As a builder or tradie aiming to grow your business, it’s essential to maintain a strong grip on your financials. This guide provides critical insights and strategies for expansion without losing control of your bottom line. From advanced bookkeeping to the importance of job costing, it’s a must-read for every business owner wanting to grow profits – not just revenue!
Principle: Precision in bookkeeping is the cornerstone of financial success, especially as your business expands.
Strategy: As your business grows, the transition from DIY bookkeeping to professional accounting services that specialise in building and construction. The increase in the volume of transactions and the complexity of financial management necessitates a level of expertise that surpasses basic bookkeeping. Professional bookkeeping not only ensures accuracy and compliance but also provides the data required to produce meaningful financial reporting and insights. These elements are crucial for informed decision-making and strategic growth. By investing in professional bookkeeping services, you ensure that your financial foundation is robust, scalable, and capable of supporting your business’s growth trajectory.
Don’t: Believe the false economy that by doing your own books you’re saving money… Once you get to a certain size this decision can cost you dearly. Do: Invest in professional bookkeeping services that can handle increased transaction volume and complexity and who know the specific technology and processes required for building and construction businesses.
Principle: You have to get your estimate spot on to ensure a healthy margin at the end of the project.
Strategy: Use tech like Buildxact so you’re not starting from scratch on every quote! These platforms also make sure you don’t overlook aspects of the quote and Buildxact integrates with suppliers like Mitre 10 and Bunnings so you have access to live, accurate pricing. It’s also critical to make sure you price labour properly – this is where jobs usually blow out, often because things like leave, lost days, and other on-costs aren’t factored into the hourly rate. Finally, consider hiring a dedicated estimator or using an external service that specialises in this space.
Don’t: Keep using old pricing from previous jobs – particularly labour rates. Don’t underestimate how long it will take to complete each stage! Do: Make the move to smarter tech like Buildxact and consider hiring a dedicated estimator or using an external specialist.
Principle: Having financial early warning systems in place will allow you to see when profit on a specific job is going off track.
Strategy: It is essential that you match all invoices from suppliers and subcontractors to the specific job they belong to, and do this at least on a weekly basis. This will allow you to see any discrepancies from your initial estimate. If you do this from the beginning of the job, you will be able to recover margin on later stages through variations, substitutes, or by putting incentives in place for your team to push through a stage faster to save on labour.
Don’t: Wait until the end of a project to see how your profit is travelling. Do: Have the right processes in place and again, make the move to good job management and accounting software so you can match costs to jobs and start tracking margins in real time.
Principle: A monthly review of every project and your overall business finances will super-charge decision-making. And… put the time in to build and update a budget…
Strategy: As a building and construction business grows, it is easy to get caught in the day-to-day noise of running multiple projects, and making decisions on the fly using gut feel and emotion as your only guide. Stepping back once a month for a clinical review of your performance, acknowledging where things have gone well or off track, will vastly improve the quality of your decision-making on future activity and give you a stronger sense of control as your business expands.
The centerpiece for this review is a Budget. Every month, your budget will not only show how your profit is performing per job, it acts as a guide to what is coming down the track, where you might have cashflow issues or be starting to overcommit in terms of multiple projects. Check out our dedicated webinar on Budgeting for Builders and Tradies.
Principle: With growth comes complexity, and a requirement for a different level of finance expertise.
Strategy: The business model in building and construction can make or break the fortunes of business owners for generations. With multiple projects running simultaneously, volatility in supply chains and uncontrollable events like weather to contend with, businesses that are able to push through the growth ceiling are those that can master their finances.
To do this, you need the expertise of an experienced commercial accountant. The challenge is, that growth-stage businesses can’t afford and don’t need a full-time CFO or Financial Controller – but they definitely need to this kind of firepower to avoid spinning out of control.
Rather than trying to hire an internal resource, it’s worth considering the concept of a part-time or “fractional” CFO. Different to a tax accountant (the type of accountant we’re mostly familiar with), a good commercial accountant will not only give you a more accurate view of your numbers, they’ll provide the commercial solutions and advice you need to chart a better course – i.e., they’ll be your expert co-pilot to help navigate the turbulence of the construction sector.
Don’t: Ask your tax accountant for advice on improving margins or critical processes like job costing – it’s just not their thing! Do: Rather than hiring an internal accountant, explore the option of a “Fractional” CFO. The improvement in profit will far outstrip the fee, and, unlike an employee, as an external service provider, the fee is tax-deductible.
Principle: Industry-specific tax advice is needed to ensure you hang on to as much profit as you can.
Strategy: Tax is one of those things that most people tend to put on the back burner or close their eyes and hope for the best. But with tax rates what they are in Australia, the last thing you need is to have your take-home profit crunched because you’re not getting the right advice, tailored to your industry.
The other consideration is balancing your decision-making on tax matters with commercial and other compliance obligations that come with being in the building industry. For example, in Queensland, the use of Family Trusts from a tax structuring perspective needs to be handled carefully to avoid running into trouble with QBCC MFR Regulations.
Don’t: With tax being a big driver of your take-home profit, you can’t afford to put it on the back burner or settle for a “so-so” result from your accountant. Do: Take charge of your tax affairs – this can have a significant impact on your take-home profit, so put in the legwork, and find someone who knows your industry!
If you want to know more, get in touch with us to book an initial consultation for free!
