As published in the July-September 2023 issue of Master Builder Magazine.
There are a range of tactics builders can implement to help survive growth and help build better financial visibility.
Meet Tom, a successful residential builder who had built a thriving business through high-quality work and a long list of happy clients. As a result of demand in the market, Tom’s company had grown rapidly, and he was taking on larger projects and expanding his team. But, despite the success, Tom was struggling to grow his cash reserves and improve his take-home profit. He was using manual methods to track his expenses and income, and he was finding it difficult to get a clear picture of his cash flow. He was also having trouble predicting future expenses and making informed decisions about his business.
One day, Tom realised that he had significantly overspent on a project. He had underestimated the cost of materials, which had increased unexpectedly, and he was facing delays in the project. This, combined with the lack of financial visibility, had put his business at risk, and he was now struggling to pay his employees and suppliers.
Tom’s experience is not a one-off story. Many builders find themselves in this situation, particularly with a market that still has plenty of demand. It also highlights the importance of financial visibility, and how critical it is to improve your finance and accounting systems as your business grows.
To avoid ending up in the same situation as Tom, it’s important for builders to prioritise financial visibility.
There are a range of tactics builders can implement to help survive growth and help build better financial visibility.
An up-to-date budget is the cornerstone of financial success in the building Industry, yet it’s a tool that few utilise. Constructing and maintaining a budget isn’t just about tracking expenses – it’s about mapping the trajectory of your business. It offers clarity, delineates the pathway for future activities to meet profit targets, and enhances overall financial visibility. With an accurate and comprehensive budget in hand, builders can confidently navigate their businesses towards success, secure in the knowledge of their direction.
The building industry is always innovating, when it comes to business apps, the productivity gains are undeniable – from quoting and project management through to rosters and timesheets, the end game is to cut down manual processes and improve information flow through your business. If you’re not in the cloud already… It’s time to move… now!
As your business grows, having accurate and timely data is non-negotiable. At a minimum, you need P&L and Balance sheet, a monthly cashflow forecast, and a rolling 12 month budget – updated with the actual performance. And you need to have an accurate Work In Progress figure if you’re going to get real clarity on profit.
Don’t keep your team in the dark – they need to be connected to the mission and understand the impact of decisions on the success of the business. Think about how you can connect performance to budgets and a bonus scheme that rewards the behaviour you want to encourage.
Ensure you allocate all costs to the relevant project, including materials, labour, and even a portion of overhead expenses. This will help you see exactly where your jobs are going off track and avoid costly surprises at the end of a project.
As part of your job costing process, make sure you check every Invoice you receive with the original quote – and push back if there’s a variance.
Build some efficiency and reliability into your payment runs by choosing a set frequency for paying Invoices and stick to it – whether it’s weekly, fortnightly, or monthly, let staff and suppliers know what day you pay invoices, let suppliers know, e.g., we pay all invoices on Thursday every fortnight.
When quoting, check with suppliers and other sources, keep an eye on the cost of materials and factor in any potential increases when estimating the cost of a project. Don’t forget wage increases for key team members.
By following these recommendations, you can ensure that your company has the financial visibility it needs to thrive and grow in a competitive market. So, don’t wait, start taking control of your finances today and watch your business soar to new heights, just like Tom’s.
If you’re experiencing growing pains in your business feel free to reach out to Michael and the team at Xact Accounting on the Master Builders Member Hotline at 07 3124 8666.
