construction financial management boot camp

June 26, 2013June 26, 2013Presented by Rob Scherer Presented by Rob Scherer

Construction Financial ManagementConstruction Financial Management

““Boot Camp”Boot Camp”

Workshop #6Workshop #6

www.teamtag.net

TAG supports and strengthens your company’s accounting department and management with outsourced bookkeeping, controller, and CFO services.

Whether you are a CFO who could use a quality controller once a week, a controller who needs bookkeeping assistance, or an office manager looking for higher level finance and accounting oversight, TAG can fill the need.

From sales to implementation, training to consulting, TAG’s team of certified consultants work to improve your efficiency and reporting capabilities with the best accounting software for the building industry. TAG is an Authorized Reseller with a team of Certified Consultants for Sage Timberline Office, Sage Master Builder and Contractor V.

Beyond the Numbers…Beyond the Numbers…

TAG provides valued financial and business resources & counsel for companies and individuals on the move.

January 30, 2013 - Understanding Your Construction Financial Statements

February 27, 2013 - Job Costing & Accounting

March 27, 2013 – Banking & Bonding Management

April 24, 2013 – Tracking your Field Production

May 29, 2013 – Best Practices in Construction Accounting Software

June 26, 2013 – Construction Financial Management Boot Camp

Purpose: Purpose:

The overall purpose of today’s workshop is a review The overall purpose of today’s workshop is a review

and continuation of the overall role of the and continuation of the overall role of the

construction controller.construction controller.

Overall Role of a Controller:Overall Role of a Controller:

• Manage / Oversee the day-to-day Manage / Oversee the day-to-day transactional activities within the accounting transactional activities within the accounting departmentdepartment

• Ensure accurate job and division level Ensure accurate job and division level costingcosting

• Produce accurate internal financial Produce accurate internal financial statements / reporting for managementstatements / reporting for management

Overall Role of a Controller:Overall Role of a Controller:

• Collaborate with management in creating / Collaborate with management in creating / producing regular management reporting and producing regular management reporting and forecastingforecasting

• Provide accounting / financial leadership and Provide accounting / financial leadership and support in working with outside professionals support in working with outside professionals of the companyof the company

• Collaborate with management in software Collaborate with management in software and IT solutions for the companyand IT solutions for the company

Review: Construction Financial Management Statements:Review: Construction Financial Management Statements:

A Balance Sheet is a snapshot of the company’s A Balance Sheet is a snapshot of the company’s Assets and Liabilities valued as of a specific date.Assets and Liabilities valued as of a specific date.

Current Assets

Cash

Accounts Receivable - Trade

Accounts Receivable - Retention

Costs in Excess of Billings (under billings)

Prepaid Expenses


Fixed Assets

Machinery & Equipment

Office Fixtures & Furniture

Field Vehicles

Leasehold Improvements

Less Accumulated Depreciation

Other Assets

Deposits

Other Long-Term Assets


Current Liabilities

Accounts Payable - Trade

Accounts Payable - Sub

Accrued Wages & Benefits

Line of Credit

Current Portion of Long-Term Debt

Billings in Excess of Earnings

Long-Term Liabilities

Long-Term Debt

Less Current Portion


Owner’s Equity

Common Stock

Current Year Income/(Loss)

Retained Earnings


An Income Statement provides a measure of the operating performance of a company for some particular period of time.


Direct Job Costs - Material

Direct Job Costs - Labor

Direct Job Costs – Sub’s

Direct Job Costs - General

Direct Job Costs - Equipment

Indirect Field Costs

Billings and Revenue

General & Administrative

Other (Interest Income/Expenses)


A Work in Progress is an overview of the company’s job activity for the current fiscal year.

A Contractor’s WIP calculates the percentage completion of each job, and provides the under- and overbillings totals entered on the Balance Sheet.

It should also reconcile to revenues and costs on the income statement.

Review: How to use your WIP Report:Review: How to use your WIP Report:

Review: How to use your WIP Report:Review: How to use your WIP Report:

4 Key Components:

•Current contract value (with change orders)

•Current estimated contract cost (with change orders)

•Job-to-date costs

•Job-to-date billings

Basic Information From WIP

Costs & Earnings in Excess of Billings (Asset)

Billings in Excess of Costs & Earnings (Liability)

Comparison of Open & Closed Jobs

Backlog of Work

Gross Profit Analysis by Job

Underbillings “Flag”

Comparison of Jobs by Location, Estimator, Project Manager, Division, Type, etc.

