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Better Next Year!
8 Steps to Improve the Financial Health
of Your Contracting Company
BY FRED ODE
Editor’s Note: Following is the introduction to our new eight part series called
“Better Next Year,” by Fred Ode, CEO, chairman and founder of Foundation Software.
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 or 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.
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
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
eight-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’ll 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:
identify where the job stands
today, predict where the job is
headed and 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.
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