There are two sides to the accounting coin used by profitable construction contractors: Past and Future.
Accounting for the Past
Accounting folks take all the right data and work diligently to put it in the correct buckets. Some of the entities that will find the “right data” in “correct buckets” to be useful are:
Tax preparers
The IRS
Banks and loaning institutions
Bonding agencies
General contractors
Your management team
That is where Financial Planning and Advisement (FP&A) people come into the picture. They are one part of the overall accounting team.
Accounting for the Future
The accounting (for the past) folks put the right data in the correct buckets. Then, the Financial Planning and Advisement (FP&A) people use that information in management accounting – for the future.
The people in the FP&A accounting segment serve as a cornerstone for reducing uncertainty and providing a basis for future planning. They can be thought of as the backbone for strategic planning and decision-making.
Accounting Examples of FP&A Wins – Enterprise
Here are some examples of enterprise-level businesses that have followed the advice of their FP&A team to reap bountiful rewards.
Amazon: The FP&A team was tasked with finding the more powerful lever: giving customers 10% off or free shipping on purchases. The subscription service (presently just under $15 a month) known as Amazon Prime was and still is the answer. We’re told it is one of the chief drivers of Amazon’s success.
Lego: The decision to reinvest travel savings (brought on by the reaction to COVID) into helping employees be more productive from home was first suggested by their FP&A division. For a more detailed look at their employee-centric approach, look at this story from Deskbird.
Levi’s: FP&A advised that the company could anticipate changing consumer preferences by preparing for the shift from skinny jeans to baggy jeans. If you live with teenagers or you’ve walked down the street lately, you know this one is paying off.
Accounting Examples of FP&A Wins – The Profit Constructors’ Clients
A General Contractor The advice of our FP&A team was to change their estimating practices. Because this GC had some self-performing divisions but didn’t distinguish markups for each division when bidding, they were cheating themselves out of a higher profit. The Profit Constructors suggested they boost their markups and labor for their self-performing tasks as they had typically been at breakeven status only on their jobs. The result – they have increased their profit by a triple-digit percentage, and cash flow problems are a thing of the past.
A Roofing Company Our FP&A team advised moving from a by-the-job ordering system to an inventory system, partly because this construction business is located in a rural area. More advice from the FP&A folks on our team was to allow the accounting team to set up a system that allows them to keep track of profitability on every project, giving them further insight for future planning. The result – now, they can perform more jobs more efficiently with greater profitability.
A Plumbing Company While this construction company didn’t have cash flow problems, a straightforward change suggested by our FP&A team concerning how management perceived cash flow allowed them to increase their cash reserves by 166%. The result – they now have taken advantage of other investment opportunities.
Accounting for the Past and the Future
Dropping the right data into the correct buckets is a good thing. Many of our clients report that their tax preparer or bonding agent has mentioned how well-prepared the books were and how much easier their jobs were because of our diligence in preparing our clients’ accounting reports.
But we’ve never been satisfied with leaving the accounting tasks at that level. That is why The Profit Constructors has FP&A people on our team. FP&A is a pivotal function within construction companies’ financial dealings and underpinnings. This aspect of accounting focuses on:
Forecasting
Budgeting
Aiding strategic decision-making processes.
Our FP&A folks analyze historical data, look for market trends, delve into industry knowledge, continuously learn how to improve their performance, and are prepared to guide senior management in construction businesses toward well-informed strategic decisions.
Reflection: Do you want the power of knowing your numbers well beyond how much you must pay in taxes this year? Do you want aid in making strategic decisions based on the reality of your numbers? Are you ready to Run With the Big Dogs? Then, schedule a complimentary discovery call. 866-629-7735
Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:
Clients and customers
Employees and subcontractors
Vendors and service providers
Governmental entities
Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:
Remain informed
Avoid hassles
Reduce risks
Be future-ready
Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735
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