Guide to Construction Financial Management

A lot of people in the construction industry struggle with finding tools and techniques for effective construction financial management. Poor estimation of project costs leads to the project going over budget and causing trouble for every party involved. However, if you are having trouble managing your company’s cash flow you should know that you are not alone facing these challenges. 

What is Construction Financial Management?

Financial management in a construction project includes making smart decisions regarding the financial resources available in order to maximize profit and ensure the companies long term financial security. It is important to understand that every little decision impacts the company’s financial position. Whether it is a small purchase of used cat equipment or structural changes being made on a business level it will impact the overall financial health of the organization.

Top Construction Financial Management Challenges

Since construction industry is project oriented unlike most other industries, the standard accounting procedures cannot be used to handle construction financial processes. Due to the unique elements in the construction industry the challenges that construction project managers face regarding financial management are also unique. Knowing about the top construction financial management challenges will allow you to prepare for them and will help in ensuring your construction company’s financial security. The following are some of the most common construction financial management challenges that project managers face. 

Lack of Real-time Information Regarding Project Costs

A lot of construction project managers do not find out if the project is profitable until the very end. Having no real time view of project costs, project managers are unable to see where and why they are losing money. It is a common mistake that a lot of people make without realizing how it will impact their company’s financial health. Usually, all the financial data is also available and only the tools and techniques to analyze them are missing. 

Cash Flow Management – Payment Terms

In the construction industry cash flow management is quite difficult. It is hard to plan future investments due to the difficult payment terms and other challenges that construction companies face. Apart from challenging payment terms, construction companies also have to deal with low profit margins and a lack of regular income at the start or end of the project.

Complexity of Financial Data 

There are a lot of external factors that influence the success of a construction project. Having the most accurate estimates would not make a difference if the situation of the project changes at any time. Recently we have seen how inflation and material supply chain problems have impacted the industry. Such external factors impact the financial stability of a company directly. It is important to be prepared in case the situation of the project changes due to any such external factors.