Financial Strategies for Growing Contractors

Navigating the Complex World of Construction Finance: Insights for Growing Contractors - Part 1 of 2

Unlocking the Secrets to Financial Success and Stability in the Construction Industry

The construction industry, with its unique business dynamics and financial requirements, poses distinct challenges for contractors looking to grow their businesses. On the latest episode of the Pro-Accel Podcast, hosted by Jerry Aliberti, guest speaker Patrick Shurney, a seasoned business finance coach, dives deep into the common financial hurdles faced by growing contractors and offers actionable advice to overcome them.

Understanding Common Financial Pitfalls

Patrick opens the conversation by highlighting a frequent issue among contractors: the tendency to self-teach financial management without a formal background. This gap in professional accounting knowledge can lead to significant problems, such as inaccurate financial data and misplaced trust in underqualified bookkeepers. The first step towards resolution, Patrick suggests, is recognizing the need for professionally trained financial personnel who can provide accurate and timely data, vastly improving decision-making processes.

Transitioning From QuickBooks to Specialized Software

A significant focus of the discussion revolves around the limitations and capabilities of accounting software like QuickBooks. While sufficient for early stages of business, there comes a point, particularly as revenues exceed $20 million, where industry-specific software becomes necessary to handle complexities like union contracts and fringe benefits. Patrick encourages contractors to seek tailored accounting solutions early on to prevent financial mismanagement as the business scales.

The Disconnect Between Field Data and Financial Reports

A critical pain point discussed is the disconnect between on-site job data and its reflection in financial accounting systems. Contractors often excel in tracking onsite expenses and project costs but fail to integrate this data accurately with their accounting systems, leading to unexpected financial discrepancies. Patrick emphasizes the importance of syncing industry-specific reports, such as Work in Progress (WIP) and backlog reports, with the accounting system to avoid issues like overstated profits or unforeseen tax liabilities.

Managing Cash Flow vs. Profit

One of the most enlightening parts of the episode deals with the difference between profit and cash flow, a common source of confusion for many growing contractors. Patrick explains that while profit appears on the profit and loss statement and reflects earnings, cash flow is what determines the business’s actual liquidity and ability to sustain operations. Discussing strategies to maintain healthy cash flow, he advises closely monitoring the business’s equity on the balance sheet and considering external funding to cover shortfalls during growth periods.

Strategizing Financial Growth

Addressing the challenge of financial planning, Patrick advocates for a proactive approach, encouraging contractors to create detailed financial forecasts akin to project estimates. By forecasting, businesses can set realistic financial targets and align their business strategies accordingly, rather than hoping for favorable outcomes. This planning is particularly vital during rapid growth phases when businesses are susceptible to becoming cash-strapped despite appearing profitable on paper.

Incorporating Salaries and Distributions

Lastly, Shurney tackles the common issue of contractors not paying themselves competitive salaries. He argues against the notion of sacrificing personal compensation to reinvest in the business, suggesting instead a structured salary combined with quarterly distributions. By setting a professional standard for compensation, business owners can ensure personal financial stability while setting a precedent for the business’s financial management.

The insights shared by Patrick Shurney highlight the necessity for construction business owners to adopt sophisticated financial strategies and recognize the importance of integrating professional accounting practices into their operations. As they navigate the complex landscape of the construction industry, focusing on robust financial planning and management will pave the way for sustained growth and success.

To learn more about how Pro-Accel can help you increase cash flow and maximize production check out our Operations Performance Page. You can also set up a Free Consultation by emailing Jerry Aliberti at jerry@pro-accel.com or clicking the blue link below and setting up a call.

You can reach Patrick Shurney at patrick@3pcllc.com or 443.539.6276 or www.3pcllc.com