The word “financials” is a word that covers a multitude of sins normally associated with money and, in most cases, is left up to the accountant.
That explanation sounds like it came straight from a dictionary but, no, it covers the thoughts of a great deal of trades businesses. Let’s add the word reporting to it and list what a prudent construction company should be looking at regularly.
There are your annual accounts — the first financial report that comes to mind and for many businesses the only report they get — but what good does it actually do?
Of course we have to have them. They have to be filed with the IRD and they hold lots of information, but they come far too late to be of any real time relevance.
For some businesses you might not have even got your 2013 annual accounts back yet nearly eight months after the close of the financial year.
If they show a loss and that loss occurred in the second quarter of 2012, there is nothing you can do about it now over a year later. If they show a huge profit, then yippee, let’s go celebrate.
But wait, did you calculate the correct provisional tax? If not, you might be hit for use of money interest from the IRD.
Yes, annual accounts are a must and they have their place as important and useful documents, but you cannot run a business on them.
You need regular financial reporting in the way of profit and loss statements, balance sheets, budgets, budget/actual variant tables and cashflow forecasts — and these are only the common ones we associate with dollars and accounts.
Add to this list all your job costing, quoting, variations orders, back costing sheets, time sheets, material cost increases, vehicle running sheets, maintenance sheets — whoa, stop the bus mate!
If a small to medium sized construction company should be monitoring all the above and more, they will either not have time to build anything or will have to employ an accounts department.
So what’s the answer? Yes, you should be using all or most of the reports mentioned to know in real time exactly where your business stands financially. However, let’s put it in perspective here — the larger companies have the manpower and the expertise, and should be implementing all of the above.
I say “should”, but we still come across some that don’t. The smaller companies should be doing it all as well, but we have to consider your time availability, your knowledge base and your size.
There is no real order of importance for me to say “let’s start with this one and then move on to that one”. However, the barest of minimums could be an annual budget and a monthly profit and loss report. Your bank manager will argue that your balance sheet and a cashflow forecast are far more useful.
Accounting software package
I would say the budget/actual variance sheet each month gives you a true picture of expenditure and income movements. So now we have the full deck to play with again.
The easiest way is to use an accounting software package, as all the reports and more are in there to use at the click of a button.
There are many packages out there and some are even designed to be construction-specific. Buying one is easy and relatively cost-effective, but knowing how to use the insufferable thing can be daunting.
The best piece of advice I can give you is to make the effort and get training, because the time saving efficiencies it can bring and the knowledge of a real time financial position can save you thousands in the future.
You need to act now when it comes to managing your money — not when your annual accounts tell you.
Call us on 09 945 4880 if you want some information on available software or if you would like to start off with one of our simple budget sheets.