Compliance and Private vs Public Construction Jobs

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Understanding the complexities of private and public construction jobs is crucial for contractors, as Zak Krauss and Brandon Manning explain in their insightful discussion. Public projects, in particular, bring a unique set of challenges and financial considerations, chiefly due to prevailing wage regulations and union interactions.

Prevailing Wage

Prevailing wages significantly impact the bidding and financial planning of public jobs. “You need to understand the prevailing wages for different roles to ensure profitability,” says Krauss. These wages, often set by unions or by law for public projects, can inflate labor costs considerably. Therefore, accurate cost forecasting during the bidding process is essential to absorb these additional expenses without compromising profit margins.

Subcontractor Compliance

For subcontractors, the meticulous tracking of labor costs and compliance with prevailing wage laws is non-negotiable. Manning emphasizes the importance of timely reporting: “If you’re not reporting on time, you’re not getting paid.” This can lead to a cascade of financial setbacks, from delayed payments to an inability to pay workers, culminating in a detrimental cash flow impact.

A Robust Strategy

Both general contractors and subcontractors must approach public projects with robust processes and compliance strategies in place. “Don’t start a prevailing wage job without advice or experience,” Manning cautions, highlighting the risk of trying to retroactively address compliance issues.

A Compliance Officer

Krauss and Manning also touch on the role of a compliance officer, whose importance rivals that of the financial team. A dedicated compliance professional ensures that all paperwork and project-specific requirements are in order, safeguarding the company from potential financial and legal pitfalls.

Their video, “Private vs. Public Construction Jobs: Mastering Prevailing Wage Compliance,” serves as an essential guide for construction professionals venturing into the realm of public works. It underscores the need for a proactive, informed approach to manage the financial intricacies of prevailing wages and union requirements effectively.

For more insights and strategies on prevailing wage compliance and financial management in construction, turn to the expertise of Zak Krauss and Brandon Manning. Their advice could be the difference between a profitable project and a financial misstep.

Estimating Costs for Construction Businesses: Knowledge is Power

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The Importance of Work-In-Progress Reporting

 

Join Zak Krauss and Brandon Manning as they explore the intricacies of estimating costs for construction businesses. Their main focus is the importance of work-in-progress (WIP) reporting.

Any seasoned construction business owner will tell you that understanding project budgets and estimated cost of completion is crucial. It’s more than just numbers; it determines the success of a construction project. When managing the process of estimating, a business owner has to address costs, contingencies, and change orders which can shift at a moment’s notice. It is imperative for construction businesses to be both agile and informed.

This is where WIP reporting comes into play.

WIP reporting provides a comprehensive understanding of what the final cost of a project will be. This includes all the change orders, the gains or shortfalls in estimating, and the remaining contingencies as the project moves closer to the finish line. WIP reporting is not just a tool for retrospective analysis. It’s forward-looking. With the insights drawn from this reporting method, businesses can make strategic adjustments, refining their estimating processes. It’s about learning from past projects and making informed decisions for the future. After all, every construction project is an opportunity to improve efficiency, and accuracy, and create better forecasting.

For construction businesses to thrive, they need more than just skilled labor and quality materials. They need the power of data and insights from tools like WIP reporting. As Krauss and Manning highlight, understanding your numbers today will set the stage for improved estimating and project management tomorrow.

Reach out to Zak and Brandon to see how the team at Signature Analytics can help your construction business to improve profitability and streamline operations through outsourced accounting and CFO business advisory services. 

Case Story: How Knowing Your Margins Can Transform Your Business

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When it comes to construction businesses, precision in understanding your financials is not just helpful – it’s critical for survival and growth. This truth is vividly illustrated in a case story that Zak Krauss and Brandon Manning explore, demonstrating the powerful impact of knowing your margins.

The Backstory – Bidding Everything

A particular client, engaged in construction, took the approach of bidding on projects of all sizes, from the minuscule $5,000 jobs to the massive $3 million endeavors. However, a deep dive into the company’s financials revealed a startling pattern: the company was consistently losing money on projects below a specific financial threshold. Brandon Manning shares, “He wasn’t set up for efficiency in the smaller jobs, so every time he took on projects under a hundred thousand dollars, he was destined to lose.”

This was a revelation that shifted the entire strategy of the business. The larger projects had enough buffer to incorporate a higher profit margin, giving the company the wiggle room it needed to cover for inefficiencies and unexpected costs. On the contrary, the smaller projects were a drain, eroding the company’s profits.

Manager is using a laptop computer while analyzing the company's financial statements on the screen.

The A-Ha Moment and a Shift in Strategy

Brandon Manning reflects on the turning point: “Once we pinpointed the profitability tipping point, we advised the client to adjust their bidding strategy accordingly.” This strategic shift led to the client moving from a perilous financial position to a state of robust profitability.

