Taking care of the financial side of your projects and ensuring profitability is never easy. However, your company’s existence depends on the adequately managed costs and profits. That is why you should take a look at our guide to learn how to prepare a good financial report and discover why you ought to monitor financial data every day!
How to properly manage project finance? Recently, we presented you with the financial management basics. Now, it is time to take one step further and dig more into detailed tools that can support your processes.
One of them is financial reporting. Properly prepared financial data can be a great source of information about your financial past, current company's situation and a good knowledge base for future investments. However, to profit from financial information, you need to know how to manage it properly. So, let's take a look:
Financial reporting shows a company's financial information and performance over a specific period of time. It is an essential tool that helps you find out how much money you have within the project, your costs and their origins. Proper financial reporting can improve project execution in a company as project managers have better control over the financial health of investments. It is also beneficial for accountants who can better understand the specific costs and profits.
First, we need to highlight that each company is different and therefore, should have its own vital metrics to control. Since we do not know the specifics of your processes, we cannot give you a perfect solution in this article. If you need individual support, schedule a meeting with us. Thanks to that, we will focus on your company's pain points and present you with suitable solutions.
Okay, we said before that we do not know the individual needs of your company. However, we will try to list the essential, core financial parameters, which you should include in your report. Consider them as a base in your financial reporting, to which you will add the metrics specific to your individual needs.
If you operate on budget per project, monitoring it should be a crucial piece of information for you. In line with the budget, you should also control the cost of your project. A combination of these two factors will give you project profitability.
The best would be to monitor these indicators on a daily basis. Why? If you update all the numbers at the end of the project, it may turn out that the costs are much higher than we expected, and as a result, your profits are much smaller. Sometimes, it is impossible to update the financial data daily, but always try to do it after the new cost appears in your processes.
We talked about the cost in the previous point. Let's expand it a little bit. If you manage big and complex projects, you probably deal with various types of expenses. You spend money on design, material, labour, transportation and much more. To control your project, you should consider splitting costs into cost categories in your financial report. There is one crucial reason for that: having better control over your project.
Imagine you exceeded the budget in your project. Thanks to cost categories, you do not have to wonder what went wrong. Instead, you can see exactly which part you lose the most money on. Of course, when you monitor the cost daily, you do not have to let that happen. With up-to-date financial information, you can see that the costs are higher in specific cost categories and that you need to adjust other expenses (if possible) to still be within the budget.
To assure financial stability in your report, you should include payment indicators. The two main ones are: received to date and outstanding. Monitoring them is crucial as late payments are a massive challenge for the whole construction industry. Moreover, they are extremely painful for subcontractors who have to wait for even more than 60 days to get paid!
If you feel like you have control over your cash flow, consider the following questions: How much money has already been spent on the project? Which payments are you still waiting for? How does it impact your financial stability? Only with adequately prepared data can you answer these questions and, consequently, control the finance of your construction business
Last but not least, invoices. Certainly, your accountants or you yourself take care of them but here, we advise you to control these numbers regularly: monthly or quarterly. Why? As we mentioned before, financial stability is a crucial factor in your company's existence.
By monitoring the level of invoices, you can see, for example, that the month ended with profits, but during the next one, your company anticipated a decline due to the number of purchase invoices. Or, the opposite situation when you finished a month (or a quarter) in debt, but the upcoming period seems to be optimistic. Thanks to financial reporting, you do not have to worry about it since the predictions are based on solid data.
As we mentioned before, there is a lot of different information that you can put in your reports. That is why, before creating them, think about your processes. What is the purpose of this report? Which factors are key performance indicators for your project? Choose ones that impact your project financials.
Also, when it comes to external reports for clients, do not overwhelm them with hundreds of data and pages. They do not need to know all the details, especially as they probably will not have time for that. That is why you should make sure that you only choose crucial data and that you show it in easy-to-comprehend charts. Your customers will for sure appreciate that.
Probably, when you think of reports, you think about monthly/quarterly or yearly documents. Of course, they are crucial, but you should monitor your financial indicators daily for successful project management. Especially as in a fast-changing world, the company's financial situation can change diametrically within a few weeks!
The most considerable benefit of daily reports is that they provide up-to-date information and, in a longer perspective, they give you a detailed financial story of your company. Thanks to that, you can better understand and monitor your past, present and future financial situation. Of course, you might need support in monitoring your data daily. One of them can be a project management platform.
Sometimes, even the best procedures and a motivated team are not enough. Dealing with finances in a company can be challenging, especially when calculating or analysing various data for different projects.
Luckily we live in a world of technology and it is here to support us. One of such modern technologies that can help you take care of project finance is construction management software. Such a platform usually has various solutions from detailed dashboards to calculations supported by automatisation to assure you always work on up-to-date information.
Managing financial information, ensuring that projects are always profitable and never exceed the budget is not an easy task. Sometimes, during project execution, we encounter difficulties that we did not even consider in our predictions. They are caused by changing reality, the unpredictability of a project or just human errors.
That is why it is essential to control your finances on a daily basis, not only in quarterly or yearly reports. Invariably, when you think about the financial situation of your project, you should consider three main questions:
How is my project performing?
Is it still within a budget?
If yes/no then how much does my company earn/lose?
Of course, the questions are pretty trivial, but it is a good start for better financial reporting. If you want to take a step further, check out our solutions for successful project management and let us support you in proper financial management.
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