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Supporting Construction Clients: The Challenge and Opportunity

Dan de Roulet Jr.
Posted by Dan de Roulet Jr. on May 6, 2024 3:45:59 PM

Construction is a $3 trillion industry in the United States. The industry is highly fragmented, with hundreds of thousands of contractors filling various roles, from small Mom-and-Pop plumbers providing basic plumbing services to large commercial GCs overseeing the construction of new airports or manufacturing facilities.

Building new structures or renovating old ones is a delicate and highly precise dance that requires each company involved to follow the architect’s plans to the T. In most cases, it’s also high-stakes: Mistakes are costly and reputations, once tarnished, can be difficult to restore.

For many construction business owners, their business is their most valuable asset. It’s also the culmination of years—often decades—spent developing expertise in their trade. But since most owners came up as tradesmen and almost no one gets into construction (aside from project managers at large GCs) to have a desk job, the office side of their businesses tends to be the weak link in their overall operation.

Many owners cling to outdated processes because those processes are familiar and have allowed the business to keep going, even if they’re costly or inefficient. Yet that inefficiency, paired with the inherent administrative complexity of construction, can result in the office being an impediment to the business growing or becoming more profitable.

If you are a bookkeeper or business consultant and you want to work with construction businesses, this is your backdrop: a complex, high-stakes industry with business owners who have deep expertise in the technical aspects of their trade but who are not natural business administrators or software users.

These folks don’t want to sit at a desk. On the bright side, helping contractors improve their office efficiency can significantly impact their business's overall performance. And office-side processes are what you, as a bookkeeper or business consultant, know best!

For much of the past decade, I’ve worked alongside the Knowify team to help thousands of contractors review and improve their business processes. Based on that experience, here are some of the most common office-side challenges construction companies face.

Administrative chaos

Think about this: a small electrical contracting business will likely have to deal with estimating, bidding, change orders, materials ordering, field timekeeping, managing schedules across construction projects and daily service tickets, invoicing, vendor bill paying, and field production tracking. That’s a lot of moving parts! Taming it is hard.

This may seem like a subtle distinction, but I do want to be clear that the administrative chaos I’m referring to here relates to the inherent chaos of an administratively complex business and not chaos induced by bad processes. But, realistically, anything short of a modern, end-to-end software solution paired with comprehensive changes to day-to-day business processes will not bring order here. That’s where you come in!

Painful mistakes

As noted above, administrative mistakes in construction can be expensive. While they may not happen often in most construction businesses, their impact means that almost every construction business owner will say they want to reduce the number of mistakes made in their office.

Some common mistakes include:

  • Proceeding with work before the associated change order is signed. If the customer ultimately declines, the contractor could eat that cost!
  • Missing an invoicing deadline. It’s fairly common in commercial construction for payment applications to be due by a certain date. If the contractor is a day late, they may have to wait another month to submit their invoice! That delay can create real cash flow pain.
  • Errors in AIA payment applications. Most construction companies use Excel to prepare their payment applications. We’ve all made formula errors in our spreadsheets, so we know how easy it is to introduce a mistake in an invoice prepared this way. The problem is that invoicing errors delay payment—some GCs even make the contractor wait for a whole pay cycle to submit the corrected pay app! Errors also hurt the contractor’s reputation as a competent operator.
  • Purchasing materials that don’t precisely meet spec. A submittal should be used to document the customer's acceptance of the selection, especially when the contractor plans to deviate slightly (to save the customer money or install something more fit-for-purpose). Otherwise, an upset architect or GC may require that the installed equipment be replaced with something meeting spec at the contractor’s expense!

Siloed information

Most construction businesses beyond a certain (micro) size split job responsibilities among multiple people in the office. For example, an estimator may handle estimating and bidding; an office manager can manage invoicing, timekeeping, and vendor/subcontractor bill processing; and a project manager may oversee schedule management, change order management, submittals, and materials purchasing/tracking.

Division of labor is a wonderful thing—many hands make light work! But without a single system unifying the business’s information, a lot of this work ends up being siloed. The estimator’s takeoff is likely an Excel spreadsheet saved on his computer, and the bid is a Word document or PDF attached to an email. The project manager’s schedules can be an MS project file saved on their computer, with the change orders, submittals, and purchase orders again being attachments sent via email.

Siloed information necessarily limits visibility, and when things go wrong, putting the overall picture of a job together across all these people and their disparate systems can be very challenging.

Limited financial visibility

Almost every construction company has an accounting system that allows it to generate financial statements periodically. But, in large part due to the issues we’ve discussed throughout this post, financial statements are several weeks (if not a month or more) behind.

So, while construction business owners may be able to see whether their business is profitable, it’s all rearward-facing. In other words, they don’t usually know how the current business is performing, much less how it’s projected to perform in the coming months. Separately, not that many small or medium-sized construction businesses do detailed job costing, meaning that they don’t have a resolution on each individual job’s performance.

Without timely job costing information, how are project managers and owners supposed to identify and course-correct jobs that are falling behind? If you’re not job costing, you’re certainly not reconciling the job’s ultimate costs to the pre-job estimates; how are estimators supposed to get better?

Amidst all of these challenges, there are opportunities for transformational change. Technology solutions that didn’t exist a decade ago can be brought to bear on the many moving pieces of a construction business, both in the office and in the field. As a bookkeeper or business consultant, you are well-positioned to bring these solutions to business owners and usher them into a more modern, streamlined, and data-driven era of business management.

Which tools should you propose first? How do you introduce and implement them? We’ll answer those questions and many others as we get further into this series, which we’re pleased to bring you in collaboration with the team at Woodard.

We look forward to sharing our ideas with you and hopefully helping you to better serve construction clients. The construction industry is full of good, hard-working people, and they deserve the support that we together can provide them!

Sponsored Content: This article is generously brought to you by one of our valued sponsors. Their support enables us to continue delivering expert insights and the latest industry trends to our dedicated community of accounting professionals.

Topics: Business Technology


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