Develop red light systems to warn you automatically if something needs querying:
- Check as early as possible if leads, orders, or sales, fall below a certain threshold, or a substantial customer ends their subscription (recurring service).
- Pay attention to your Key Performance Indicators. Make sure you have regular feeds of how your business is performing.
- You also need to know about any substantial invoices that are in dispute, particularly overdue debts and clients exceeding their credit limits.
Building productive relationships with your key suppliers is important, so they are prepared to extend extra credit to you when you need it.
If you have a properly set up accounting software, then it should be relatively easy to view your red flags weekly, monthly (or any period you set).
[Starting Cash + Cash In - Cash Out] = Cash Flow
Proper construction accounting is all about the details. The answers you need to operate and grow your company are in reports. Everything starts with cash because "cash is fact, profit is an opinion." All transactions in the bank account of your construction accounting system no matter if it is QuickBooks or Xero, must be assigned to the proper accounts:
- Job Deposits
- Cost of Goods Sold (Direct and Indirect Costs including Labor, Material, Other and Subcontractors)
- Other costs including permits, plans, bills from suppliers, and purchases on your personal credit cards
These tasks form the solid foundation of your small business. As a small business owner, you have more important things to do than to keep your own books. We take care of your books for you, so you can get back to the job of running your business and generating profits.
Construction companies need short-term liquid working capital such as cash, lines of credits, loans, owner financing, credit cards, supplier accounts, and other forms of money to conduct daily operations. Small construction companies with annual sales volume less than $10,000,000 and other requirements enjoy some benefits that are not always available to larger firms. Likewise, larger firms can leverage economies of scale.
The larger your construction business grows, the more likely you could end up operating as a bank without the hundreds of ways to generate revenues from fee income and interest calculation that banks use. The most popular method designed by investors and developers and shrewd business people who understand the concept of divide and conquer is for contractors to get little or no down payment for a construction project, do all the work, including change orders and then try to collect their money.
What often happens is that contractors hate paperwork preferring to keep everything in their head. Then when it comes the time to collect their money, they find themselves having to re-sell the job and talk their customer into parting with their money. It's been said: "The value of services rapidly diminish after the services have been performed," which is why highly profitable companies like McDonald's gets your money before they deliver your meal. Compare the success and profitability of a McDonald's franchise to most restaurants.