Financial Reporting for Construction Companies

Published:

clip_image002clip_image004

By Tim Ayler, CPA, Partner, Director of Construction Services Group | Alicia Rader, CPA, Manager, Construction Services Group

Financial reporting on an executive level and project level is essential for a construction company to stay afloat and thrive. Executive-level reports provide an overall picture of the company’s financial situation while project-level reports are specific to each individual job’s performance. Making sure the information is accurate and timely, along with using the reports wisely will ensure the company’s overall health and increase the company’s potential for continued growth and profitability.

Executive-level reports provide a big picture of how the company is performing. Many times construction companies are only producing these reports when requested by the bank, auditor, or surety company. Executives should understand and review the following reports regularly:

  • Balance sheet: a snapshot of the company’s financial position at a single point in time – shows the company’s assets, liabilities, and equity
  • Income statement: measures the company’s financial performance over a specified accounting period (monthly, quarterly, yearly) – shows the company’s revenues, expenses, and net income or loss
  • Statement of cash flows: provides data regarding all cash inflows/outflows from operations, investing, and financing sources during a given period
  • Gross profit by job: broad overview of the profitability of each job – total contract revenue minus estimated job costs, which includes costs incurred to date plus costs to complete the job (only accounts for direct costs – no overhead or under/over-billings included)
  • Job overhead allocation: a crucial report in determining a company’s profitability – allocates overhead or indirect costs to the job – selecting the best method for allocating gives contractors a good idea of their true performance at the job level with the indirect costs applied to each job
  • Under/over-billings: needs reviewed regularly to provide management with a more accurate measure of profitability and to help make them aware of problematic jobs so corrections can be made timely – gives management the opportunity to address under-billings on a job (could cause cash flow problems or be a sign of the job being less profitable than recorded)
  • Cash flow by job: helps identify whether certain jobs are funding other underperforming jobs as well as helping management determine if the company has the financial resources and lines of credit available to handle the anticipated work volume

Project-level reports provide a narrower focus than executive-level reports and answer the questions of when, where, why and how of each job. These reports help executives: identify where the job stands today; forecast where the job is headed; track production within the job; and create a database of history to help better decision making and to use for future bidding.

No matter what type of construction trade, executive-level and project-level reports are vital for all companies to run a financially sound and profitable business. Contact Tim Ayler at tayler@greenwaltcpas.com | (317) 260-4401 and Alicia Rader, CPA at arader@greenwaltcpas.com | (317) 260-4424.