Have you thought about outsourcing your construction financing and accounting? For many construction business owners, bringing in an outsourced accounting company is daunting. After all, you’ve worked hard to build your business and it’s difficult to let go of some of the control.
Imagine if regular and accurate accounting could unlock business growth, boost profitability, and free up valuable time in your busy schedule. Picture having a few extra hours each week to find new customers, enjoy dinner with your family, or simply relax. Many companies in the construction industry are already using outsourcing services to achieve these benefits. According to a report on construction outsourcing, “The construction outsourcing services market size is expected to develop revenue and exponential market growth at a remarkable CAGR during the forecast period from 2023–2030.”
Knowing when it’s time to outsource your accounting can be tricky. In this guide, we’ll outline ten common accounting pain points in the construction industry. If you are experiencing any of these challenges, now might be the time to explore the benefits of construction outsourced accounting.
Read more: When should a company outsource? How to decide what time is the right time
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Managing Inconsistent Cash Flow
The first accounting challenge that construction businesses face is inconsistent cash flow. It’s not uncommon for customers to pay in installments after certain tasks are completed. For example, you might not receive payment until the framing is complete or the windows are installed. This creates a delay between your revenue inflows and outflows, like payroll and loan payments.
Outsourced staff closely monitor your cash flow. This might include deferring invoice payments until the last date, knowing when it’s time to draw on a line of credit, or finding ways to expedite customer payments. With attention to detail on your cash flow, you can rest assured that your company won’t overdraft funds, keeping both customers and employees happy.
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Timely Financial Reporting Enabled by Outsourced Accounting
Financial statements provide valuable insights about past operations, inefficiencies, and growth strategies. This information is most valuable when reviewed timely. If you find yourself falling behind on financial statement generation, it might be time to enlist the help of an outsourced construction accountant or finance professional.
Accounting outsourcing specialists evaluate the work being performed and adjust your financial statements accordingly. This gives you transparency to plan resources, achieve your operational metrics, and provide the necessary information to investors and lenders. Even if your business seems to generate a profit each month, there’s always room for improvement with the proper cost controls.
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Converting Operational Performance into Financial Reports
Construction accounting outsourced professionals understand the intricacies of the industry. This gives them the ability to make adjusting entries to your financial statements to convert operational performance into financial reports. For example, how efficient are your employees? Are they meeting budgeted timeframes, or is labor constantly under-budgeted? How many jobs did you complete in the past month? How many new jobs were started?
Having reports that dive into this information gives you the insights needed to guide your construction company toward increasing revenue and profitability. Outsourced accountants put together these reports on your behalf, allowing you to make high-level decisions without spending hours compiling data.
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Quickly Getting Change Orders Priced, Approved, and Billed
Most construction business owners can agree that change orders are a normal part of business, from a customer deciding they want to add something to the project to an unexpected cost or problem popping up. When change orders do happen, your customers expect quick billing and invoicing. Without the proper backend support, you might forget to bill the change order altogether.
An outsourced accounting or finance professional understands the urgency and intricacy of creating change orders. They can seamlessly update the invoice or quote in the background to generate quick billing, improving customer relationships and cash flow. With the right support, your change order view can be shifted from a burden to an opportunity to upsell services.
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Effective Draw Request Handling Through Construction Outsourced Services
Many construction projects are financed, meaning you need to work with the bank to receive draws. A common pain point for construction businesses is streamlining the draw request process. By not submitting the necessary information, you could face significant delays that hinder your cash flow.
An outsourced construction accountant can work directly with the bank, uncovering what information is needed and all applicable deadlines. Streamlining the draw request process with the help of an outsourced finance professional prevents payment delays and allows your team to move forward into the next project phase, keeping the bank, customers, and your cash flow happy.
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Accurately Evaluating Operational Efficiency
All construction companies strive for high operational efficiency, as it often translates to improved profitability and reduced bottlenecks. For many construction business owners, evaluating operational efficiency can be difficult, especially with work in process and deferred revenue accounts.