The lesson here is clear: understanding which projects to pursue and which to pass can make all the difference. It’s not just about winning bids; it’s about winning the right bids that will add to your bottom line.

If you’re in the construction business, taking a closer look at your project margins might just reveal similar opportunities for a financial turnaround. It’s not about the volume of work; it’s about the value of work. Knowing where you make money and where you don’t is essential to making strategic decisions that will lead to sustainable growth and success.

Taking These Lessons and Applying Them to Your Own Company

This case story is a testament to how essential financial insights and analysis are in steering a construction company toward profitability. It’s a lesson many in the industry could stand to benefit from, and it underscores the importance of not just knowing your numbers, but understanding what they mean for your business’s future.

To get the full scope of how this client transformed their financial trajectory by understanding their margins, watch our discussion in the embedded video. It’s more than just a story; it’s a potential roadmap to your company’s success.

Keeping the Lights on: Construction Overhead Cost Management

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In the construction business, the phrase “keeping the lights on” takes on a literal and figurative significance. Cash flow management extends beyond the individual project budgets—it’s the lifeblood of your entire operation. As Zak Krauss and Brandon Manning outline, it’s not just about ensuring there’s enough money to cover project costs; it’s about the overall financial health of your business, which includes the crucial overhead costs.

Overhead Costs and Retainage’s Impact on Cash Flow

Overhead costs encompass all the necessary expenses required to run your company, such as office rent, utility bills, administrative staff salaries, and their benefits. These costs don’t pause or fluctuate based on project success; they’re constant, demanding a steady cash flow to keep the business functional.

One aspect that’s often overlooked is the impact of retainers or retainage on cash flow. Contractors typically don’t receive the final 10% of a project’s payment until after completion, sometimes longer. Can your business sustain its overhead and continue to finance project costs while waiting for this final payment?

Robbing Peter to Pay Paul

Mismanagement of cash flow can lead a business into a perilous cycle. Utilizing profits or cash from ongoing projects to fund the completion of others, often referred to as “robbing Peter to pay Paul,” can create a snowball effect of financial stress. This is a precarious situation where a business finds itself constantly trying to catch up, a cycle that can rapidly escalate into a crisis if not managed correctly.

Proactive Cash Flow Planning

Effective overhead cost management in construction requires a robust understanding of your business’s financial landscape and proactive planning. It’s about having a clear view of your cash flow to cover both the project expenses and the ongoing costs of operating your business. This ensures that you’re not caught off guard by retainers or delayed payments, maintaining financial stability.

Understanding the nuances of cash flow, from project funding to overhead expenses, is vital. It allows for strategic decision-making that can keep your company from falling into risky financial patterns. By prioritizing cash flow management, construction business owners can secure their operations’ foundation, keeping those lights on and doors open for continued success and growth.

Managing Contingencies and Change Orders in Construction

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For project managers in the construction industry, making informed decisions is crucial, particularly when it involves financials and maintaining healthy subcontractor relationships. Brandon Manning and Zak Krauss dive into the nuances of managing project contingencies and the delicate balance of handling change orders.

Managing for the Long Game

Understanding the current financial standing of a project, including the remaining contingency, is essential for project managers. It can dictate whether it’s time to tighten up on subcontractors or if there’s wiggle room for flexibility. While the goal is to control change orders and match them with the owner’s approvals, there are times when maintaining a good relationship with a subcontractor may take precedence. “It’s about the long game,” Manning says, emphasizing the importance of relationships in construction projects.

Profitability Impacts

Change orders have a deep impact on a project’s profitability. Granting concessions to a subcontractor might mean digging into the projected profit margins. For example, a seemingly small change order can reduce a projected 30% margin down to 25%. This is why understanding the financial implications of every decision on-site is critical.

The Balance with Subcontractors

Striking the right balance between financial prudence and strategic relationship management is essential to both profitability and relationship building in the industry. Project managers must be well-versed in the project’s financial standing at every stage to make decisions that benefit both the current project and future collaborations.

For construction businesses seeking to optimize their project management strategies and maintain profitability, managing contingencies and navigating the complexities of change orders helps to preserve crucial subcontractor relationships and your bottom line.

Choosing the Right Accounting Technology for Construction Companies

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For construction companies, efficient operations, and accurate financial reporting are vital to success. In this video, Zak Krauss and Brandon Manning, construction specialists at Signature Analytics, discuss how to choose the right ERP, what to look for, and what to expect. Step one is to assess company processes and technological needs.

A top-notch construction ERP should be tailored primarily for construction operations, not just accounting. The ideal ERP is about what works best for the construction team, ensuring smooth data flow from the field to finance.

“You really want to see what is the best thing for that operations team and what fits their processes best so that information flows to accounting in a good way. But you want to look for a construction ERP that does accounting well rather than an accounting system that does construction well.”

