The business tends to be associated with low margins and fluctuating cash flows in the building and construction industry. Being an accountant who probably deals with builders, developers and construction companies, you hold a special opportunity to ensure these clients generate as much profit as possible. Now it is possible to offer them more than simple tax and accounts services or the preparation of balance sheets – you can advise them on how to increase their profitability.
How to Increase Profitability for Accountants for Builders
Analyze Job Profitability
Thus, there are several ways that you can contribute your efforts, one of which is to examine the profitability of jobs and projects your client is undertaking. The advantage of working as an accountant in this type of environment is that you have access to all the financial data on their business operations. Employ this data to establish specific profit percentages on finished jobs and partially finished jobs. Find out which project makes them the most profit and which one is least profitable. Beware of situations that contain patterns. Then advise them on:
- How to best price future jobs to enhance the earnings per job
- When they should disengage from bids that offer little room for making a healthy profit
- Accounting areas where they are possibly undercharging or offering unfairly low prices to change orders and extras
- Chances for increasing the profit margin by providing more specialized services concerning specific types of projects or methods
With these skills, you equip them with the ability to decline unprofitable jobs and instead seek more profitable ventures.
Track Key Performance Indicators
It also presents ways for you to assist builders in increasing profits through the use of appropriate KPIs and other metrics. Measuring KPIs assists the builders in identifying what impacts their profits and what strategies they can apply to increase such profits. Useful KPIs can include:
- Percentage of gross profit of total amount billed on jobs
- This means that the company has overheads of 32% of its revenue.
- Costs incurred from sub-contractors as a proportion of total job costs
- Revenue per employee
- Net profit before tax is an essential part of the assessment of the financial stability of a company as it indicates the percentage of the profit that will be taxed.
The selected KPIs should be chosen by the advisor since they determine which are most applicable. Then recommend the creation of the necessary dashboards and reports to begin evaluating and analyzing them. The authors have pointed out that after some time the nature of factors influencing profit will emerge. This would help in flagging various problems and provide recommendations for improvements to the concerned performance.
Better Cash Flow Management
The building business, especially the construction side is strictly governed by the cash flow discipline. It has been noted that, for any business, it is imperative to comprehend the cash position of the builder clients at any given time. When you plan and prepare cash flow pro forma statements, you can present likely future cash shortages and excesses. This assists the builders handle cash and keep away from costly finance costs of short-term sources of finance.
They also enhance cash generation by studying customer loyalty and making recommendations for modifications in payment arrangements, as well as advancement in billing procedures. It is recommended that they request commercial clients to pay deposits and progress payments to enhance cash inflow. It reduces a significant drain on profit for builders by assisting them in managing cash flow.
Feasibility Study and Tax Advisory
Tax consultancy and matters affecting the choice of business entities are some of the key issues an accounting professional must tackle. Significant tax savings can be achieved by:
- The other method is making all the possible claims for allowable deductions and rebates.
- As such, payment and receipt scheduling and acceleration to optimise deductible and minimise tax.
- Employment of sub-contractors rather than having permanent employees
- This involves planning for the capital gains tax which affects individuals when they sell some of their major assets.
- Selecting the appropriate legal entity for business that will minimize its tax burden
Effective tax planning is feasible to reduce their tax burden and enhance the amount of profit for the company even though it is legal. It also ensures that the business has the right structure in terms of asset protection as well as efficiency of tax. Get these foundations wrong and your clients will suffer the consequences so it is imperative for businesses to get them correct from the outset.
Cost Reduction Opportunities
Last of all, the profit for builders is given by the difference between their total income and total expenses. Look for opportunities to reduce operating and job costs such as:
- Lowering cost of goods through better supplier terms resulting from centralized procurement
- Reducing wastage and order of extra materials on a particular job.
- Sub-contractors instead of employees in cases where this is more efficient
- Identifying measures to reduce insurance premiums by analyzing insurance policies
- Providing recommendations on apps or software that may enhance workflow
That’s a good thing because as their advisor you get to look at things from a different perspective that encompasses the entire business and come up with areas that are costing the company a lot of money and tricks on how to reduce them. The ability to assist builders to effectively control costs ensures they achieve higher margins per project.
The final major role to recommend to the practitioner is that of a Profit Improvement Specialist.
This latter is a key figure for builders and other members of the construction team as they turn to an accountant for compliance-related tasks such as taxes and financial statements. However, a majority of builders rarely use their accountants in a more specialized way for profit enhancement tips. When you take the position of a profit specialist for builders, the value that you give is inestimable, which helps in nurturing loyalty and trust.
When you are in a position to know about their financial disposition and their operations it becomes easier to assist your builder client to increase their profitability. Turn yourself into a must-have profit-centered consultant and they will pay you back for their loyalty and recommendations and higher client prices.
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