Managing finances is essential for success in any business venture, but some unique aspects of contracting businesses make construction financial management especially critical.
While expenses continue throughout the construction project, payment may only come at specific time intervals or project milestones. Weather or surprise site conditions can delay work and drive up costs, and in many regions, construction's seasonal nature can make consistent cash flow a challenge. Good construction financial management means maintaining adequate spending money to keep a business in black year after year.
Here are some tips for managing construction finances to maximize time, assets, and financial resources inputs on a construction project.
Tip 1: Preplan and Budget for Your Construction Project
Making informed bids
Success on a construction project requires adequate early planning. Use relevant information from previous projects to inform bids; overbidding may ruin a contractor's chance to win a project while underbidding can leave a company short of cash and losing money further down the line.
Know your site
Project management requires thorough site discovery to identify any characteristics that could delay a construction project or make it difficult to build. Be sure to check into municipal rules that may impact building costs, soil quality on the job site, and existing utilities. Thorough site knowledge could go a long way to a profitable build.
Budget with intent
Finally, solid construction management requires a comprehensive budget to guide spending throughout a construction project. Without a budget, a builder will have only the vaguest sense of whether or not the project will be profitable, and will be more likely to run into unexpected costs and lose track of expenses.
Here are some of the things to include in a budget for each stage of a construction project:
- Project expenses
- Equipment rentals
- Overhead expenses
- Safety gear
- Administrative labor
- Administrative tools and materials
A complete budget records the builder's intentions and the owner's expectations for the work ahead. Not only can it guide spending and mitigate risk on a project, but it can also improve relationships between owners and contractors.
Tip 2: Implement Robust Project Cost Tracking Systems
Once a budget has been established, contractors must implement cost-tracking measures to check progress and ensure the construction project sticks to the plan. Tracking costs involves entering invoices and expenses as they come along, comparing them to the budget, and sending invoices according to schedule.
Cost tracking can get complicated when contractors include all the factors that could impact costs, like delays, change orders, contract disputes, and environmental damage to the site.
Digital cost-tracking software can help distill all the project information to track construction finances better. It can help oversee the budget and anticipate coming project costs to keep better control over construction financial management.
Truss offers integrated payment solutions that enable seamless cost tracking and expense management so that construction companies can monitor progress throughout a project.
Tip 3: Monitor Cash Flow Regularly
Cash flow refers to the movement of money into and out of a construction industry business through incoming payments and expenses. Project teams must manage cash flow meticulously so there's always enough money to pay for project expenses until the next payment arrives, or else the project can grind to a halt.
Many factors can impact the flow of money through your contracting business, including the contract you've signed for the project, how accurately you bid, and whether you have a backup plan should finances run short.
Truss provides banking services tailored to construction businesses to make cash management more efficient and accurate. Through Truss, contractors can efficiently see and manage real-time cash flow insights. Ready to access the reserve cash? Truss allows for easy fund transfers, too.
Tip 4: Minimize Risk through Financial Planning
No matter how many precautions construction managers take, it's always possible that something unexpected will occur. Construction projects are complex and often span months or even years. During that time, lots of things can happen.
Here are different types of risks that could impact a construction project:
- A big storm that damages the work site
- A dispute over a change order
- A delay in material delivery can create extra costs and bring a construction project to a standstill
- Regulatory changes that necessitate an altered project plan
- A late contractor payment
Implementing construction risk management procedures that follow a predetermined plan for if-then strategies can help to mitigate true disaster.
Risk management for finances includes identifying and assessing all possible financial risks, then developing a cash-flow reserve to dip into when necessary.
Digital financial tools can help plan a consistent backup plan for these extenuating circumstances. Truss offers specialized construction banking options, including financial management tools, to help contractors develop and implement a business risk management strategy.
Tip 5: Leverage Technology for Streamlined Financial Management
Construction financial management often involves complicated spreadsheets and a whole lot of manual data inputs. When office staff spends time on these time-consuming and error-prone processes, it leaves little time for higher-level strategizing that could improve processes and save your construction company money.
Spreadsheets are notoriously difficult to share, and it's never clear whether a user is looking at the latest version of the file. The resulting data silos make decision-making more difficult, as project managers can't access hard data.
Construction software automates many activities necessary for financial management, including construction accounting, invoicing, and expense tracking. Office staff spends less time inputting data, so they have more time to provide higher-level value to the enterprise, and there are fewer errors to contend with.
Truss is a leading banking and payments solution specifically designed for a construction company's needs. Truss can help streamline financial management, assist in monitoring and financial health checks, and minimize fees and interest charges.
How Could Construction Technology Improve Your Construction Finances?
Construction is all about building, but solid financial management makes the construction industry move. Contractors must build a solid budget, track their costs, keep an eye on their cash flow and financial resources, and manage their financial risks to ensure they can continue thriving throughout and in between construction projects.
Digital tools like Truss can help construction companies manage their finances better. Specialized construction banking and financial management help automate processes like construction accounting, invoicing, and expense tracking.
Check out Truss' comprehensive banking and payment capabilities to enhance your construction financial management processes.