It is easy to assume that the only time your books really need to be updated is when it’s time to file your corporate tax return. Technically, that is what is required by the government and filing taxes is very important, but updating your financials only once a year is not a good business practice. Understandable, you are thinking there is money in the bank and you have a job site to show up to, so business must be good. If you aren’t managing your financials monthly, you just won’t know if that money in the bank is actually yours or if it is already spent. Besides that, there are so many reasons why you should be managing your financials on a regular basis.
Benefits of ongoing financial management
Knowing where your company stands financially is crucial if you want to stay in business. Here’s a few benefits worth mentioning of having a good process for managing your company finances.
Cash flow
Cash flow is a very common issue for construction companies. The only way you can work towards improving cash flow is to have a financial process that gives you a grip on everything coming in and everything going out. Having your finances in the “mental bank” is not enough. When you know and trust your finances, you can confidently pay your bills on-time. You will also be able to track customer payments and keep cash flowing. Fixing your cash flow issues isn’t that easy, but a good start is to track your finances regularly.
“True” money
Many construction owners make financial decisions based on the money they have sitting in online banking. Unfortunately, online banking doesn’t tell you some very important details, like what checks have cleared, or that payroll is being processed next week. What is in the bank is not the same as what is actually available. Maintaining an accurate bank or credit card register balance will give you true financial information you can rely on.
Having Control
The feeling of control is a powerful thing. When it comes to your financials, having control means that you can pull the right financial reports, trust them and know that the information is accurate and easy to understand. Keeping up with your numbers on an ongoing basis allows you to make good decisions and keep up with the financial demands of your business. This in turn gives you control and confidence when running your business.
Growth
Do you want to grow your business? When you have current, accurate and accessible financial data, you are able to plan for that next employee or forecast for costs related to the increase in revenue you are experiencing. There’s nothing worse than being in a cash crunch and it won’t help you grow your business. Being proactive with your numbers means you can manage the growth you are navigating.
More than just the numbers
It is so much about the numbers but good financial management has additional benefits for your construction business as well. Here are a few of those added benefits.
Relationships with your vendors
Subcontractors and vendors—our best friends, right? What would it feel like to be able to pay your vendor on a project when requested, even if you haven’t been paid by your customer yet? To take it a step further, what about having a good process to receive payment requests and starting to pay them on a regular schedule? Without subs and vendors, completing a project is potentially impossible so improving the money side of the relationship goes a long way. Good subcontractors can be hard to come by and being able to take care of them is important. Once you get a good one, you want to keep them, right? When a sub knows they’ll get paid on time, the checks won’t bounce and they don’t have to keep requesting or checking when payment is ready, chances are they will continue working with you. You can then trust that they will show up at your jobsite to do the work.
Relationships with your customers
There can be a lot to customer relationships but when it comes to the dollars, you simply can’t mess it up. Managing a project and customer requests has its own challenges, but having a clear process for billing your customers is so very important. It is important that requests for payment are clear, have an accurate balance owed and a payment schedule is in place, or at very least you are giving decent notice for on payment due dates. You can’t have a business without customers, so making sure they are taken care of is key. They are the ones that can leave the glowing review that brings you more business, and let’s not talk about what a negative customer experience could do. Have a system in place that makes it easy for customers to work with you.
Real-time information, real-time decisions
They say hindsight is 20/20, but what if you had accurate, real-time information throughout the project? Would you make the same decisions you did as when you did not have the information? Maybe not. The days of waiting until the project is complete to know if you’ve made money are over. There is a lot happening at the same time in your business, from managing labor, materials, receipts to customer payments, etc. Software and a good workflow are crucial to keeping these details organized and intact.
Having real-time, accurate financial information allows construction owners to pivot, adjust allowances, ask for more money when necessary or get any possible refunds. The goal is always to make money, but things don’t necessarily go exactly as planned and estimated. That is exactly why recording and analyzing your financial data ongoing is so important. It gives you flexibility to make decisions based on what is actually happening and to do what is best for the company, for you as the owner and for your employees.
To sum all of this up, it simply isn’t worth it to work yourself to the bone all day, every day, only to find out you didn’t make any money. Especially, if you are just finding out after a whole year goes by. Maybe this worked out for you in the past, but being too busy just isn’t a good excuse anymore. People are depending on you for their paychecks, for their payments, and plan to be working on your jobs. At the least, knowing that you’re making money on your projects should be enough reason to update your financials on a regular basis. It’s not possible to have a grip on your business’s health if you don’t record information on a regular basis.
You have a lot to manage with just running your construction projects, let alone maintaining the financial portion of your business. Catching your books up with one big update, isn’t the answer. Think of the stress you feel trying to get accurate financials for taxes… all the tracking down of documents (if you can even get them), uncertainty, and dare we say guesswork. All of that could be avoided with an ongoing process. It doesn’t have to be super stressful or have to come right down to the wire each March when corporate taxes are due. Having the right financial partner will make a world of difference, easing stress, giving you confidence and control in your business.
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