4 Strategies for Plugging Leaky Profits in Construction

Written and Provided by Sage Intacct

The secret to success is to boost your profits by having visibility across your entire business. Here’s four ways to do just that.

You work hard to stay on top of your construction business finances. But there’s a good chance you’re leaving money on the table through “leaky profits”, which you don’t always spot on a balance sheet.

The secret to success is to boost your profits by having visibility across the entire business. Not sure where to begin? Make your business more profitable by taking these 4 steps:

1. Run your business more efficiently

2. Reap the benefits of automation

3. Create impactful reports

4. Give accurate estimates

Let’s take a closer look at how spending more time on these areas can help stop profit leaks.

1. Run your business more efficiently

No matter how efficient your business, there is almost always room for improvement. Measure efficiency through key performance indicators (KPIs) to keep on top of performance.

KPIs measure, monitor and manage progress by using high-level benchmarks basd on specific predefined measures. Use KPIs as yardsticks to evaluate how things are going, spot red flags, and act decisively.

Client demands drive your most important project KPIs if you’re a contractor. At any given time, you should know whether your project is on schedule and on budget, and if it is being performed accurately and safely.

Indicators you should track include:

Liquidity

Do you know how much cash you have available? You should be able to drill down to the project level to determine which projects provide liquidity and which are draining your business.

Work backlog

Keep tabs on your backlogged work so you can estimate future cash flow and adjust your business plans accordingly.

Labour productivity

Labour productivity can greatly impact your profits. Know where teams are tracking on three essential components: budgeted hours, hours worked, and percentage of work completed.

Stick to your work schedule

Know where you’re tracking along your schedule – the list of works required for your project – so you can adjust for delays and unforseen events.

Stay within budget

Monitoring costs in real-time will help you quickly identify any budget issues and catch them if they fall outside expected variances.

Change requests

Proactively track, document, and negotiate payment for all unplanned work and expenses to avoid changes that cause profit loss.

Project cash flow

Identify project execution successes and failures to know which types are consuming cash and which are generating it.

Committed cost indicator

Your suppliers and subcontractors must be contractually committed to your projects to protect you from unnecessary risk.

2. Reap the benefits of automation

It can seem daunting to keep track of everything. The good news is that you don’t have to do it alone. Automation can give you 100% visibility into all cash going out and coming in, immediately alerting you of any issues.

Automation also streamlines essential finance functions such as payroll, expense management, bank reconciliation, accounts payable, accounts receivable, and compliance.

Imagine you’re looking for specific information through a traditional report or spreadsheet. By the time you’ve finished monitoring, filtering and searching, there’s a good chance what you find will no longer be relevant.

Software with an alert that monitors your data provides immediately actionable information.

When one of your tracked events occurs – like a late invoice – the system triggers an email, desktop message or text message notifying you of the issue so you can take immediate action.

Then you can follow up and correct the cause of any issues before they trim your profits.

3. Create impactful reports

It’s critical to assess if your reports are regularly working. Are they providing the right information at the right time, and are people using them to innovate the next steps for your business?

If you’re not sure, ask. Incomplete or outdated reports lead to confusion and stagnation. Take feedback and adjust the content, formatting, or frequency as needed so your employees have clear insight.

Reports and automated alerts are more efective when paired with a dashboard which displays your metrics, KPIs and other vital information in one place. This gives you a quick and easily digestible visual data snapshot.

Viewing data in real-time immediately highlights critical project and accounting details. You’ll always know where your business stands, and you can be confident that the information is accurate.

In addition to speed and accuracy, dashboards can be customized and configured to present data based on users’ roles. They let you drill down to gather more details and context on a particular data point. Anyone you give permission to can generate a report if you have self-service capabilities. Get access to information immediately when you or your team needs it so that you can make decisions based on the best available information.

4. Give accurate estimates

One of the most difficult jobs in construction, and most important – quick and accurate estimates help you win the right work at the right price. While one bad estimate may not break your business, your profits will quickly drain if you continue to take on unprofitable work.

Be strategic about bidding. Too many businesses treat it as a numbers game and bid on as many jobs as possible to win more work but allocating resources to bids you cannot win will eat into your profits.

Focus on quality over quantity. Do you know what types of projects are most profitable for your business? Bid smart to get the projects most beneficial to you that fit your business strengths and profit goals. Be sure to know the rate at which you successfully bid on projects and track it over time.

Technology can help increase the speed and accuracy of your bids. Using financial and project management solutions can give you a better understanding of your true project costs. You won’t just win the work, but you’ll know that the price of your bid will contribute to a comfortable profit margin.

Shore up your construction finances strategically

Take the time to assess how your business can improve in the four areas we’ve outlined –efficiency, automation, reporting and estimates. You can’t foresee every problem. But the more insight you have, the better you are prepared to handle challenges as they arise. Making the right change now can help minimize profit leaks and set your business up for a more prosperous future.

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