Top three examples of poor financial management in construction
With the British construction industry understood to be adding over £110bn a year to the economy, it may seem to some as though finance leaders in this industry are blessed with a decent amount of cash to play with. However, the reality of the situation is that finance leaders in this sector often have to deal with issues such as unpaid invoices, itinerant labour and more – and this can go on to cause problems. Here are some of the main ways that poor financial management in construction can lead to issues.
A changing workforce
For many construction firms, workforce problems are often a significant cause of financial problems. Workers on site are often employed as contractors, meaning that they aren’t quite as committed to the workforce. In some ways, this is useful for a finance leader as it means that there can be no requirement to pay sick pay, pension pay and other additional amounts. However, it can also mean that there’s an expensive staff turnover problem in place, as contractors are more able to pick and choose their income sources and leave with short notice compared to their employed counterparts. For that reason, carefully modelling the type of workforce that your firm uses – and the impact that this can have on your firm’s finances – is wise.
Running over schedule
Even the best-managed construction projects can easily overrun. Sometimes, the reasons are preventable: delays could be down to poor time management, for example, or a failure to effectively discipline workers or create an appropriate environment in which they can thrive. Other times, the reasons aren’t preventable: it may be the case that supplies don’t arrive on time, or it could even be that bad weather prevents workers from proceeding. No matter what the reasons for running over schedule might be, having enough cash reserves to cover the problem without needing to resort to shoddy work or outsourcing is essential.
Invoice tracking
It’s a problem for a business in any sector, but in the construction industry, late invoices can cause particular problems. That’s because invoices in this sector often include the price of expensive raw materials as well as time and labour, so an unpaid invoice can have a consequently very high effect on cash flows. This is where a data-oriented financial software package can come into play and offer clear advantages for your business. By setting up alerts that can draw your attention to any outstanding invoices, you’ll never fail to chase an unpaid invoice again. And by helping you to locate points at which your business can become efficient, you may even find that the package can help you become profitable in other ways.
With the construction industry facing such a range of potential problems, then, it’s clear that good financial management is essential for a construction firm to advance.
With our financial software packages on side, it’s possible for construction firms to provide their finance leaders with the tools they need.