Current Ratio

Gross Margin % Trends

Indirect Field Cost as a % of Overall Field Cost

Backlog in Months

Cash

Working Capital

Underbillings as compared to Overbillings

Key Performance Indicators

Review:Review:

Keys to Accounting: Keys to Accounting: There are a few keys to accounting that can help to There are a few keys to accounting that can help to provide an accurate and relevant accounting system provide an accurate and relevant accounting system

such as:such as:

KISS (Keep it Simple Stupid!)KISS (Keep it Simple Stupid!)

Cash Is KingCash Is King

Billings are MoneyBillings are Money

Accounts Payable ProcessAccounts Payable Process

Payroll ProcessingPayroll Processing

Reconcile and ReviewReconcile and Review

KISS (Keep it Simple Stupid!)KISS (Keep it Simple Stupid!): :

There is no need to overcomplicate the process. If you don’t There is no need to overcomplicate the process. If you don’t understand how it’s working, you won’t understand what it’s telling understand how it’s working, you won’t understand what it’s telling you. Keeping this in mind may also keep the cost to produce the you. Keeping this in mind may also keep the cost to produce the information much more manageable. An inexpensive system such information much more manageable. An inexpensive system such as QuickBooks may accomplish the objective instead of a more as QuickBooks may accomplish the objective instead of a more powerful and expensive program.powerful and expensive program.

Cash is King:Cash is King:

Accounting for the money received and the money spent will Accounting for the money received and the money spent will accomplish the major portion of the process. Reconciling the bank accomplish the major portion of the process. Reconciling the bank account activity to the accounting records on a monthly basis will account activity to the accounting records on a monthly basis will help to ensure that all cash activity has been captured.help to ensure that all cash activity has been captured.

Billings are Money:Billings are Money:

Timely and accurate billing is the key step to creating cash. Billing Timely and accurate billing is the key step to creating cash. Billing should be done on a regular basis and the collection of should be done on a regular basis and the collection of

those billings should be closely monitored.those billings should be closely monitored.

Accounts Payable Process:Accounts Payable Process:

Nobody likes to pay out money, however the worst part is paying Nobody likes to pay out money, however the worst part is paying bills you didn’t think you owed (like taxes). Payables that are not bills you didn’t think you owed (like taxes). Payables that are not processed timely and accurately will result in: billings being processed timely and accurately will result in: billings being processed late; planning and budgeting will be useless; and processed late; planning and budgeting will be useless; and unwanted surprises that persist.unwanted surprises that persist.

Payroll Processing:Payroll Processing:

Determine how payroll time will be collected, whether Determine how payroll time will be collected, whether manually, using a time card or electronically, using various manually, using a time card or electronically, using various mobile time collection technology.mobile time collection technology.

For accurate job costing, payroll must be entered with job and For accurate job costing, payroll must be entered with job and cost code detail. With this information you will be able to run cost code detail. With this information you will be able to run various labor production reports.various labor production reports.

Reconcile and Review:Reconcile and Review:

Cash, investments, accounts receivable, accounts payable, credit Cash, investments, accounts receivable, accounts payable, credit card liabilities, and other significant balance sheet accounts should card liabilities, and other significant balance sheet accounts should be reconciled to a third party statement on a monthly basis. The be reconciled to a third party statement on a monthly basis. The activity in these accounts and the overall financial statements activity in these accounts and the overall financial statements should be reviewed on a monthly basis for reasonableness and should be reviewed on a monthly basis for reasonableness and used as a basis for planning and for making business decisions. used as a basis for planning and for making business decisions.

Collections & Cash ManagementCollections & Cash Management

Collections: Collections:

•To collect the $ that you are dueTo collect the $ that you are due

•Be aware of, and protect your ‘lien’ rightsBe aware of, and protect your ‘lien’ rights

Cash Management:Cash Management:

•Discuss the various issues which affect cash flowDiscuss the various issues which affect cash flow

•Ways which you can maximize and/or anticipate your cash Ways which you can maximize and/or anticipate your cash levels. levels.

