6 Financial Mistakes That New Contractors Make Part 1
Running a construction business can be so seductive at times. Sales are being generated, earth is being moved on the construction site, and people are running around at a frenetic pace. You’re even generating income. However, if you are not on top of accounting, there may be a silent thief hemorrhaging all of your hard work.
Proper accounting is the far less sexy part of any business. However, having a firm understanding of where your revenues are going once you receive them is a vital part of achieving success. While having an accountant is critical, the business owner needs a basic understanding of financial concepts as well. Our Tallahassee construction law attorneys have seen the success and failure of many companies hinge on their ability to gather accurate financial information and make good decisions based on it.
The following series will discuss common, yet critical mistakes that contractors make when it comes to the financial part of their businesses. For more tips, visit part two of this series.
Not Factoring Downtime into Costs
It’s unrealistic to think that your employees and subcontractors are spending every minute of their workday working. Yet, we estimate labor costs as if that’s the case. We then wonder why labor costs are inaccurate in comparison to output. To avoid this mistake, downtime must be factored into labor cost estimates. Also, consider making similar adjustments to your project timeline.
Improper Handling of Scope Changes
Scope changes are a mainstay in the construction industry. How contractors handle them often determine their financial success. It’s easy to simply grant a request from a client in order to keep them happy, but you may be adding significant costs to your project by doing that. Scope changes push you further away from project completions and may require additional resources. To better deal with scope changes, evaluate each one individually before saying yes to any change order.
Not Performing Proper Closeout of Financials
Each month, you must perform an accurate closeout of financials. It seems simple, but in the bustle of the jobsite, it’s easy to miss a detail here or there. However, not closing a job or inaccurately recording one that’s in progress can be detrimental to your company. Always, keep an accurate watch on monthly financials. Work with your accountant to ensure their accuracy. While you may not be a financial expert, having a basic understanding of the financial health of your company is critical.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.