I have been waging a lifelong campaign to convince contractors that financial management is a professional skill and a critical component of their team. Our profits are limited by unique risk factors like multiple simultaneous projects, extended schedule, and risks of growth management. Like the Godfather, contractors need a trusted consigliere to keep an eye on their hidden risks. The consigliere is our Chief Financial Officer–the Tom Hagen of the Corleone family. Without a CFO’s counsel, we face hidden industry obstacles and issues alone.
A CFO Speaks
Matthew Ostrower, CFO of warehouse real estate giant Link Logistics, put it like this when asked what advice he would give aspiring CFOs:
“You need to understand finance. You need to understand accounting…But I would say there are two important things that do get neglected a lot. One is strategy and being able to be a strategic partner to the CEO, and a trusted advisor…Understand how finance fits into strategy, which means understanding how strategy works. Sometimes we view that as a soft skill. It turns out strategy is a real thing, and it can be learned…”
The CFO At Work
Let’s look at the extent of the CFO’s job as consigliere to the CEO.
- First, of course, there’s Accounting and Finance, implementing systems for accurate financial reporting and analysis.
- Cost control, ensuring cost tracking for each project to maintain profitability.
- Identifying or mitigating financial risks unique to the industry.
- Change order pricing templates that account for all cost and escalation.
- Cost analysis of bonding subcontractors.
- Delay impact modeling on project timelines and cash flow.
- Lien release tracking system to prevent payment disputes.
- Ensuring adherence to financial regulations and industry standards.
- Crafting long-term financial strategies to support company growth.
The professional construction CFO is also engaged in constant Cash Flow Management developing strategies to maintain healthy cash flow throughout project lifecycles by:
- Implementing a rolling cash flow forecast for each active project, updated weekly to spot potential cash crunches before they become emergencies.
- Keeping 3-6 months of operating expenses in reserve as working capital.
- Disciplining billing and payments in accordance with contract documents.
- Matching supplier payment terms to customer payment schedules.
- Maintaining and maximizing bonding capacity.
Beyond Bookkeeping
Consigliere CFOs are not simply bookkeepers. They develop and implement financial strategies aligned with the company’s short- and long-term goals while overseeing all accounting operations, job costing, revenue recognition, cash flow management, and risk management. They work closely with field management to ensure accurate financial tracking and work to implement financial technology solutions. Finally, a valuable construction consigliere prepares financial reports and analyses that communicate the company’s crucial financial profile to leadership, bankers, sureties, and all interested stakeholders.
Every Contractor Needs a Consigliere
A professional CFO does not come cheap. I recognize that many smaller contracting firms cannot afford a full-time CFO, however the accounting profession has recently evolved a position it calls a Fractional CFO. This is a part time financial troubleshooter brought in for monthly financial reviews, forecasting and strategy sessions, and occasional input for critical financial decision making.
Changing Beliefs
For years, I have been trying to convince contractors of the importance a financial professional to a growing construction firm. This week I am trying to describe the full scope of the CFO’s financial management skill set. I am also trying to warn of the financial complexity and high-risk profile that is the construction industry.
In our business profit can evaporate without us seeing it disappear. A specialist in finance is an essential top management team member for every contractor. Take the worry out of your daily life. Hire a CFO to be your Tom Hagen. Every Godfather needs a consigliere.
For more information on chief financial officers, read more at: CHIEF
For a broader view of financial management & risk, read more at: RISK
To receive the free weekly Construction Messages, ask questions, or make comments contact me at research@simplarfoundation.org.
Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.
