It always amazes me how many construction company business owners do not have a good handle on their numbers. Through hard work, diligence, and a great reputation for deadlines and quality workmanship, their companies grow in annual sales. All this work without really knowing the numbers.
You can have someone else take care of financial matters, but as the owner you must know, review, understand, and track the numbers daily, weekly, and monthly.
Just like in sports, every business owner needs a scoreboard tracking results to keep informed and on target toward achieving their annual goals. Here are the important numbers (and when to track them) every contractor must have on their Financial Scoreboard.
Track monthly
Income Statement (Profit and Loss)
The income statement is your scorecard showing how well your company does every month. It shows the earned income, construction job costs, gross profit, overhead, and net profit. This report must be reviewed in detail no later than 15 days after month end.
- Sales revenue billed (including retention)
- Direct job cost expenses
- Gross overhead and profit margin
- Gross margin percentage
- Markup percentage
- Company overhead
- Net profit
Work in Progress (WIP) Schedule
Top construction business owners know their contracts and estimated final cost numbers for their completed projects and those under construction. They also know and track gross and net profit projected or earned for every job, how well they did over the past year, and how well they are currently performing on every project. To know and manage your numbers, you need to prepare and review monthly updated WIP and Completed Contract Schedules, listing all your completed and current projects under construction. Be sure to track bid markup versus final markup achieved to see if you are making what you estimated or bid projects at. In addition, note which project managers, superintendents, and forepersons make you money and which tend to have profit margins fade or shrink.
The WIP Schedule is a detailed list of all your projects clearly showing how well they are doing compared to the original budget. It also shows your estimated final cost of each project, overbilled and underbilled amounts, contract backlog, and gross profit backlog.
Job Cost Reports (Consolidated Cost Report)
Every month for every project, complete a Job Cost Report to determine how well you are doing versus your budget. The report should include the current updated project budget versus committed costs, estimated costs to complete, and then the estimated final cost for every line item, trade, and budget item. At month end, the project manager estimates how much additional money for labor, materials, and equipment will be required to complete the work.
Completed Contracts Schedule
This schedule shows the results for all your completed projects for the year. Included in it is the original contract amount, final contract, final profit made for each job versus the original bid amount, and markup bid versus actual earned.
Financial Statement (Balance Sheet)
Your financial statement is your scorecard showing your company assets, liabilities, and net equity or net worth of your business. The goal is to increase your assets, which will enable you to grow bonding capacity and business valuation.
- Current assets
- Long-term assets
- Total assets
- Current liabilities (long-term liabilities, line of credit, equipment loans, real estate loans, credit card balances, taxes due, other loans/debts)
- Stockholder capital/equity
- Return on equity
- Working capital (current assets – current liabilities)
Sales Award Tracking Report
Less than 20 percent of all construction business owners know or track their annual sales volume awarded versus their goals. Do you know your sales goals needed at the gross margin you can achieve to cover your annual overhead and make a net profit? How often do you track your sales numbers, and what do you do every month to keep them on target and ensure you sign enough contracts to hit your goals?
- Sales contracts award goal
- Cumulative sales contracts awards
- Gross profit award goal
- Cumulative gross profit awards
Track weekly
Accounts Receivable Aging Report
Your accounts receivable numbers are the lifeblood of your company. It is not fun to call customers to ask them for money. But if someone in your company is not accountable for tracking who owes money and then collecting it, you will not stay in business for long.
For each project keep a list of the time frame allowed to submit invoices and how long customers have to pay. Read your contracts and follow the detailed chain of events required to get paid: invoice, releases, retention amount, date payment due, follow-up requirements, documentation required to demand payment when not paid, and lien or legal tactics.
- Current receivables
- Receivables over 30 days
- Retention
- Accounts receivable total
Cash Report
Cash is another lifeblood of your business. You need to know what cash you have to work with to make good decisions. Get a report of your cash position every week. Once you know your cash balance, you can manage it aggressively.
- Cash in bank
- Line of credit drawn
- Weekly payroll – overhead
- Weekly payroll – field
- Employee head count
- Field crew
- Forepersons and superintendent
- Project managers and estimators
- Office, officers, administration
- total employees
Field Production Job Cost Tracking Scorecard (all jobs)
Field labor and equipment are the biggest factors affecting your final job profits. Therefore, tracking field production labor and equipment weekly must be a top priority for every contractor. Forepersons who do not know where their crews stand also do not know if they are on budget to meet their field production goals. Install field production tracking systems to keep your jobs on track. To track labor hours, productivity, and equipment on projects, implement a weekly job cost production update tracking scorecard for your project managers, supervisors, and forepersons to use, review, and monitor.
Every week, create an overall scorecard for all your jobs under construction to see which projects are on budget and which are not. Review the results with all your forepersons and superintendents and discuss how they are doing and what improvements they can make. If you do not know or track your direct job cost numbers weekly, it is next to impossible to make any money.
Keep your finances in order
Trying to build a construction business without organized and systemized financial management tools is like building a house with an empty toolbox and no plans. You cannot do it. Make it a top priority to install the best possible financial systems, technology, reporting methods, and tracking systems. An updated timely financial scoreboard plus sound financial management allows you to know the score and make sure you win every game.
George Hedley, CPBC, is a certified professional construction BIZCOACH and top industry speaker. He helps contractors achieve their goals, increase profits, grow, get organized, develop accountable talent, improve field production, and get their companies to work. He is the author of Get Your Construction Business To Always Make A Profit!, available on Amazon.com. To receive a spreadsheet of the Financial Scorecard and templates outlined in this column, get his free e-newsletter, start a personalized coaching program, attend his webinars and workshops, or get a discount at HardhatBIZSCHOOL.com online university for contractors, visit his website @ HardhatBizcoach.com, watch his videos on YouTube, or email GH@HardhatBizcoach.com.
