OVERVIEW

When it comes to financial matters, many contractor CEOs are busy creating revenues and executing the work, and they let the bottom line fall where it may. They don't focus enough on trying to control costs and are hard-pressed to calculate their company overhead rates or forecast cash flows. It may take a crisis before a contractor "gets some religion" regarding the importance of financial planning and management. And yet, their success hinges on creating a profitable operation and long-term financial stability!

Jim Anchin, CEO of the accounting firm of Anchin, Block & Anchin, LLP, and construction industry specialist, believes there are two major reasons why contractor clients tend to shy away from the numbers: They wear too many hats and don't take enough time for important administrative tasks, even if it could save them money; they aren't comfortable with the details of accounting and financial management. Tom Rogers, senior construction lender at Signature Bank, finds that contractors "often lack understanding of the financial consequences of their work and the impact on financials."

In all fairness, you probably encounter no greater challenge as a contractor than having to manage your financial picture successfully. To win business, you must compete based on price, which creates a tendency to shave your bid at the expense of your profit margin. Once you're on the job, predicting and tracking cash flows and profitability are difficult because you're not entirely in control of events. Your project payment stream can be derailed because of delays...