Generally, financial management utilizes a company’s financial resources to bring a goal to completion. This includes using money and other assets— such as construction tools and equipment. Many daily decisions in a construction jobsite affect a company’s financial standing.
For instance, the decision to bid on a large commercial project can significantly impact the overall finances of a construction company. When deciding whether to bid on a project, a general manager may need to address the following questions:
1. Do you have enough cash resources to perform this work, or will you need outside financing?
2. Can your company get bonded for working on this project? If not, what changes need to be made in a contractor’s financial structure so your company can get a bond for the project?
3. Should you purchase or lease the additional equipment needed for this project?
4. Regarding construction crew management, should you hire workers to perform the work, or should you hire a subcontractor?
5. And, finally, what overhead markup and profit should be added to the final bid?
The answers to all of these will affect your company’s finances. The answer to even one of the questions may change the possible options for other questions. For instance, if the construction manager decides to hire workers to perform the project, the project will need more financial resources than if the company had acquired subcontractors to perform the labor. This may also leave the company with an insufficient budget to purchase the additional equipment and leave only leasing the equipment as the only option.
Let’s dive more into the nitty-gritty of construction finance management below.
Who is Responsible for the Financial Side of Managing Construction?
The person responsible for the financial management of a construction business is often the project owner or general manager. Most of the tasks related to financial management are delegated to superintendents, estimators, or project managers—specifically those tasks that are technical and project-specific. Because of this, all construction management professionals must understand the principles of finance in project management for construction.
Nothing else will put an employee on the fast track to moving up the ladder within a company faster than growing the company’s profitability through excellent construction financial management. But more than anything, nothing else can boost a construction company’s financial health than hiring a professional to handle it— a construction finance manager.
What is a Construction Finance Manager?
Construction Finance Managers perform tasks similar to finance managers in other industries. Still, they have specific expertise in the construction industry and the implication of accounting to project costs and percentage of completion.
A construction Finance Manager (CFM) is the company’s key representative for financial matters. They report on, monitor, and make critical decisions to ensure accurate financial reports for construction companies. If a company has an accounting department, they are the ones who spearhead it. Financial managers for smaller construction companies may also participate in the day-to-day accounting tasks.
A Construction Finance Manager reports directly to company management (CEO, CFO, or project owner) and works with managers in the other department, including project managers, credit managers, customer relations, marketing and sales, and other departments. If a company doesn’t have a Construction Finance Manager, they may use a staff accountant, office manager, or anyone with a particular niche in finance to fill this role. Companies may also hire a part-time or temporary Construction Finance Manager to help them with a temporary or a newly awarded project, even as capital raising or an annual company audit.
Who are the People Construction Finance Managers Interact With?
A career as a Construction Finance Manager in this industry is a critical part of any company in this sector. One must continuously operate with the company’s strategic goals in mind. Some of the other roles a Financial Manager would interact within the construction industry are the following:
- Project Manager
- Architect
- Estimator
- Purchaser
- Document Controller
- Civil Engineer
- Quantity Surveyor
- Project-In-Charge
- Setting-Out Engineer
What Are the Professional Qualifications of a Construction Finance Manager?
A Finance Manager should have a certified accounting qualification via bodies such as ACCA, CPA, CAI, or for a management position, ideally CIMA. One should also have a significant post-graduate degree and qualifications in specialist business areas and some years of business experience at a senior level within the construction industry. Any knowledge of construction management or the civil engineering sector would also add considerably to the skillset when starting a career as a Finance Manager.
Additionally, in some countries, Civil Engineers with a graduate degree in business or finance are also qualified as Finance Managers and even higher managerial positions in a construction company.
What are the Responsibilities and Roles of a Construction Finance Manager?
The Construction Finance Manager is responsible for ensuring that the company uses its financial resources efficiently and wisely. A financial manager’s tasks may be divided into four broad categories:
- Accounting for financial resources
- Managing cash flows
- Managing costs and profits
- Making financial decisions
1. Accounting for Financial Resources
Construction Finance Managers are the ones who handle the tracking or accounting of how the company’s financial resources are utilized, including the following:
- Ensuring that project and overhead costs are accurately tracked throughout the accounting system of all the project cycles.
- Makes sure that a proper accounting system, such as inventory management software that can track the company’s resources, has been set up and functioning correctly.
- Verify whether the individual construction projects are overbilled- or underbilled.
- Projecting the total costs at completion for the respective projects and ensuring that unbilled committed costs— money that the company has committed to pay but has not received a bill for yet—are included in these projections.
- Ensuring that the needed financial statements have been prepared regularly.
- Reviewing the financial statements to guarantee that the company’s financial structure is in line with the rest of the competitors and trying to identify potential financial issues before they become a crisis.
2. Managing Cash Flows
Construction Finance Managers are responsible for managing the cash flows of a company. Many profitable companies fail simply because they run out of cash and are then unable to pay their bills. Managing construction cashflows includes the following:
- Matching the use of subcontractor’s cost and in-house labor to the cash available for use on a specific project
- Making an income tax projection (on an annual basis) for the company
- Preparing and updating cash flow projections for the company (on an annual basis)
- Making sure that the company has sufficient funds to take on an additional project and submit a bid
- Arranging finances to cover the needs of the construction company
3. Managing Profits and Costs
Construction Finance Managers are in charge of managing the company’s expenses and earning a profit for the company. They rely heavily on the accounting matrix and system reports to manage costs. Keeping tabs on the company’s expenses and profits can include the following:
- Controlling and monitoring project costs
- Monitoring company and individual construction project’s profitability
- Establishing labor burden markups
- Setting the standard minimum profit margin to use in bidding
- Developing and monitoring overhead budgets
- Monitoring the profitability of different clients and making the necessary marketing adjustments to improve profitability
- Analyzing the profitability of different areas of the company and making the necessary adjustments to improve profitability
4. Choosing among Financial Alternatives
Construction Finance Managers are responsible for selecting among the financial alternatives in a company. These decisions include below:
- Selecting which equipment or tools to purchase
- Deciding in which aspects of the business to invest the company’s limited resources
Related: How to Determine If Your Construction Project is Losing Money and How to Deal with It
Key Takeaway
A construction company is a very risky venture. Every year, many construction companies fail and go out of business. Managing a successful construction company requires specialized financial management skills due to the unique nature of the construction world. Unlike other industries, construction faces a myriad of challenges, including constantly building one-of-a-kind projects, building multiple projects at different locations simultaneously, dealing with progress payments and retention, and depending heavily on the use of subcontractors to bring projects to completion.
So don’t let your unfamiliarity with or distaste for financials make them go unattended. Financials are not a separate aspect from construction; it’s all part of the same project. Maintain accurate documentation, percent of completion, and expenses tracking constantly.
Construction scheduling software, especially ones like Pro Crew Schedule that are designed for contractors, have the capability to document each transaction, keep track of all the available resources, and provide an overview of the productivity level of the workers- which all account for the financial health of a construction company.
