The main focus in the construction industry is not finances; it is materials, transportation, employees–all of the people and things with which we deal on a daily basis. Now ask yourself these questions: when was the last time you reviewed your income statement or company balance sheets? Do you review these reports monthly, quarterly, or even yearly? Do you consistently share your company’s financial information with your employees?
As someone who runs a construction business, you absolutely need to know your numbers in order to run a profitable construction business. Owners should be able to obtain their income statements at all times–and if you cannot, you should invest in some software that allows this, or if that does not tickle your fancy, you should request information from your accountant.
At this point in running your company, you should probably already have a general idea as to what an income statement is. For those of you who are unsure or who do not know, an income statement is your company’s total income versus its expenses. When you look at your company’s statement, what do you see first? I, personally, always look at the bottom line–a.k.a. The final income–first, and then I look over other important statistics like sales, materials, and labor. Best of all, I can see my income statement any time because I run it on a cloud-based program with 24/7 access.
One of the keys to running a profitable construction business is hiring a competent accountant. When I say this, I do not mean the accountant you see at tax time every year, but rather someone who can assist your company as much as necessary. At the very least, your accountant should review your books once a quarter to gauge how your business is doing.
Most construction workers do enjoy their jobs, but when it comes to money, they tend to forgo referencing the numbers or allowing an accountant to monitor the finances. If this sounds like you, you should take the initiative to improve your financial processes and implement effective strategies into your routine.
One such move you can make is running comparative reports; if you can, then you should. Why? Well, comparative reports allow you to compare year-to-year statements and other various parameters. Not only can you compare annual income statements, but these reports also help you catch irregularities that may be continuously popping up among items. You can also assess your balance sheets in order to know and understand your assets, liabilities, and net worth. These two items–income statements and balance sheets–go hand-in-hand with one another. If you work closely with a bank, these are two reports you will almost definitely need to provide.
As aforementioned, you might have some of your employees monitoring your company’s financial statements. While it may be beneficial to have someone else handling the business’ money, there is a chance that it will result in catastrophe; when people have money at their fingertips, temptation may start to outweigh morality. I am not trying to tell you to distrust your employees, because it is important that you work with people whom you trust, but you need to keep an eye on all cash, checks, and credit cards linked to your company just in case anything goes awry.
If you do have a bookkeeper besides yourself, here are a couple of tips…
- Always, always, always sign your own checks
- Seek help from an accounting firm for auditing
- Monitor your financials, even if it is somebody else’s job
…and a few red flags to watch out for:
- Your bookkeeper insists on handling all company finances by himself
- He consistently takes home company records
- He prefers working by himself or after office hours
- He always insists that he gets the mail
- He rarely goes on vacation or orders that nobody touches the books while he is gone
- He has access to valuable credit card information and the ability to order cards without permission
- He can order checks without consent
- He is able to alter customer invoice amounts versus deposit amounts
- Things are often misfiled and disorganized (especially bank records)
Like I said before, we obviously want to be able to trust the people we employ, but every business must implement a checks-and-balances system. You should not let one person be the only one handling the finances (except for the owner, of course). However, if you are the owner and also function as the bookkeeper, then you should hire somebody else to audit your books for you. Overall, be cautious of who you let handle your finances, and take all possible precautions to ensure that your company’s money is in good hands.