While accounting is crucial, the primary goal is to select an ERP that aligns with the construction team’s needs. The right ERP system can streamline operations, enhance financial reporting, and ultimately drive business success.

Want to see how an outsourced accounting team from Signature Analytics can help you improve profitability and make smarter business decisions? Reach out to Zak and Brandon and start the conversation. 

How to Master Information Sprawl in Construction Accounting

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In the world of construction accounting, managing the sprawl of information can be a daunting task. Zak Krauss and Brandon Manning are familiar with the scenario: all the pieces of financial and operational management are scattered, timecard systems are isolated, project management lives on an island, while purchase orders and job estimates are completely siloed. This fragmented landscape of data and processes can feel overwhelming, making it challenging to grasp the complete financial picture of your construction projects.

The Value of an ERP

The introduction of Construction ERPs (Enterprise Resource Planning systems) has been a game-changer in addressing information sprawl. Yet, as Krauss and Manning highlight, the value of an ERP system is directly tied to the effort and information you invest into it. Implementing an ERP system is more than an accounting upgrade—it’s a full-scale operational commitment requiring the engagement of the entire team, from accounting and administration to project managers and senior leadership.

 

Adopting an ERP system is not merely for the convenience of the accounting department; it’s a strategic move for the on-site teams. It empowers project managers and field staff with real-time insights, granting them a higher degree of control and ownership over their projects.

 

The success of integrating such a system lies in the details of process definition and the rigor of process mapping. Communicating these processes is crucial—not just to project managers, but all the way down the chain to the foremen and crew on the ground. Each team member’s buy-in is essential. They need to understand that accurate and efficient data input at the source is foundational for the entire system’s efficacy.

 

Good Data in Equals Good Reporting Out

Krauss and Manning stress the importance of accuracy from the get-go. Inaccuracies at the data entry point can ripple throughout the system, making it more challenging for project managers to manage their responsibilities effectively. Subsequently, this leads to the finance team grappling with unreliable data, complicating the analysis needed to build out crucial financial reports and job cost analyses.

Bringing Data Sources Together

To master information sprawl, Krauss and Manning suggest a holistic approach where every individual understands their role in the data ecosystem. From the moment information is captured in the field, through the various levels of review by project managers, all the way to the final financial analysis—each step must be meticulously planned and executed.

 

This concerted effort to streamline information flows and processes is not just about keeping numbers in check. It’s about enhancing the operational efficiency of the entire business, which in turn, drives better decision-making and, ultimately, the profitability of the business.

 

For construction companies ready to tackle information sprawl head-on, the message is clear: it takes a village, or in this case, the entire company, to realize the full benefits of an ERP system. With commitment and clear communication, construction businesses can leverage these powerful tools to gain a competitive edge through superior project management and financial insight.

Managing Cash Flow and Avoiding Surprises in Construction Projects

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Effective cash flow management is the backbone of a thriving construction company. Brandon Manning and Zak Krauss emphasize this in their discussion on navigating the complexities of financial planning in construction. With a myriad of costs from materials, subcontractors, and labor, to unexpected expenses, the ability to anticipate and manage these outflows is crucial.

Under vs Over-Billing

In an ideal scenario, billing ahead of work completion provides a buffer—an over-billing situation that makes cash flow easier to handle. However, this isn’t always possible. The agility to handle under-billing scenarios without compromising relationships with subcontractors and vendors is a skill that requires a deep understanding of cash flow tracking and management.

The Power of Cost Reporting Meetings

Establishing regular cost report meetings is a strategic approach to stay on top of every expense and phase of a project. Manning suggests monthly meetings involving project managers, senior project managers, and project accountants to discuss details down to specific phase codes—ranging from payroll to materials and potential change orders that aren’t yet documented. These gatherings are essential to understand the financial health of each project and to prevent cash flow surprises.

However, these meetings can be daunting. To mitigate the pain points, it’s important to maintain a rhythm—holding these meetings monthly to avoid playing catch-up with a backlog of data. Preparation is key. Ensuring that project management teams receive pertinent information ahead of time enables them to come prepared with insights and questions, fostering a more efficient and focused discussion.

Building a Culture of Consistent Financial Management

The goal is to cultivate a culture where project budgets are tracked consistently throughout the month, not just reviewed periodically. This vigilance allows for better control over the project numbers and the overall bottom line, safeguarding against any unpleasant financial surprises. Delay in this process equates to diminished control over your financials, leading to those surprises that, as Krauss notes, are “never in a good way.”

Through meticulous and regular financial oversight, construction companies can manage their cash flow effectively, making sure each project contributes positively to the company’s profitability, rather than becoming a liability. This disciplined approach is essential in managing the ebb and flow of cash and avoiding the pitfalls that can catch a business off guard.

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