From a financial-accounting perspective, every construction project is basically an individual entity within the overall company accounting structure. Put simply, each project is like an individual company with its own accounting setup and needs. In a previous post, I talked about the crucial elements that go into estimating the cost of a project. But setting yourself up to estimate a construction project efficiently and effectively is only the first step in managing a project’s financials. Here, I’ll explain how my company organizes and tracks expenditures and makes necessary adjustments to preserve the financial health of a project and the company while maintaining quality builds.

Get things in order during preconstruction

Preconstruction, the period of time from the signing of the build agreement to when work on-site commences, has many important steps that build upon the estimate’s foundation. During this phase, the information contained in the estimate is transferred to the company’s accounting software and to the company’s project-management software. For some companies, these systems are one and the same. At TDS we use QuickBooks for time-carding, accounting, and client invoicing, and Buildertrend for project management. Buildertrend is a cloud-based construction-management platform that provides us with a single place to store project documents—construction drawings, specifications, estimates, trade-partner proposals, etc.—manage client and trade-partner communication, and manage end-of-project tasks like punch lists and warranty.

My estimate spreadsheet has several summary tabs that are populated by the general estimate summary. Each tab serves a specialized purpose. One tab, for example, allows a cost-code breakdown of my estimate to be imported to QuickBooks and Buildertrend. Payment schedules, carpentry material take-offs, building permit costs, and a client summary for transparent budgeting are other specialized summaries created by the main estimate spreadsheet. This allows me to make the most out of my estimate inputs by having linked spreadsheet tabs that carry the data forward and reorganize it, saving myself and the TDS production team time.

Generate helpful reports

With the project budget set in QuickBooks and our production team’s time-card information synced, our bookkeeper can provide the team with many reports that indicate the financial health of the project. The estimate-to-actuals report is used throughout the job to track self-performed labor, material purchases, and trade-partner billings against what was estimated. As the project moves along, the estimate-to-actuals report for each project is used to populate the work-in-progress report, or WIP.

Our WIP is executed monthly after all receipts, invoices, and time cards for the month have been processed. This gives the team a look at several key performance indicators that show the overall financial health of the project. Using the selling price and the cost-to-produce numbers from the estimate, and then adding the change orders that have been processed to produce a baseline, the WIP report then applies all monies paid out in cost of goods–labor, materials, and trade partners–to the baseline.

Make adjustments using reports

Using this data along with the current estimate-to-actual report and information related to any overages, underages, or items missed during the estimate provided by the lead carpenter or project manager, we make a manual adjustment to the estimated cost-to-complete column, giving us our best estimate of our job cost upon completion and our estimated final gross profit margin. A lower GP than budgeted is called slippage, or slip, and a higher GP is call grippage, or grip. The next columns on the WIP all deal directly with under/overbilling. Most general-contracting firms want to maintain what’s called an “overbilled” on all projects. This means that the project is being funded with the client’s money and not the company’s money or credit. While not relevant information for the client, having managers that understand the overall cash flow of the company and how that is affected by an individual project is important.

Successful financial management of each individual project is crucial to the long-term survival of a construction company. While it is easy to walk onto a job site and check a wall for plumb or miter for tightness, the financial state of a project can seem opaque without the correct tools through which to view the project data. Building on an estimate as a foundation, a company of any size can use bookkeeping and project-management software to develop the detailed reports that company leadership needs to make sound decisions in the present that will help preserve the company’s future.

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