Collections & Cash ManagementCollections & Cash Management

Contractor Payment RemediesContractor Payment Remedies

Ways for Contractors to Protect Payment Rights:Ways for Contractors to Protect Payment Rights:

A.A. Private WorksPrivate Works

• Mechanic’s lienMechanic’s lien

• Bonded stop noticeBonded stop notice

• Payment bondPayment bond

B. State & Local Public WorkB. State & Local Public Work

•Stop noticeStop notice

•Payment bondPayment bond

Collections Discussion:Collections Discussion:

•Set ground rulesSet ground rules

•Enforce your ‘lien’ rightsEnforce your ‘lien’ rights

•Be aware of your contract termsBe aware of your contract terms

•Focus on the first billing of each new projectFocus on the first billing of each new project

•Use your attorneyUse your attorney

•File a lien – even if you don’t have lien rightsFile a lien – even if you don’t have lien rights

•Follow-upFollow-up

•Make collections and cash a priorityMake collections and cash a priority

Keys to Job Costing: Keys to Job Costing: The “keys to accounting” previously discussed also The “keys to accounting” previously discussed also

applies here, however, there are a few other issues to applies here, however, there are a few other issues to consider such as:consider such as:

Identify Key Cost ComponentsIdentify Key Cost Components

Tracking Cost ComponentsTracking Cost Components

Performance MeasurementsPerformance Measurements

Monitor ResultsMonitor Results

Make AdjustmentsMake Adjustments

Identify Key Cost Components:Identify Key Cost Components:

Labor, materials, equipment, subcontractor costs are the typical Labor, materials, equipment, subcontractor costs are the typical components of job costs. Identify any other significant costs that components of job costs. Identify any other significant costs that relate to your contract performance. These would typically be the relate to your contract performance. These would typically be the same costs you estimate in the bid process.same costs you estimate in the bid process.

Tracking Cost Components:Tracking Cost Components:

Determine a method to track the costs by job keeping in mind the Determine a method to track the costs by job keeping in mind the keys to accounting discussed above. Consideration should be given keys to accounting discussed above. Consideration should be given to the accounting system in place and its ability to generate and/or to the accounting system in place and its ability to generate and/or track cost flows. Include bid and revised estimates within the job track cost flows. Include bid and revised estimates within the job cost system.cost system.

Performance Measurements:Performance Measurements:

When designing the system, consideration should be given to When designing the system, consideration should be given to including performance criteria within the job cost system. Items including performance criteria within the job cost system. Items such as pounds/yards, etc.; per man hours; material per square such as pounds/yards, etc.; per man hours; material per square foot, etc. These performance measurements may provide you with foot, etc. These performance measurements may provide you with additional information as to job performance outside the typical cost additional information as to job performance outside the typical cost informationinformation. .

Let’s review some common reports used to track Let’s review some common reports used to track Performance Measurements of the core Performance Measurements of the core

components of Job Cost.components of Job Cost.

Monitor Results:Monitor Results:

Review the results on the job to assist in evaluating performance, Review the results on the job to assist in evaluating performance, as well as assist in estimating future bids and making business as well as assist in estimating future bids and making business decisions.decisions.

Make Adjustments:Make Adjustments:

As the business and/or the jobs change, the job cost system may As the business and/or the jobs change, the job cost system may need to be modified to meet the new changes. If you’re monitoring need to be modified to meet the new changes. If you’re monitoring the results on a regular basis, the adjustments needed should come the results on a regular basis, the adjustments needed should come to lightto light

Accounting & Job Costing-Accounting & Job Costing-Rule of Thumb Strategy:Rule of Thumb Strategy:

1.1. Keep the accounting and job cost process simple.Keep the accounting and job cost process simple.

2.2. The information produced should be relevant and The information produced should be relevant and understandable. understandable.

3.3. Review and use the information to make individuals Review and use the information to make individuals accountable and to make business decision.accountable and to make business decision.

4.4. Accounting and job costing are not the answers but Accounting and job costing are not the answers but they can assist in getting you the answers.they can assist in getting you the answers.

Project TrackingProject Tracking

Direct Costs

Indirect Costs

Direct Costs

OverheadAllocation


Direct Costs:Direct Costs: Unit Savings/LossUnit Savings/Loss Avg. Cost-Unit Savings/LossAvg. Cost-Unit Savings/Loss

LaborLabor Hours + / - Hours + / - $ per hour cost$ per hour cost

MaterialMaterial Unit + / - Unit + / - $ per unit cost$ per unit cost

EquipmentEquipment Hours + / - Hours + / - $ per hour cost$ per hour cost

SubcontractSubcontract Scope and change order management Scope and change order management

General General Miscellaneous Miscellaneous MiscellaneousMiscellaneous


Indirect Cost – EquipmentIndirect Cost – Equipment

Depreciation – Field EquipmentDepreciation – Field Equipment

Non Job-Costed Equipment LaborNon Job-Costed Equipment Labor

Equipment Repairs/MaintenanceEquipment Repairs/Maintenance

Equipment SuppliesEquipment Supplies

Etc.Etc.


