Disruptions are the norm in the construction business. And while the COVID-19 outbreak — which has led to a widespread halt of building projects — is more extreme than most disturbances, successful construction companies are structured to handle multiple projects with long durations and to anticipate potential interruptions along the way.
When it comes to contingency planning, outsourced bookkeeping services are one of the most useful tools those in the construction trade can use.
Preparing for the Worst
Construction companies encounter cash-flow interruptions for a number of reasons, from routine weather delays to once-in-a-century pandemics. Even projects that stay on schedule often require a juggling act between making upfront vendor payments and collecting revenue from clients on the back end. Staying up to date on your finances is the best way to prepare for these interruptions. And the first step is to establish a cloud-based bookkeeping system.
Being on the Cloud Matters More Than Ever
If you had any second thoughts about enlisting the services of a bookkeeping professional to transfer your construction company's financials to the cloud, the COVID-19 crisis should have eliminated them. For starters, cloud-based bookkeeping enables you to interact with your bookkeeping services provider remotely. That's a virtual necessity during this indefinite period of social distancing.
Just as important, remote capabilities provide you with real-time access to your financial information via your smartphone as you travel from jobsite to jobsite. Mobile access enables you to approve payments and review expenses from anywhere while also empowering you to proactively manage an extremely fluid situation on the fly. (Syncing your bookkeeping software with your construction project management system enhances responsiveness even further.)
With government directives changing seemingly by the hour, not to mention the ever-present possibility of supply-chain interruptions and workforce shortages due to the pandemic, the ability to make informed decisions in real time is vital.
Fine-tune Your Cash-Flow Forecasts
As with just about every other aspect of the construction business, the coronavirus crisis has underscored the importance of creating accurate cash-flow forecasts. Construction companies can gain financial insight by creating a 13-week cash flow forecast every week. This provides an up-to-date cash forecast, taking new changes into account on a weekly basis.
Stay on Top of Job Costing
The primary financial components for construction companies haven't changed during the coronavirus crisis. They're still billing, labor and supplies. Each job has different characteristics that affect profit margins. Consistent bookkeeping can accurately track billing and expenses to each job. This gives construction companies the financial insights needed to both understand and control costs — and to determine the real-time profitability of every job.
Monitor Your Billing
Construction companies use a number of different billing methods. Having the proper accounting software and professional bookkeeping support is critical to your financial success — especially now, when clients might have difficulty paying in a timely manner.
Here are three common methods:
- Fixed price: Using an estimate that shows the total costs for the entire project, fixed price is usually billed on a percentage-of-completion basis. The risk with fixed-price billing is any cost overruns fall on the construction company, adversely affecting profit.
- Unit price: This applies when a customer is billed at a fixed per-unit rate. It's a good method to use when construction companies aren't certain about their total cost estimates.
- AIA progress billing: AIA, which stands for the American Institute of Architects, is a billing process that contains the completed contract billing throughout the entire project.
Plan for a Better Future
So far, we've stressed the importance of using a cloud-based system to navigate the COVID-19 pandemic. But the benefits of such a system won't end when the crisis does. Going forward, you'll also enjoy the security that comes from having immediate backup of all data as well as financial controls, including checks and balances, to prevent fraud and eliminate costly errors.
In other words, your priorities will return to what they were before the crisis hit. But with a much-improved bookkeeping system, you'll be better equipped to handle them.
Visit our Business Continuity During COVID-19 resource page for tips on managing a remote workforce, forecasting cash flow and applying for a disaster loan.