Tracking your expenses: the true cost of construction
One of the most important things you should do to ensure your construction business remains in good shape as it grows, is to keep track of how much you spend on a project-by-project basis. Of course, there comes a point when you simply cannot manage all of the paperwork yourself accurately without finding yourself swimming in spreadsheets. With so many areas of the business to keep track of, things can become confusing, not to mention time-consuming; when there’s money at stake, it pays to know what’s going on.
Your accounting software should help you to manage your finances and accounts, storing important information in one, easily accessible place. But, no matter how smart and capable your software might be, you should be aware of the true costs of your construction business too. In order to ensure your business is successful and profitable you must be aware of the impact of each of the following for each project or job you’re involved in:
- Overhead and fixed costs
- Job costs and time/costs to complete
- Equity and working capital
- Labour and equipment costs
- Company and job profit
- Cash and cash-flow
- Account receivable and payable.
If you lose track of these expenses you could not only end up running your business into the ground, but might find yourself in a great deal of debt too. Are you certain your system tracks each of these aspects for every project?
All costs associated with completing jobs, for example materials used, labour, plant and subcontractor changes. As each construction job can differ from the next, it is likely your estimated expenses will differ from your actual expenses, so keeping on top of these costs is vital to knowing exactly how much you’re spending or losing.
Overhead includes any home office expenses, general and administrative costs such as utilities, sales, legal staff and company management. This is your fixed cost of doing day to day business without any projects under construction.
The equity of your business is your total capital, retained earnings, net worth or the money invested in your company. You should always know how much your company could be worth to know how much you should sell your services for.
Your working capital is the sum of your short-term assets. Everything you can sell and collect in thirty days, not including buildings, equipment or retention – basically, your working capital is anything that can be turned quickly into cash.
Being aware of the above costs and worth of your business are vital to growth and success as they will enable you to stay abreast of your progress and set future financial goals, as well as recognise the areas where improvement might be needed.
Integrity Software's accounting software is designed to help you better manage your construction accounts so that when you need access to important financial information, you are able to access it instantly. Our software will also create detailed reports so that you don’t have to, will keep on top of your payroll, applications and retentions and much more besides, so that you can concentrate on developing a professional, profitable business instead.
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