Financial systems help owners make key decisions about the company. To provide an accurate picture, the financial system should include these items:

  • Budget and financial plan
  • Organized filing system
  • Detailed time sheets
  • Detailed estimating system
  • Accurate job costing and job cost reports
  • Accurate profit and loss statement
  • Accurate balance sheet
  • An accountant that understands the construction business
  • Consultant Steve Maltzman says that a financial system without a plan is like a race without a finish line. “Having an understanding of where you want to go is critical for even a small remodeler. At a minimum, decide how much money you want to make, how many jobs you need to do that, and what your margin should be to make that goal,” he says.

    To track the plan, remodelers need to collect accurate information. Consultant Karen Mitchell of Online Accounting in Eagle, Idaho, says this begins with a good filing system. “You can't do job costing unless you have receipts. Most remodelers spend too much time trying to find the receipts. Spend the time upfront to organize,” she says, suggesting that remodelers ask field personnel to deliver receipts to the office each day to prevent misplacing them. “You can even have a filing bin in the truck.”

    The same applies to time sheets. “Give field personnel a place to mark the hours they work on each phase of a job,” Mitchell says.

    She also emphasizes a good estimating system. “It doesn't matter if you use a notepad, a spreadsheet, or an estimating program — just make sure to use the same category details and a consistent set of phases for the jobs,” she says.

    Reviewing Reports With these building blocks, remodelers can regularly review job costs and take corrective action on current jobs or create more accurate estimating for future jobs. They can also generate standard reports or create custom reports to track cash flow, leads, and future jobs. “The detail of the spreadsheets is a result of the remodelers knowledge of Excel and the time they take to be on top of their numbers,” Maltzman says.

    Treasurer Carolin Fast of MRF Construction, a $1.6 million company in Tacoma, Wash., created a revenue forecast spreadsheet that she consults monthly. She lists the jobs signed, the total dollar volume of the job, the revenue per month expected from the job, and the actual amount invoiced each month. She also has a space for the company's revenue goal for the year and a line for total signed for the year versus what the company has to sign to reach its goal. “I know how much we need to sell, produce, invoice, and collect to be on track,” Fast says. It reveals slippage as well.

    She also created a spreadsheet to track future jobs that includes the name of the client, the status (on hold, dead, permit issues, etc.), description of the job, estimated project value, and a rating of how likely it is that the job will move forward. “This helps me see how much revenue is headed our way and if we need to move a project through a design phase more quickly,” Fast says. Small companies especially should track this data. “For companies with just five jobs, if one job changes or is delayed, that has a much bigger impact on income,” Fast says.

    Maltzman points out that the financial system also provides tools to improve other systems within the company. “For example,” he says, “the data you collect is important for making decisions about marketing.”

    Mitchell says more sophisticated companies can compare yearly reports. “Take some time at the end-of-year to come up with goals, and write them down. Things get easier because you are being more proactive,” she says.