Accurate accounting measures such as cash flow, inventory turnover, and gross profit margins are key to any business’s financial success. But the transient and unpredictable nature of construction makes accounting visibility indispensable. With each new project, contractors deal with novel and unexpected conditions that impact finances. For example, each job has:
- Different risk and safety conditions to account for
- The possibility of subcontractors missing completion deadlines, pushing back planned work schedules
- The chance that poor weather condition will delay work
- The possibility that materials will arrive late, damaged, or out of spec.
These are just a few of the factors that can throw off estimates for required personnel, work hours, materials needed, and the timeline for completion, making it necessary to update finance metrics on a day-to-day basis to reflect real-time realities of a project.
Construction accounting is more complex than other business verticals, and the stakes are higher. To overcome the challenges inherent to the industry and remain profitable, contractors need strong accounting practices and digital tools to support strong financial management. This includes better processes to allocate expenses, manage invoicing and cash flow, and an understanding of break-even points.