CONSTRUCTION ACCOUNTING : STREAMLINE YOUR CONSTRUCTION BUSINESS

CONSTRUCTION ACCOUNTING:

STREAMLINE YOUR CONSTRUCTION BUSINESS

WHEN IT COMES TO ANY BUSINESS, GOOD ACCOUNTING IS VITAL TO ITS SUCCESS. THIS IS ESPECIALLY TRUE WHEN IT COMES TO THE CONSTRUCTION INDUSTRY AS CONTRACTORS AND BUSINESSES FACE SOME FAIRLY UNIQUE CHALLENGES WHEN IT COMES TO ACCOUNTING.

Typical businesses such as restaurants, hairdressers or chemists sell products and or services from a fixed location. The overheads and costs associated with the goods and services are hence largely fixed meaning that accounting for that business is fairly straightforward.

Things get a bit more complicated when it comes to the construction industry – a business that moves around to multiple locations and which is hugely customised. As such, the construction industry has to constantly monitor and take into account changeable factors such as the costs of materials, travel costs, clearing costs etc. making the accountancy practices slightly different to that of other businesses.

HERE ARE SOME OF THE KEY FACTORS THAT MAKE CONSTRUCTION ACCOUNTING DIFFERENT TO REGULAR ACCOUNTING:

Sales: Most businesses have a range of “stock” or “standard” products or services that they sell. For instance your local butcher may sell mince meat for $12 per kilo and rump steak for $35 per kilo, whilst the hairdresser opposite charges $50 for a wash and blow dry and $80 for a haircut. There is not the same streamline of sales in the construction business as they offer such a wide variety of services from consulting, building, to design, architecture, planning and the supply of materials. These sales are not standard but are customised for each particular job, making it impossible to have set sale prices.

Cost of goods sold: Regular businesses are able to simply account for the cost of the goods sold. This is not so easy for the construction industry as they incur many costs, both directly and indirectly from jobs and from a range of categories, which need to be factored into their accounting schedule.

Expenses and overheads:

Businesses such as butchers or chemists have a fairly clear distinction between what are the cost of goods sold and what are the cost of overheads. In the construction industry, the lines become blurred and there is a real overlap between these two categories, making it a more difficult task for accountants to decipher. Some overhead costs might actually merge into the cost of goods sold if it is in relation to a specific project, meaning that it is difficult to exclusively distinguish between these two categories – each job needs to be looked at individually.

Break-even point: Many regular businesses have a very clear relationship between income and expenses, making the breakeven point easy to calculate. The goal posts are constantly changing in the construction industry with so many variable factors, which makes it essential that each individual job or project is looked at specifically to determine a breakeven point. In construction, there is no magic number or generic formula that establishes the break-even point.

HOW TO GET IT RIGHT

Because construction accounting is not like regular accounting, it is firstly essential that you acknowledge and accept that it is different. Trying to adopt regular accounting methods to the construction industry will be like trying to fit a square peg into a round hole. Once you have acknowledged the difference the next thing to do is to clearly identify and understand the different types of costs associated with working on various projects. Once that is done you need to effectively categorise those costs and identify the differences between what are overheads, what are expenses and where there might be a crossover.

The easiest way to streamline this is to implement a software solution that allows employees to easily and cohesively submit data on costing through a platform that is integrated with your accounting software. This will not only save on time and paperwork but it will also ensure consistency and help your business to be profitable.

TOP 8 TIPS TO RUNNING A SUCCESSFUL FAMILY BUSINESS

Running a business is tough but running a family business poses a unique set of challenges. Whatever the family ties – parents, spouse, siblings or children - running a family business requires discipline and planning as well as recognition that family dynamics can be fragile.

Keeping this in mind here are our top 8 tips for running a successful family business!

TIP #1 Set boundaries

When you are in a family business it is very easy to let the business and family time merge into one and talk business 24/7. This is where boundaries come in. It is really helpful to set boundaries around where and when you will have business discussions and to draw a line between work and personal time.

TIP #2 Treat it as a business, create a structure and allocate roles and responsibilities

Often in family businesses there is a huge emphasis on the ‘family’ component and a lot less on the ‘business’ aspect. This is a really common pitfall that needs to be realigned. Creating a structure within the company and clearly identifying various roles and responsibilities of different family members as well as establishing a reporting or accountability format will go a long way in keeping the business on a professional footing.

TIP #3 Establish clear and manageable communication channels

One of the key ingredients to any successful business is successful communication amongst employees. This is even more vital in a family business where people and feelings can get personal. Establish set protocols for communication such as weekly meetings to encourage a free flow of regulated communication. Ensure that there are set of standards that need to be kept in order for things to remain professional. By doing this you will hopefully limit disagreements and disputes.

TIP #4 Don’t take advantage, be fair and put things in writing

Many family businesses could not survive without the dedication and hard work of family members who are willing to go above and beyond to make their business a success. This is where being fair and reasonable is really important. Make sure that hard working family members are recognised and rewarded accordingly and avoid favouritism. Avoid setting the standards lower of higher for various family members – make sure you set the bare to certain level and that you stick to it. Avoid handshake agreements with family members and

rather put things in writing so that there is no miscommunication regarding expectations.

TIP #5 Seek external advice

Sometime business decisions can be a bit to close to home when you are operating a family business so it is often a very good idea to get a fresh perspective by way of some professional advice. Seeking guidance from outside professionals can be a really beneficial reality check for family businesses.

TIP #6 Establish a clear succession line and long term business plan

A family business without a clear longterm business plan and succession line is simply asking for trouble! The future generation needs to know exactly where the business is heading and who will be at the helm. It is a good idea to get outside assistance when working out the long-term company plan and have it formally and legally documented.

TIP #7 Encourage outside experience

If you have children or younger family members looking to join your business it is really helpful to encourage them to seek some external experience first. This not only allows for them to gain some workplace experience but it also teaches them what is involved in holding down a job and adding value to a company. Getting experience elsewhere will offer them a very valuable perspective before entering the family business.

TIP #8 Appreciate the benefits of being in a family run business

There is no doubt that family businesses can prove to be challenging in many ways and it can often be a real balancing act trying to combine personal and professional but there are also HUGE advantages to being part of a family business that you should never loose sight of. Family businesses can provide easy access to invested human capital, which is always the most important commodity in any business. They can also provide flexibility and support that other businesses don’t. Firms run by trusted and cohesive family members can be amongst the most successful businesses in the world.