Whether you’re in construction as a supplier, general contractor, or subcontractor, your operations depend on good accounting.
Without good forecasting and data, small- and medium-sized construction firms are vulnerable to one nasty surprise that could sink the business. Inaccurate budgets, cost overruns, and breached payment schedules are all dangers that firms face without good accounting. Let’s look at those risks in more detail and see what construction companies can do to run a more stable, successful business.
Negative impacts of bad construction accounting
If you aren’t getting your accounting right every time, what negative impacts could that have on your construction operation?
Inaccurate budget and cost projections
One of the biggest impacts of bad construction accounting is getting budget and cost estimates wrong when planning a project. This is especially risky in construction, which is vulnerable to surprises like supply chain issues or complexities at the building site.
Material and labor costs are the most obvious places for things to get out of control. Some materials might be unavailable at the prices you’re used to, or a job might require more work than anyone expected. This can be especially true with the international nature of some construction projects, with workers and materials being coordinated from across the world.
There’s a margin of error there that firms need to account for. If not, they’ll make optimistic cost projections that fail to come true. If this keeps happening, firms will run out of the money they need to cover unplanned expenses.
Insufficient monitoring of project expenses
Keeping a close eye on the actual costs of construction is vital. Without good tracking, firms can lose sight of their financial situation until it’s too late to avoid problems.
In construction, it’s essential to check actual costs against project estimates in real time. A snag at one stage of a project can lead to overtime, bringing labor costs up. If a supplier raises the price of their materials after projections are made, that needs to be factored in.