Contractors often wait too long to employ the business management expertise of a qualified Chief Financial Officer. Small and mid-size businesses across all industries have traditionally left accounting to a bookkeeper, hiring an outside accounting firm to close the books and prepare the financials. But the outside accounting firm has no role in the ongoing management of a growing company.
Not Just an Accountant
The CFO is often the most under-utilized asset on the roster. Your CFO is not just an accountant but an expert who specializes in two critical areas, finance and risk management. Contractors are expert builders but not necessarily expert business managers. They can’t be expected to recognize the financial complexity or the multi-layered financial risk factors unique to the construction industry or the need to hire an expert to handle these matters. Years of research have shown that: This under-utilization is a primary cause of contractor business failure!
Financial Management
Dennis Birsch, a well-respected construction accountant, argued that; Many US contractors are watchers instead of managers of their financial affairs…they do a lot of responding to things that happen to them but don’t have much control over what’s happening or going to happen because they don’t have the appropriate financial information in the right place at the right time. To manage financial affairs properly contractors must regularly analyze their historic financial data and gain a rearview perspective by carefully reading their financial statements. (The Business of Construction Contracting, Schleifer, Cohen, 2025, Wiley, p.36)
This is of course correct. It is optimistic to suggest that contractors will always have financial information in the right place at the right time or will be inclined to analyze their historic financial data. They need the expertise of a CFO more than any other industry I can think of. The complex financial processes in construction, coupled with the risky nature of the long, drawn-out transactions, scream for a risk manager’s careful attention.
Transactional Risk
The minute you sign a construction contract you’re betting that your organization can perform to specifications over a long period of time in a constantly fluctuating labor and material cost environment.
- You front all costs, relying on the owner to pay you in a timely and honorable manner while owners often take every opportunity to delay payment believing that delay is a form of discipline.
- You bet that your subcontractors will perform as agreed when you’re already concerned that one or more of them probably won’t.
- You’re betting that your bank and surety will back you up if you get in a tight spot, but you’re never sure.
- You believe your team will complete every project on time and budget, which is not always the case.
- You hope that they’ll be enough skilled tradespeople to complete the project within the schedule, while a shortage of skilled labor is a major risk factor.
Risk Management
Risk-taking contractors sign contracts believing that one way or another they will avoid the risks that they know are embedded in every agreement. Believing: “This time, if all goes well, we’ll dodge a bullet and make a few bucks.”
- The CFO risk manager, on the other hand, recognizes the complexity of risks embedded in every contract and recommends steps to mitigate them
- A risk manager not only recognizes the risk of an extended time frame but, like an insurance analyst, recommends pricing the risk factor into the bid.
- A risk manager does not rely on timely payment, but disciplines timely invoices and strives for payment according to contract terms.
- A risk manager recommends careful selection of subcontractors, penalties for nonperformance, and tracking everything along the way.
- A risk manager constantly evaluates the company’s performance capacity (skill, financial, labor) and recommends work that the company can complete on time and on budget.
- A risk manager negotiates in advance with the surety and bank to secure their commitment for the financial capacity to complete the contract.
- A risk manager recommends planning project staffing and not leaving labor capacity to chance.
Indispensable Expert
The professional CFO is both a finance and risk manager. Having a competent professional filling this position is an indispensable element of success. Without it your firm is in jeopardy. Stop what you’re doing and correct this risk.
For more information on chief financial officers, read more at: CHIEF
For a broader view of financial management & risk, read more at: RISK
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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.
