Running a financially healthy construction company is the key to success in the industry. This means owners must find ways to save on costs while increasing profit margins. In an industry that depends on a volatile commodities market, this can be something of a challenge.
However, to achieve positive financial flows, a good financial management system is required. The days of pen to paper and handshake deals are long over and construction owners are looking for improved systems to manage their day-to-day finances.
We interviewed several construction owners to find out how they manage their finances, what their challenges are, and how they plan to overcome them.
Post-Pandemic Challenges in Construction Cost Management
We want to preface this article by first mentioning the devastating financial effects COVID-19 has caused across the globe — and the construction industry is no exception.
Recently a study was conducted revealing that only 10% of companies are being paid in full (75% less than before the pandemic) and that only 9% of companies are getting paid on time (a 60% drop from last year).
Not only that, but statistically, only 15% of projects actually fall within the original budget due to rapidly rising materials costs, labor shortages, and other extenuating circumstances. This is only making matters worse.
What does this mean for construction owners? Financial management is more important than ever and may require a greater investment in tools that provide real solutions to construction owners.
3 Real Issues Most Construction Companies Face When it Comes to Finances
One of the biggest issues faced by construction companies is antiquated documentation systems. Without the programs in place to track expenses, construction companies are running into tracking problems.
Jake Romano from John the Plumber in Oakville, Canada had this to say:
“Our biggest challenge with tracking expenses is organization with the suppliers. We try to track the expenses used by team members individually. However, if multiple team members are involved in a single job, it can become messy. The expenses should be tracked under the team leads account, however, the other team members sometimes fail to track it this way when they're sent to get additional supplies and materials. So, this offsets the expenses on an individual basis.”
#2: Multiple Projects
With multiple projects on the go, it’s essential to track every expense to understand how it impacts the overall financial structure of the project.
This means keeping track of supplier receipts, subcontractor invoices, equipment rental costs, etc., and organizing them within each project. This can get disorganized pretty quickly.
One of the ways construction companies lose money is by simply taking on too much at once. Even owners who have hired the right professionals to help manage their finances agree that a review of their finances is still required.
When asked what his biggest challenge was with tracking finances across his projects, Matt Wooldridge of Invision Roofing shared:
“No matter how much help you hire, it is always good to keep a regular check. We have been using a tracking app to monitor income and expenses. The only challenge is to hire honest and hardworking people and take out time to at least review things monthly.”
#3: No Contingencies
Probably one of the most devastating issues is not including contingencies within a contract.
Neglecting to include a safety net in your project budget can result in major losses. Pre-pandemic, contractors could safely budget for a 5 to 10% contingency per project. But, since the start of COVID-19, building material costs have increased at the unprecedented rate of 20% between January 2021 to January 2022, alone.
Now, more than ever, construction owners must include realistic contingencies in their project bids if they want to remain profitable.
How Are Construction Owners Managing Finances in 2022?
We spoke to the owners of a few different construction companies about how they manage their finances and the answers were (not surprisingly) quite different.
Keith Melanson of RenosGroup said, “Currently RenosGroup uses Quickbooks Online to handle the everyday transactions, which I do myself. I can do this because Quickbooks has lots of automated features once it gets used to your transactions, a useful tool that saves time.”
Melanson then added “At year-end, I have a professional bookkeeper do my account reconciliations and verify the work I did over the year. Then our licensed accountant handles the final year-end statements and sends them to the government.”
Matt Wooldridge at Invision Roofing shared, “I have hired a full-time professional to handle all the financial matters. Hiring a professional helps identify the issues easily. He would be able to analyze and give insights into what needs to be fixed and how. They help us determine where our business is heading. Also, it saves my time, and I can focus on other important things easily.”
When we asked Wooldridge if this was effective, he answered, “Yes, it is quite effective. Handling finances is a crucial and nerve-wracking thing. We should not let our business suffer due to poor money management and should hire professional help wisely.”
So, what are others in the construction business using to manage finances? An overarching tool that allows construction companies to effectively manage their finances is what most contractors are after today.
What Is Flexbase and How Can We Help?
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Not only does Flexbase offer a 10x credit limit and 0% APR for 60 days, but it also offers built-in receipt tracking — a tool designed just for contractors.
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