Not having accurate financial data is an expensive risk to take for your construction company. A company’s livelihood ultimately boils down to money, so having accurate data is crucial for operating a successful business. This is why prioritizing your bookkeeping and financial management is a must if you want to survive in today’s ever-changing economy.
Here are a few areas where inaccurate financials might be costing you more than you expected.
Not Managing Costs by Job
Failing to monitor your costs by project will eat away at your profitability. When you aren’t tracking at the job costing level, you have less control over what you are actually spending. Having it recorded is great, but it is also important to allocate to the job. This will tell you if you are making or losing money on jobs, and then you’ll be able to evaluate company spending from a company level.
Yes, tracking project expenses and getting the detailed information needed to do so can be difficult. But the value gained from it can only help you. By having the detailed information and project expense information, you can uncover larger issues sooner. For example, once you are able to get receipts in hand and see what is on them, you can have greater control over what is spending and also allocate it better. The numbers don’t mean as much until you see the details. This helps job costing, estimating and profitability.
Imprecise Estimates
If your profitability is low, it could be because your estimates are not based on accurate information. As mentioned above, tracking your financials at both the company and job level will improve your whole estimating process. When you are able to see profitability on jobs and how money is truly being spent, you are able to better understand what your costs really are per job. That is when you can truly improve your estimates, increasing your chances of being profitable.
Duplicate Payments
Duplicate payments happen more often than we’d like to think. This happens because there is not a good system in place to manage costs. Basic accounting software and simply recording transactions could be why you are overpaying subs and vendors. Basically, if you are overpaying, it is because you aren’t tracking.
Negative Cash Flow
Cash flow is the biggest problem most construction companies face and inaccurate financials play a role in that. If you are not managing your books, it is very difficult to know who owes you money, how much and when to expect both payments and invoices. To start, simply tracking your financials will help. But to really improve cash flow, you need updated and accurate information and a process for paying your bills. For example, not using a debit card might be a process you implement. Another process could be paying bills according to the terms and your financial situation instead of paying them right away when they come in the door. Both of these examples give you more control over your cash situation and allow you to pay bills on your terms. If you aren’t optimizing your cash flow, it could be costing you.
Overdraft Fees
If you are using your online bank balance instead of your register balance, you might be spending money that is already spoken for. Your bank balance does not show payments that haven’t cleared yet or that payroll will be happening later that week. This could lead to bouncing checks and overdraft fees. Your register is what will show you how much money is available to be spent, if your bookkeeping is updated.
Inability To Get Loans or Bonding
If you need to get a loan or bonding for a project, you are going to need current financial information and reports. If your books are not current, it will take some time to get it done and the whole process will take longer. That time spent updating could mean missed opportunities, extra stress and extra costs to you. If you keep up on it, getting loans or bonds will be so much easier for you.
There is a common theme here tying everything together and that is how important it is to have a good financial management process. Managing your finances and understanding your financial reports is crucial to continuing to operate a successful business. It really can cost you if you are not tracking and managing your books regularly.
If you need help with your financial management, 24hr Bookkeeper can help in various ways depending on your situation. Our services include financial clean up, monthly bookkeeping, accounts payable, accounts receivable and payroll services.
Get in touch to find out how our team of experts can help you!
