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Does Your Construction Firm Need a CFO?

February 26, 2024

Having a chief financial officer with accounting and finance expertise is essential for optimizing cash flows, maximizing profitability and accelerating growth. Here’s what you should know.

It takes more than just “sticks and bricks” to run a successful construction company. Accounting and finance expertise is essential for optimizing cash flows, maximizing profitability and accelerating growth. Having a strategic chief financial officer (CFO) to manage these tasks frees up the owner’s time to focus on winning and completing projects. However, for many construction firms this is not a full-time role, and outsourcing this role is a smarter option.

Financial Management Pitfalls

Financial mismanagement is at the root of many construction company failures. Accounting or tax errors, , and not having clear visibility into job costs and profitability and cash flow can lead to a cascade of problems that could threaten your company’s financial stability. Examples include compliance issues, inaccurate job-costing estimates, costly tax penalties and fines, and budget shortfalls. When such problems arise, remedying them can divert resources and attention from revenue-generating activities.

Perhaps you’ve hired a controller to get a handle on financial matters. This is a great first step, but a controller might not be enough, especially if your company is growing. To determine whether your company needs a CFO, you’ll need to understand the different job responsibilities associated with the two titles.

Controllers vs. CFOs

Controllers monitor and report on the company’s general financial health. They usually manage payroll, accounts payable and receivable, general bookkeeping, and tax preparation and filing. They also should generate monthly and annual financial statements.

CFOs go beyond those critical tasks, assuming more strategic roles when it comes to overall financial performance. For example, a CFO doesn’t just prepare the company’s financial statements, he or she also interprets these reports and provides advisory insights to guide business planning.

In addition, CFOs typically participate in broader, more-sophisticated activities, such as:

  • Cash flow management,
  • Loans negotiations, refinancing and restructuring,
  • Budgeting and financial projections,
  • Capital investment decisions,
  • Investor vetting and relations,
  • Tax planning
  • Succession planning, and
  • Risk management.

CFOs also implement and oversee internal controls to prevent and detect fraud. The Association of Certified Fraud Examiners estimates that the median fraud loss for construction companies is $203,000 — significantly higher than the median loss for all industries ($117,000). So, the importance of this role can’t be overstated.

An often-overlooked benefit of having a CFO relates to estimating, which lays the foundation for profitability in the construction industry. Simply put, inaccurate job-costing estimates eat into profit margins. Bidding jobs is always challenging, and it’s more so in today’s uncertain markets. Among other things, a CFO can confirm the validity of complicated calculations, assumptions, judgments and risk analysis.

Outsourcing Option

It can be costly for your company to hire a qualified full-time CFO. Many variables come into play, but the average salary for a CFO in the construction industry is about $350,000. You’ll also be on the hook for payroll taxes and benefits.

Increasingly, construction firms are turning to part-time or virtual CFOs as a more cost-effective alternative. Small and medium-sized companies may require the services of a CFO no more than several days a month. Outsourcing allows them to save money over the short run, while also giving them the ability to scale up their level of service as needed to handle seasonal business peaks, as well as large or special projects, such as bidding a major project or negotiating a joint venture.

Some business leaders may be reluctant to outsource vital services, fearing that “guns for hire” won’t have the loyalty, dedication or responsiveness of a full-time employee. However, such fears are generally unfounded because these professionals make their livings based on their reputations. Plus, they bring valuable objectivity, best practices and specialized experience from working with other companies in your industry.

Don’t Go It Alone

Successful construction companies understand the importance of not just staying on top of bookkeeping and accounting but also leveraging their financial data for strategic purposes. Contact us to help discuss how our outsourcing professionals can improve your company’s financial performance and long-term value.

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