1) Not Matching Sales and Costs Correctly: In construction it is likely that you will have projects that span weeks, even months or years. If you are not allocating sales and costs in the correct periods that they relate to, your figures and margins will be inaccurate, and it will be hard to tell how the business is performing overall. For example, you may have all the costs of a project invoiced to you in August, if you finish the job 3rd September and raise your invoice on that date. August may show a loss, and September may show a large project, when really the sale needs matching to where the work was undertaken, which was mostly in August.
2) Not Tracking Work In Progress: In order to allocate sales and costs in the correct periods, you will need to keep track of how complete projects are, how much you have invoiced, how much cost you have incurred, how much is left to invoice, and how many costs you will still incur. If you have this data live, at the end of each week, or at least at the end of each month, then you can get very accurate data on how the business is performing month to month. Most importantly, you can stay on top of any issues arising, and reduce nasty surprises.
3) Don’t Account for Stock: Similar to the above, if you purchase materials on 28th August, and keep them on site, in a van or in a warehouse and don’t use them until the next month, or later, then those costs will be showing as incurred in the wrong month, and impact the accuracy of the reporting for that month. If you keep a live stock report, or at least monthly, this can be adjusted for.
4) Not Tracking Per Project: Most if not all accounting software allows you to allocate sales and costs, including materials, subcontractors and employed labour, to a specific project. You can then run reports on that project showing you its profitability and margins. Not tracking by project reduces the quality of the information available to you, and it will be hard to pick out why profits and margins are up or down when just looking at your accounts as a whole.
5) Lack of Technology: If you are using cloud accounting software, and embracing the technology that comes with it, then errors in your financial data will be greatly reduced. The latest tech encourages more accurate data entry, is easier to train on, and recurring and familiar entries can be automated.
Personally, working with customers in the construction industry, I have found that the first point above has the largest impact on accurate data and reporting.
Often I will see gross margins at 70% one month, then 6%, then 16%, then 33%, where the client will say that they are always working to margins of 20%.
Without the accurate data we can’t track how they are performing to their expectations, which makes decision making to improve the business much harder. We put in place the systems and processes to ensure accurate data is always available.