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Four Tips for Construction Companies to Maximize Financial Management

May 6, 2024


Financial management is an essential, yet complex responsibility for a construction business. Contractors are expected to manage project-based pricing and collections, stay on top of volatile markets and bridge the gap of rising operating costs. It’s a lot considering the primary responsibilities outside of financial management, such as project management, risk management, client relationship management etc.

While some of those responsibilities fall outside of our wheelhouse, we’ve got the financial side covered. Read on to get four tips on maximizing financial management that will serve your organization well. 

1. Follow Strong Billing Procedures

Healthy cash flow — one of the most important aspects of financial management — depends on your business’s ability to both meet contractual obligations and receive timely payments. To this end, establishing a standard billing schedule for every job will make managing accounts less complicated and help you keep track of monthly revenue.

When drafting contracts, clearly include payment amounts and when they’re due — as well as penalties for late payments. Equally important, clearly outline a process for change order approvals and invoicing that allows you to bill for additional work as soon as possible. Diligently follow the billing schedule as projects or project phases are completed.

To help ensure prompt payment, make sure invoices are well-designed, detailed and include any necessary proof-of-work documentation. If you don’t already, offer electronic payment options to make paying quicker and easier. Last, be sure to set up automated reminders to regularly follow up on unpaid invoices.

2. Excel at Materials Management

Effective financial management also depends largely on how cost-efficiently you procure, store and use construction materials. Implement strategies to optimize all three of these actions while minimizing waste.

Begin by taking a hard look at how you capture, organize and share materials-related data across your projects. Do you have a centralized system for doing so? Are you tracking losses and proactively addressing how to prevent theft, mistakes and mismanagement? With the right system in place and technology supporting it, you can minimize excessive and unnecessary spending on materials.

From there, be sure you’re addressing the timely delivery of materials. Supply chain slowdowns or disruptions aren’t in the news as much anymore, but they’re still a challenge for many contractors.

Some construction companies maintain inventories of critical and long-lead items to ensure they’ll have the necessary materials as jobs come up. But doing so entails paying for storage facilities and investing time and resources into inventory management. Another strategy is to diversify your supplier base and include alternative local suppliers who can deliver materials of similar type and quality.

3. Keep a Close Eye on Labor

Nearly all businesses need to confront the tricky issue of “rightsizing” their workforces and paying employees competitively. Construction companies have the added challenge of doing all this in the midst of a seemingly never-ending skilled labor shortage.

One thing that can help is quantifying your labor needs as precisely as possible. Determine how many workers are needed to complete each typical job task or how many are needed to work on each phase of the types of projects you usually perform. Obviously, you’ll need historical data to make such determinations, so be sure you’re capturing this information.

Compensation, benefits and taxes are also major factors. Indeed, knowing your true labor costs — often referred to as labor burden rate — is a mission-critical financial-management activity for construction businesses.

4. Embrace Technology

Using up-to-date and secure financial management software and mobile devices tailored to the construction industry can help streamline financial activities related to estimating, job costing, payroll and invoicing. The right combination of tech assets can help:

  • Automate calculations and processes,
  • Create more accurate estimates,
  • Track a variety of costs and accurately allocate them to projects, and
  • Generate the necessary documentation for your records, as well as for financial reporting.

As always, however, selecting the right tech tools for your construction business’s distinctive needs and comfort level is the hard part. Choose your purchases and upgrades carefully — always with the goal of improving the clarity of your finances and your control of them.

Building a Strong Financial Foundation

Effectively managing the cash flow, materials, labor, and technology expenses of your construction company can feel as challenging as constructing a sturdy foundation on unpredictable ground. However, by implementing the appropriate personnel, protocols, procedures, and technological resources, it’s achievable. 

CSH is here to assist you in assessing your construction company’s financial management strategy and identifying additional opportunities for enhancement. Don’t hesitate to reach out to us and learn more about how we can partner with your organization.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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