Contractors usually start out as closely held companies that grow their business gradually over time. Many have formal education as engineers or constructors, but rarely do they have any business education or experience. Their first bookkeeper is often their spouse or some other relative. Even when they eventually hire an accounting firm to prepare year end financials for banks and sureties or prepare their taxes, many consider these to be “bean counters” and limit them to back-room tasks like filing taxes and preparing financial statements or grinding out the payroll. Most “believe” that accountants know little about construction and rarely invite them into the ranks of “top management”.
Don’t Think Small Time
This has proven to be a grave oversight in the organizational development of construction companies. As contractors succeed and their companies grow into complex business organizations, they realize the need for professional accounting expertise. But even then, many “believe” their accounting firms or in-house accountants are just number crunchers (bean counters) and fail to recognize their expertise in business management. Too many contractors see running a business as “common sense”. They don’t recognize business management as a science, like engineering or architecture. Typically, contractors focus on construction operations and run the “business” almost as an afterthought using “street smarts” and common sense.
When Youâre in the Big Time
A unique feature of the construction industry, however, is that although it is made up of thousands of small businesses, many of these startups grow into large, highly complex business concerns. There are more than a million construction establishments in the U.S., employing 8 million people, and putting in place nearly $2.1 trillion worth of construction each year. Some of these establishments grew quite large. The largest construction companies in the US each produce billions of dollars of work annually. These are not small businesses and require an army of business professionals to guide them.
Bring in the Experts
The CFOs of huge construction companies are responsible for maintaining the company’s balance sheet, creating value for shareholders, providing strategic evaluations of growth opportunities, and building consistency, focus, and strengths within the finance organization. They are not âbean countersâ.
To Do the Job
As I go through the list of “beliefs” firmly held by contractors, the belief that accountants are “bean counters” seems to persist even to the present day. My research reveals that this simple but firmly held belief has caused accounting professionals to be dramatically under-utilized in the construction industry. A highly competent CFO can be the change agent when your company reaches a certain stage in its growth. The CFO is trained and experienced to help their company in many areas that most contractors and construction professionals have little or no formal education or experience in-such as:
- Planning and budgeting
- Estimating
- Evaluating company financial capacityÂ
- Cash flow management
- Banking and surety relations
- Expense control
- Relations with government agencies
- Evaluating company financial performance
- Recommending changes to company policies and procedures
- Billing and collection
When to Hire a CFO
- When you are a sole practitioner driving around in a pickup with your tools in the back, you do not need the services of a CFO.Â
- When you have two jobs going in different stages of completion, and you have already tapped out your working capital line of credit for the year, it is time for the notion to dawn on you that you might need some help managing your growing business.
- When three jobs with three different owners are all slow paying and you’re stringing out your material suppliers for as long as you can to have enough cash to make payroll, it is already past the moment you should have hired a CFO to help you manage your business.
- When you wake up at night with the shocking realization that your last job lost money, and it is becoming clear that a current job is losing money and not able to take up the slack, it is past time to realize that you need expert help with financial management.
- When you visit your bank at the last minute and get turned down for an extension to your working capital line of credit, it is time to hire a CFO.
- When your surety limits your plans by being unwilling to back further growth, you know you should have hired a finance professional to deal with bonding a long time ago.
It is time for the construction industry to change its âbeliefâ about “bean counting”. Accounting and finance professionals are critical to the ongoing success of growing contractors and must be admitted with open arms to the halls of top management decision making.
Next week weâll look at another belief that vexes contractors.
For more information the role of a chief financial officer, read more at: CFO
For a broader view on financial management, read more here:Â MANAGEMENT
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Please circulate this widely. It will benefit your constituents. This research is continuous and includes new information weekly as it becomes available. Thank you.
