Construction can be a great business. The market has been non-stop even through two years of a pandemic and only shows continued growth ahead. Few things can be better than delighted customers and steady growth, and your business can continue to do both with excellent financial management. While the construction business can be fantastic, it is also very complex to manage financially, especially during growth.
A fractional CFO is a great asset to a growing construction company that doesn’t need a full-time CFO but needs access to a high level of expertise. Here are five ways a fractional CFO can transform your growing construction business:
Manage and Predict Cash Flow
Even the most profitable construction company in all of history can’t survive if cash flow isn’t fast enough to cover payroll, materials, and fixed expenses. Not to mention, owners usually like to pay themselves as well. The surest way to end a company is to pay Net 30 and get paid Net 60.
A fractional CFO will analyze current cash flow trends, the historical pace of money going out and coming in, and make recommendations on how to best balance outgoing and incoming cash. Your fractional CFO will also identify pain points in your current cash flow situation and where to focus, or whom to focus on, to accelerate cash flow.
Cash flow in construction businesses is challenging as the business deals in labor, materials, and supplies that are all paid for at different times while serving customers that either pay the majority of their bill at job completion or on payment terms. Few industries have as much complexity in their cash flow analysis as construction and a fractional CFO is the best way to manage that complexity.
One issue for many construction company owners is that they know what their costs are but not necessarily where their costs need to be. Industry standards exist for companies to measure themselves against and try to exceed. Those standards will quantify everything from labor to materials and fixed costs like management employees and office space.
A fractional CFO that is familiar with the construction industry will know exactly where your business is in relation to other best-in-class companies and tell you how to get there as well. A CFO specializing in the construction business can even look at materials costs and tell you if your waste percentage is too high or if there is potential shrinkage due to a dishonest employee.
Knowing your spending compared to others is invaluable information that results in more success when acted on appropriately.
Properly Format Your Financial Statements
It might sound silly that it could take a CFO to make sure financial statements are readable, but few things are more crucial than having financial statements that give you the information you need when you need it. A pro knows what your financial statements need to tell you and what numbers and items to break out. Your fractional CFO will even teach you what to look for in your financial statements.
Identify Problems and Opportunities, Fast
Experienced CFOs can scan several months or quarters of financial statements and see potential problems or opportunities at a high level within a matter of minutes. From there, the company can start to drill down and see what’s happening. CFO’s don’t just analyze how things have gone but identify problems and opportunities ahead. Fractional CFO’s specializing in construction can often spot coming pain points before any other indication of what is to come.
Help You Know What You Do Well (and what you don’t)
Business owners often make the mistake of looking at their overall performance but not drilling down into specific jobs. A fractional CFO will drill down with you and identify successful projects and those that were not so successful. From there, you can analyze the differences and figure out where your company excels and where it needs some focus.
Looking through past work and individual job performance might even create insights into a more profitable direction to take the company, offloading less profitable work in favor of what you do best.
Those are just five things out of a list that goes on and on. If one thing should stick out as the benefit of having a fractional CFO, it’s the genuinely holistic view taken of your company. Looking at each piece relative to the whole creates invaluable insights about your business. Equipped with that knowledge, your company can continue to grow, become more profitable, and keep delighting customers.