The Construction Financial Manager, or CFM, plays a vital role in the success of any construction company. In an industry where competition is high and margins are small, it's critical to monitor, report on, and make decisions around accurate financials.
Wondering if your CFM is contributing to your profitability? Here are 4 things a good CFM should be doing:
Crunch the numbers that count.The main role of a CFM is to oversee the company's financial position, by keeping track of all expenses and revenue. There are many measurements and statistics that can be calculated to determine the financial health of the company—here are a few important ones your CFM should stay on top of:
Job budgets vs. operating budget: You need both. Your CFM should track job profitability by creating a budget for each job, outlining all anticipated costs (not including overhead), then track the actual job costs incurred against the budget to measure job performance. Separately, your CFM should develop an overall operating budget, which should include all company costs (including overhead) and revenue for the year. This budget should be used to set annual financial goals, and measure your company's overall profitability.
Gross margin: Gross margin is a percentage that tells you how much of each incoming dollar you make is actually profit, allowing you to compare the relative profitability of your jobs, even if they are different sizes. It can be calculated by dividing gross job profit (total revenue minus total job costs) by total job revenue.
Labor utilization rate: Although you might pay your field staff for a 40-hour work week, they may not actually work a full 40 hours, and any non-utilized time can't be billed to the client. By tracking your actual utilization hours, your CFM can more accurately predict the costs, and subsequent profitability, of future jobs.
Maintain proper internal controls.Internal controls play an essential role in helping your company minimize risk, typically in the areas of financial reporting, regulation compliance, and operations. A good CFM should be well versed on the latest financial, accounting, and regulatory requirements to ensure that your company maintains compliance.
Proactively manage liquidity.For contractors, making sure that your company has adequate liquidity is just as important as measuring profits. A good CFM should be able to predict future financial needs, and plan ahead to have cash available.
Advise management.The CFM is a critical part of your leadership team. Your CFM should understand your strategic objectives, and be able to make recommendations and decisions in the best interest of the company.
Having a good CFM is essential to the success of your construction business. If you have any questions about the role of the CFM or your financial process, leave a comment below, or feel free to contact me directly.