John Kenney, CPRC, CEO, Cotney Consulting Group
In simplest terms, financial management is using your company’s financial resources. Everyday decisions affect your company’s financial future, including operating cash and other assets such as equipment. Your decision to bid on a large project can significantly impact your company’s finances. As you decide whether to bid on a project, you should address the following questions:
■ Does your company have enough cash resources to perform this work or will you need outside financing?
■ Can your company get bonded for the work?
■ Do you have the employees to perform the work or should you subcontract this labor?
■ Should your company lease or purchase the additional equipment needed for this project? If you buy the equipment, how will it be financed?
■ Will this project require your company to increase staff overhead?
■ What profit and overhead markup should be added to the bid?
The answers to these questions will affect your company’s finances and how you answer one question may limit your options when answering another question. To expand on this, suppose you decide to hire additional employees to perform the work on a project. In that case, it could require more financial resources than if you hired subcontractors to perform the labor. It may leave your company with insufficient cash to purchase additional equipment needed, leaving leasing as the only option.
Our industry has unique challenges and problems not faced by other industries. Although our industry produces a finished product, installing roofs differs from manufacturing in most other sectors. Because of these unique characteristics, the principles of financial management applied in roofing companies are modified from the standards used in other businesses. Let’s look at the attributes of roofing that are unique to construction.
It is common for a roofing company to work on multiple projects. You could be working on a tenant finish in a shopping center, reroofing a residence and installing a new school roof simultaneously. Even when a roofing company works on similar projects, they are different due to site conditions and location, affecting labor and material availability. Roofing companies furnish fixed prices to clients for products that your company may have never previously installed or with project owners your company has never worked for.
For the most part, as a roofing contractor, you are selling labor. Unlike a manufacturer that carries inventory in slow times to be available to utilize during peak selling seasons, you cannot store up your labor in anticipation of use on future projects. So, a roofing company must constantly bid on new work to keep their workforce fully utilized. No other industry is as project-based as the construction and roofing industry. Almost everything we do is a project. Because of this, we must keep accurate construction costs for every project we install. Not only do you need to track the overall cost of your projects, but you must also keep track of the individual components that make up the project’s costs. This data is necessary to control the current project’s costs and to maintain accurate historical information for future projects. Each project may require a different mix of labor, materials and equipment, so knowing the cost of the components of
a project is necessary in order to successfully bid on future projects.
Most industries, like manufacturing and retail, perform their work at a centralized area where employees come to the same location day after day. Conversely, contractor employees and equipment move from job to job on a regular basis. For this reason, employees and equipment must be tracked accurately and their costs associated with the correct job.
For many roofing contractors, their work consists of long-term contracts for individual projects with monthly progress payments made by the general contractor or building owner. Retention is commonly withheld on each payment application that defers a portion of your progress payment. As a result, roofing companies must anticipate and modify accounting and other financial procedures to handle retention.
The use of subcontractors can have a great impact on the finances of a roofing company. It allows a roofing company to tap into a subcontractor’s financial assets during construction. Because of these unique characteristics, a roofing company’s owner and the project
manager must have a sound understanding of financial management and how management principles are applied in our industry. The way most financial managers are taught in business schools must be modified to account for our industry’s unique characteristics to
manage roofing companies’ finances successfully.
For our discussion and your overall company’s financial success, superintendents, project managers, estimators, general managers and owners are responsible for all or part of the financial management of a roofing company. The person ultimately responsible for the roofing company’s financial management and ensuring the rest of the team understands their part in the process is the owner. When your team understands the principles of financial success and the project-specific tasks, it will fast-track your company toward increased profitability through sound construction financial management.
If not the owner, a controller or CFO is usually designated as the financial manager. They are responsible for seeing that your company uses its financial resources wisely. Their responsibilities can be broken down into four extensive areas: accounting for financial resources, managing costs and profits, managing cash flows and making financial decisions. Next month in part two, we will discuss these four areas of responsibility in detail.
John Kenney, CPRC has over 45 years of experience in the roofing industry. He started his career by working as a roofing apprentice at a family business in the Northeast and worked his way up to operating multiple Top 100 Roofing Contractors. As CEO, John is intimately familiar with all aspects of roofing production, estimating and operations. During his tenure in the industry, John ran business units associated with delivering excellent workmanship and unparalleled customer service while ensuring his company’s strong net profits before joining Cotney Consulting Group. If you would like any further information on this or another subject, you can contact John at
jkenney@cotneyconsulting.com.
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