By Tonya Schulte, The Profit Constructors
Maintaining a system that allows you to stay on top of how much money is coming in and how much is going out gives you the advantage many subcontractors miss. When you can see the flow of cash (as if you’re looking at the flow of a river), you can make healthy adjustments to safeguard the flow.
Comprehending your margins, appropriately adjusting your bids, and knowing when to spend and on what, are all benefits of building a system of cash management that takes advantage of the five vital tools listed below.
The first two tools in our list fall into the category of SaaS. They are powerful tools that allow you to build a foundation for favorable cash management.
1. Accounting Software
Used properly, robust accounting software (e.g. QuickBooks) allows you to see your entire financial picture. Moving all of our clients online has allowed us to gain a much better perspective on how to put the income we receive to better use. You can see every transaction, monitor balances, and visualize the most effective use of the cash that flows through your business.
2. Construction Management Software
A complete construction management SaaS (e.g. Knowify) brings many valuable tools to the table. For our purposes here, I’ll focus on the cash flow aspect of a SaaS platform.
You want to be able to see:
- Where you consistently overspend
- Where you lack efficiency
- When you aren’t working enough jobs to fund upcoming projects
- Where to strategically spend
- When you’ve over or under-billed
- Which kinds of jobs make you more money and which less
- A review of job costing data from previous jobs
- A heads-up for planning and budgeting for future jobs
Also – make sure the SaaS platform you choose, syncs with the accounting software you use – BEFORE you buy. That makes both tools more valuable and powerful for construction subcontractors.
The following two tools on our list are in the Services category.
3. Accounting Advisory Firm
To help you better understand what I mean by an Accounting Advisory Firm (as opposed to a bookkeeper), think about the difference between a Brazilian Steakhouse and a typical steak restaurant. At a Brazilian Steakhouse, you’ll notice higher quality cuts of meat, a distinctive atmosphere, a large selection of sides, impeccable service, and a full-blown push to go beyond customer satisfaction to an excellent client relationship.
A further distinction between a bookkeeper and an accounting advisor is that a bookkeeper focuses on the rearview mirror. In contrast, an accounting advisor checks the mirrors but focuses more on the windshield – what’s ahead? How do you get where you want to go? Which path should you take?
When seeking an accounting advisory firm, look for:
- One that specializes in construction accounting (and all its oddities.)
- A firm that constantly seeks education, advanced training, and new advances in the accounting field.
- One that provides a network of other construction-centric service providers.
- And (this is important) a firm whose team members are easy to get along with.
(By the way, if you haven’t experienced a Brazilian Steakhouse and want to know more, you can google something like “what to expect at a Brazilian Steakhouse.”)
4. Banking
Of course, banking must be part of the picture regarding cash flow in your construction business. From where you stash the cash to where you go when you need more of it, banks are essential to maintaining a healthy cash flow.
Finding a bank specializing in servicing the construction industry or having a division dedicated to that purpose is optimal. Working with a bank that fully understands the nuances of cash management in the construction industry saves time and headaches on many levels.
I also recommend you find a bank that allows you to maintain many different accounts without penalty for occasional low balances to make the most use of the “envelope-style” cash management.
The last tool on the list falls into the Most Important category.
5. Your Brain
Do you actively manage your finances or ignore them?
I know, I know, you’re a construction contractor, not an accounting professional. So, you don’t need all the skills that an accounting pro brings, but you must make money-related decisions constantly. Therefore, understanding how those decisions affect your ability to run a profitable construction business is something you can and should be tuned to.
You can improve your financial literacy. For example, rather than thinking of being tied to a constricting budget, think of it as your spending plan.
Here are some steps you can take:
- Spend time with your accounting advisor learning how your financials can serve and improve your cash flow management skills.
- Set some financial goals.
- Become more comfortable with the concept of profitability.
- Determine to forgive yourself for past money mistakes.
- If there is something you don’t understand, ask!
- Celebrate small successes.
- Spend time with other successful construction contractors who understand how to manage their cash flow.
In Conclusion
As you become more comfortable with cash flow and the tools used to manage it, you’ll gain confidence and increase your ability to drive even more financial aspects of your construction business.
About the Author
Tonya Schulte is the heart and soul behind The Profit Constructors. Back in 1997, Tonya kicked off her career as a full charge bookkeeper at a small but spirited architecture and homebuilding firm. It didn’t take long for her to fall head over heels for the industry, and since then, she’s been building a career that’s as sturdy as a well-constructed building.
Today, Tonya is the proud founder of The Profit Constructors, a place where advocacy meets accounting, all tailored for the savvy Construction Contractors out there. Tonya is also the voice behind the monthly Construction Junction podcast that dives deep into the world of construction and accounting, offering a fresh perspective and valuable advice. You can connect with Tonya via: LinkedIn @the profit constructors
