The Importance of Month-End Close in Building and Construction Industry

For many builders and tradies, financial processes are often overlooked in favor of focusing on the job at hand—after all, it’s the worksite that drives income. However, without a proper financial process in place, especially around month-end, the quality of financial data and reporting can become severely compromised. This leads to missed opportunities, poor decision-making, and potential cash flow issues.

This article will walk through why a consistent and thorough month-end close is essential in the building and construction industry and how it can benefit your business operations.

Key Benefits of Month-End Close:

• Normalising the roller coaster: By recognising income and expenses in the correct reporting periods, month-end close helps smooth out unexpected spikes in your financial statements.
• Better financial visibility – You’ll have up-to-date, accurate information on your financials.
• Informed decision-making – You’ll be able to make data-driven decisions that impact your profitability and cash flow.
• Reduced errors – By catching mistakes early, you can avoid costly financial missteps.

Now, let’s break down the essential components of a month-end close in the construction industry and why they’re important.

1. Keep Bank Reconciliations Up to Date

Bank reconciliations are critical in ensuring that your cash position is accurate. By reconciling your bank accounts each month, you confirm that all transactions are accounted for and that there are no discrepancies. For builders and tradies who may not have a structured financial process, this is a key first step.

Without updated bank reconciliations:

• You won’t know your exact cash flow.
• Unreconciled transactions could lead to inaccuracies in your financial statements.
• You might miss fraudulent transactions or double payments.

Making this a routine task in your month-end close ensures that you always know your available cash for purchases, payroll, and expenses.

2. Reconcile Accounts Payable (AP) and Accounts Receivable (AR)

In the construction industry, cash flow can make or break your business. Keeping your AP/AR up to date and reconciled is essential for maintaining a healthy cash flow.

• Accounts Payable (AP): Ensure all bills are entered, and payments are tracked. This helps prevent late fees and maintains good relationships with suppliers.
• Accounts Receivable (AR): Make sure you’ve invoiced clients and received payments on time. Reconciling AR helps ensure you’re not leaving money on the table and can highlight slow-paying customers that may need follow-up.

Failing to reconcile AP and AR can lead to delayed payments, unhappy suppliers, and cash flow shortages.

3. Superannuation: Reconcile and Pay On Time

Superannuation is a non-negotiable in Australia, and the penalties for missing payments can be significant. Ensure you reconcile your superannuation accruals with your balance sheet each month to avoid underpaying or overpaying.

• Super Accrual Reconciliation: Compare what has been accrued versus what’s been paid to ensure accuracy.
• Pay on Time: Super must be paid quarterly by law, but staying on top of this at month-end ensures you’re not left with a larger-than-expected bill at the end of the quarter.

Late super payments can lead to penalties and create unnecessary financial strain. Don’t let this slip through the cracks!

4. Don’t Forget Payroll for Owners

One area often neglected in smaller building companies is owner’s payroll. Many builders and tradies may take drawings instead of a formal payroll, but it’s important to include this in your financial records. This ensures that your profit and loss statement is accurate and reflects the true cost of running your business.

Make sure to:

• Pay yourself regularly and properly.
• Record these payments in your financial system.
• Include taxes and super contributions as part of your payroll.

Including owner payroll at month-end allows for better profit visibility and helps you manage tax obligations.

5. Review Profit & Loss (P&L) for Unassigned Jobs

A critical step in your month-end close is reviewing your P&L for unassigned jobs. Construction businesses often have a variety of ongoing projects, and it’s essential that revenue and costs are correctly allocated to each job.

• Sales and Cost of Goods Sold (COGS) should be linked to specific jobs. If any revenue or expenses are unassigned at the end of the month, take time to re-code them accurately.
• This helps ensure your reports are clean and you can evaluate job profitability without any misallocations.

Failing to re-code these transactions can make it difficult to understand how profitable each job is, leading to inaccurate reporting and poor decision-making.

Conclusion: Implementing a Solid Month-End Close Process

The building and construction industry often faces financial complexity due to the nature of project-based work. By implementing a thorough month-end close process, builders and tradies can stay on top of their finances, make better decisions, and avoid cash flow issues.

Here’s a quick recap of what your month-end close should include:

1. Bank reconciliations to ensure an accurate cash position.
2. Reconcile AP/AR to manage cash flow.
3. Superannuation reconciliation and timely payment to avoid penalties.
4. Proper payroll for owners to maintain accurate financial records.
5. Review unassigned P&L items to track job profitability.

By taking these steps, you’ll create meaningful financial reports that provide a true snapshot of your business, helping you stay profitable and competitive in the construction industry. It might seem like an extra task, but in the long run, month-end closing will save you time, money, and stress.

Start making your month-end close a priority—your business will thank you for it.