounting, project management and estimating? As contractors continue to invest in automated tools to improve productivity and efficiency on the job, they must also commit to the ongoing education and training that will guarantee long-term success.
Are you up for this challenge? Just remember: No single product, employee or process is going to improve efficiency, profits or managerial excellence without a plan and a long-term commitment. Just like "abs of steel" won’t happen overnight, financial wellness takes time too! The payoff is a company that’s better prepared for growth and profits—a company that gets better every year!
Fred Ode is the CEO/chairman of Foundation Software, developer of construction job cost accounting software called FOUNDATION for Windows. For further information on FOUNDATION for Windows, visit www.foundationsoft.com. Fred Ode can be reached directly by phone at 800.246.0800 or e-mail fred@foundationsoft.com.