Indirect Cost – LaborIndirect Cost – Labor

Depreciation – Field VehiclesDepreciation – Field Vehicles

Safety ExpenseSafety Expense

Non Job-Costed Supervision PayrollNon Job-Costed Supervision Payroll

Repairs/Maintenance – Field VehiclesRepairs/Maintenance – Field Vehicles

Small ToolsSmall Tools

Gas/Oil/Etc. – Field VehiclesGas/Oil/Etc. – Field Vehicles

Cell Phones – Field PersonnelCell Phones – Field Personnel

Etc.Etc.


Indirect Cost – MaterialIndirect Cost – Material

Depreciation – Shop EquipmentDepreciation – Shop Equipment

Shop SuppliesShop Supplies

Shop LaborShop Labor

FreightFreight

Small ToolsSmall Tools

UtilitiesUtilities

Etc.Etc.

Banking and BondingBanking and Bonding

The 3 Cs of PrequalificationThe 3 Cs of Prequalification

Capital Financial Strength

Capacity Ability to Perform

Character Reputation

Financial StrengthFinancial Strength

• Detailed Financial Statements

• Contract Schedules• Accounting/Cost

Records• Profitability Trends

• Cash Flow Projections

• Credit References• Bank Line of Credit• Personal &

Corporate Assets

Capacity to PerformCapacity to Perform

• Track Record & History of Company• Trade References• Organizational Structure & Reporting• Resumes of the Contractor & Key Personnel• Tools & Equipment• Business Continuation Plans• Analysis of Past, Current & Future Projects

CharacterCharacter

Organizational and owner reputation for fair

Dealing with project owners, subcontractors, suppliers, lenders and other creditors, as well as general reputation within the industry.

Construction Accounting SoftwareConstruction Accounting Software

Key Components ConsiderationsKey Components Considerations

• EstimatingEstimating– What level of detail do you need for your estimates?– Do you need an Excel spreadsheet or a multi-tiered database?– Are you bidding at a GC, subcontractor or mixed level?– What type of work are you bidding? (e.g. Private, Public, Government)– Do you need to keep track of historical data for future estimates?

• Project ManagementProject Management– Do you need to track costs related to bidding and preconstruction?– Do you need to track correspondence during the life of a bid and/or job?– Do you need to track compliance items?– What type of reporting is required by operations?– Does operations need access to this information in the field?

Key Components ConsiderationsKey Components Considerations• AccountingAccounting

– Do you need to track multiple companies, locations and/or divisions in one database?

– Do you need to track subcontractor compliance items (e.g. prelims, lien waivers, insurance certificates, etc.)

– Do you need to track cost to budgets and/or commitments? Warned if exceeded?– Do you need to customize reports and/or inquiries?– Do you want a document management solution?

• Route invoices for approval?

• Do you need all documents related to the job to be managed?

• SecuritySecurity– Do you need to restrict access based on

• Employee duties/roles?

• Certain jobs and/or job types?

• Company database?

• Individual tasks?

• Individual reporting?

• GL structure?

– What level of detail do you need in security logs?

Software Type OverviewSoftware Type Overview• Level 1

– QuickBooks

– Peachtree

• Level 2– Sage 100 Contractor

– Contractor V

– Foundations

– American Contractor

– Computer Ease

• Level 3– Sage 300 Construction and Real Estate

– Viewpoint

– Dexter + Chaney

– Maxwell

– Coins

Estimating: Microsoft ExcelProject Management: Microsoft SharePoint

Estimating: ProEst / Microsoft ExcelProject Management: Prolog/Primavera

Estimating/Project Management: Modules

Software Type OverviewSoftware Type Overview• Level 4

– JD Edwards

– SAP

– Oracle

• Other Construction Software– Prolog

– Primavera

– ProEst

Q & A?

construction financial management boot camp

Economy & Finance

construction controller

earnings review

incomeexpenses review

longterm assets review

current portion review

banking bonding management

job costing accounting

quality controller