John Kenney, CPRC, CEO, Cotney Consulting Group
Last month, in part one of my article, Financial Management for Your Roofing Business, we focused on financial management as a whole and what makes the roofing and construction industry financial management unique to other sectors of businesses.
Roofing companies are different from most other companies. Because of this, the principles of financial management applied in other businesses must be modified for roofing companies or they will not function well. Our industry has specific challenges and problems not faced by other sectors. In this article, we will explain the four areas of responsibility in financial management.
Accounting for Financial Resources
As a financial manager, you are responsible for tracking (accounting for) how the company’s financial resources are used, which include:
■ Project and general overhead costs are accurately tracked through the accounting system.
■ Ensure that proper construction accounting methods and systems have been set up and are functioning correctly.
■ Project cost completions for the individual projects and ensure that unbilled committed costs – costs the company has committed to pay but has not received a bill for – are included in these projections.
■ Determine whether the individual projects are over or underbilled.
■ Prepare all required financial statements.
■ Review the financial statements to ensure that the company’s financial structure is aligned with industry standards.
Because of the unique characteristics of construction and roofing companies, some key differences exist between our industry’s accounting systems and financial statements for other industries. Before you can understand how to read a roofing company’s financial statements or how these costs are tracked and managed, the financial manager must understand how construction accounting systems operate. Financial managers must review the accounting reports
for errors, including improperly billed or omitted costs, to ensure that the necessary corrections are made.
Analysis of financial statements will help the financial manager and the owner identify problems before they become a crisis. A crisis, such as realizing that your company will not be able to pay its bills in the upcoming months, can be life-threatening to your company.
Managing Costs and Profits
Financial managers are responsible for managing the company’s costs and earning a profit for the stakeholders. They rely heavily on the reports from the accounting system to manage these costs. Managing the company’s expenses and profits include the following duties:
■ Controlling project costs.
■ Monitoring project and company profitability.
■ Setting labor burden markups.
■ Developing and tracking general overhead budgets.
■ Determining the minimum profit margin for use in estimating.
■ Analyzing your company’s profitability and making the necessary changes to improve profitability.
■ Monitoring the profitability of different customers and recommending modifications required to improve profitability.
Financial managers need specific skills to determine project success and to identify problem areas. They then can provide accurate information to the Project Manager, Superintendent or other stakeholders who need to know how their projects are doing. Read more.