Top Tips For Construction Professionals To Manage Their Accounts
Prakash Bajaj is the CEO of Computer Help, Mumbai. He earned his Master’s in Structural Engineering from the University of Michigan (Ann Arbor, USA). Having wide experience of more than four decades as a renowned structural engineer, he is a master mind behind the development of software for structural design & drawings like “Draftwin”, “Planwin” etc. With his rich experience, he mentors the editorial team apart from being a core member of Editorial team at GharPedia. Mr. Bajaj is also a renowned trainer recognised all over India for structural design software like StaddPro, ETabs, Safe, Revit etc. He is co-founder of 1mnt.in the first in Industry software for contractors’ billing.
A day in a construction professional’s life is a busy one. They’re up early to sort through some paperwork and answer emails before heading to the construction job site. From there, their day is going to be full of reviewing the progress of their project, meeting with subcontractors, and making sure that everything is on track, and most importantly, on budget.
However, budget management is only one part of the equation. Construction professionals have to think about a lot of financial factors. You’ve got the billing, cost of labor, and production, among others. And since their work is project-based, things are always going to change.
That’s why construction professionals like you must know how to manage their accounts properly. Are you not sure where to begin? Below are the top tips for you to ponder.
01. Leverage Construction Accounting Software
As a construction professional, having a pulse on the finances of your business is imperative, but you don’t have to handle everything alone.
You can set yourself up with an accounting software solution if you want to succeed in your account’s management efforts. The right automated construction accounting software won’t only keep your data clean but also help you as you keep track of all the moving parts.
An accounting software solution for construction businesses can manage your day-to-day accounts, take care of your invoices, billing, and any other expenses. It gives you the chance to stay on top of your accounts receivable and accounts payable while giving you complete visibility into essential reports like cash flow statements, as well as profit and loss.
Most importantly, construction accounting software generates reports in real-time, which means that you can track all your existing projects every day effortlessly. That way, it’s going to be easy for you to pull insights to better track progress and identify opportunities. The quickest way for your construction business to elevate to the next level is to automate accounts management basics and beyond.
02. Keep A Separate Business Bank Account
Mixing personal money with business finances is the best recipe for tax-headaches and unexplained losses. You have to keep the money of your business separate so that you can gauge profitability and keep proper track of all your expenses easily.
03. Use Clear Tax Strategies
An additional stress layer to the management of your accounts are the taxes. Ideally, you have to determine a tax strategy that best fits your business first before doing anything. This is because individual construction projects span months or years, and you know that the revenue won’t always be consistent.
A completion percentage approach is what most construction professionals use. Expenses and income get reported in the same year they occur to make avoiding significant tax changes easy. You can also give the completed contract approach a try when it comes to tax reporting. This method will recognize all the profit and revenue associated with a specific project only once the contract gets fulfilled. While many construction professionals find that it will open up their businesses to risks, which include additional tax burden, it might actually work for you. What’s most important is you find a strategy, observe how it works, and stick to it if you think it fits your needs.
04. Understand Your Construction Contracts
It’s also essential to know and understand how the contracts are written. It’s especially important when it comes to dates for payment submissions. How long is the billing process of your business? In the construction industry, thirty to sixty days is relatively the standard and should mean that cash will come in regularly. But you need to make sure that you’ll bill at the correct time and submit proper documentation. If you miss the submission dates, it’s likely that you’ll have to wait until the next scheduled payment day, thus, causing cash flow to get carried for the next month.
Mobilization costs are another essential aspect of your contract. Will you try to recoup the costs at the end of the project or through out the project? Or you’re going to charge your clients for the time it will take you to set one up? Charging up front for mobilization costs is an excellent way of ensuring cash flow.
05. Watch The Distributions
A lot of construction professionals make the common mistake of paying out a massive percentage of their profits through distributions instead of allowing the cash to accumulate in their business bank accounts. Yes, owners should get paid a fair wage and take money out that they can use to account for tax estimates. However, problems arise when excess distributions get taken out, decreasing the cash value of the business as well as its bonding capacity.
06. Project Future Cash Flow
Projecting cash flow is indeed a bit more complicated for you as a construction professional than it is with other business people because of change orders on existing projects and their varying degrees. That’s another reason why you have to take advantage of a construction accounting software solution to manage cash flow more effectively. It will allow you to gain a concrete idea about the income and expenses that your business should expect in the future. Of course, proper anticipation of these events and planning helps prevent payment problems.
07. Spread Out Costs
Unless you’re going to receive a steep discount, you should use financing to purchase materials and supplies. Despite coming with interest, such a move spreads out the required payments, leaving more cash in your business for operations.
08. Send Automated Invoices Immediately
Make sure that all invoices get automated and sent immediately. You’ve got to submit your invoices ahead of time if you want to maximize the cash flow potential of your construction business.
09. Accept Electronic Payments
Receiving money faster means increasing cash flow and you can achieve that by accepting electronic payments. It will allow for more capital for your business that you can use for daily operations and payables.
It’s essential to note that your construction business operates differently when compared to most other companies out there. It’s simply because no construction project is the same. That said, proper management of your accounts is crucial to prevent your business from operating at a loss, and eventually going down. The tips mentioned and discussed above should help you stay on top of your finances.
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