This is where an outsourcing company or finance professional can jump in, helping you identify inefficiencies in your operations. From noticing overtime is too high to finding alternative suppliers, an outsourced accountant has the knowledge and expertise to not only generate financial statements, but also help you decipher them.
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Establishing Competitive Pricing that Meets Profit Objectives through Outsourced Accounting
The pricing structure in your construction business relies heavily on raw materials and direct labor costs. Movements in these factors will impact your pricing and profitability, making them important to closely monitor. For example, what is the impact on your profit when you give all employees a $1 raise? How about the impact on your financials when lumber goes up 20%? The recent pandemic was eye-opening for many construction businesses that faced both material and labor volatility.
Navigating changes that have a direct impact on your profit margins is crucial. This could be tracking direct labor costs, managing shifts in customer demand, evaluating new product and service offerings, and analyzing raw material costs. Having an outsourced staff member who is well-versed in analysis helps you set competitive pricing while still meeting your profit objectives.
Discover more: Leveraging outsourcing as a competitive advantage
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Maximizing WIP and Deferred Revenue Compliance
Under Generally Accepted Accounting Principles (GAAP), construction businesses aren’t allowed to report all revenue and expenses once they clear the bank. Instead, there are two principles at play: the matching principle and revenue recognition. The matching principle states that expenses must be reported in the same period as revenue generated from the cost. For example, you can’t deduct raw materials on a project until you receive the corresponding revenue.
Revenue recognition rules are more difficult to track under ASC 606, which requires revenue recognition based on contractual obligations. Failure to abide by these regulations could result in inaccurate financial statements and tax returns that regulatory agencies rely on, leading to fines and penalties.
Outsourced construction accountants stay up to date on the latest legislation impacting your company, serving as your advisor and internal compliance officer. By evaluating expenses and revenue and creating applicable adjusting entries, you can maximize your compliance with regulatory agencies.
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Submitting Tax Returns on Time
If you’re like most business owners, you dread tax time. From closing out the books to figuring out how to lower your tax bill, tax time can be stressful for construction business owners. This isn’t the case when you have an outsourced accounting expert working alongside you. Your outsourced professional will update your accounting records, make the necessary year-end adjustments, and find ways to save your business money.
For example, maybe your accountant projects that your business will have a high taxable income, giving you the go-ahead to purchase machinery before year-end or you find invoices that you can accrue to take an upfront deduction. Whatever the case, having someone who understands your operations and can find ways to save you money is crucial. Not to mention the increased compliance surrounding tax time deadlines, like 1099s and W-2s.
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Unlocking Growth Strategies with Outsourced Accounting
Growing a business isn’t always easy, especially with high competition levels in the construction industry. Discovering the best ways for your business to grow can be done with the expertise of an outsourced construction accountant. What types of services are performing the best? Is your business seeing more demand from commercial or residential construction? Are there government contracts you can bid on? What resources are needed to grow?
These are all questions that an outsourced team of experts can help you answer with data from your accounting system. For example, if you want to determine which revenue streams are most profitable, you could pull a profit and loss statement by revenue class. This information helps you determine where to devote more resources and which revenue streams might need to be discontinued.
Summary
These ten pain points are common in the construction industry. Do you have any firsthand experience dealing with these items? If so, finding the right outsourcing partner is important. With a dedicated construction accountant on your team, you unlock valuable insights, make data-driven decisions, and free up time in your schedule.
When sourcing an accountant or finance professional, there are a few factors to keep in mind. For one, your outsourced accounting professional should have a deep understanding of the construction industry, with applicable references. In addition, your outsourced accountant should offer the services you need completed. For example, not all accountants will provide tax services.
If you’re ready to get started on outsourcing your accounting and finance, contact our team today to schedule your free consultation. We want to be your trusted expert, helping you take back your time while still prioritizing your financial goals.
