Financial Planning in the Construction Industry

You’ve heard the saying “Not my circus, not my monkeys.” And you know what it means – it’s about a problem that is not your responsibility.

But what happens when you realize, “This is my circus, these are my monkeys”? Then you begin to get a sense of the responsibilities concerning each of them.  

The circus is comprehensively the construction business you own. The monkeys are the various projects in which your construction business is involved. The circus and the monkeys are your responsibility. And you take care of them in different ways, which leads us to financial planning on two different levels.

Financial Planning for Business vs Financial Planning for a Project

Financial planning is critical. It is the starting point for ensuring you can meet your goals and manage your business now and in the future.

Yet, the financial plan associated with the overall business (the circus) and the individual projects (the monkeys) have different needs and criteria. For example, the overall business and project financial plans have different durations and scopes.

For the business, it is a financial plan detailing your construction company’s overall revenue, expenses, and resource allocations for a specific period, such as a year or other specified period. It is a guide for business-level decisions. It helps:

• Set financial goals.

• Estimate liabilities.

• Forecast revenues and expenses.

On the other hand, a project financial plan is a more focused plan built for individual construction projects. It details the costs associated with completing that particular job. It helps:

• Track direct and indirect project costs.

• Manage resources.

• Stay within the financial limits of the project.

Financial Planning Comparisons

The differences between financial planning for the business and for the projects can be broken down into several strategic planning elements.

Purpose

Business = Tactical financial planning and resource allocation. As a financial blueprint, it helps in strategic decision-making and resource allocation.

Project = Managing project costs and resources. Tracking project costs and managing resources ensures the project stays within its financial constraints.

Focus                              

Business = Long-term financial health and sustainability of the business.

Project = Job-specific cost management, which helps to ensure a project stays on track and within budget.

Components                             

Business = Revenue, expenses, and cash flow. It details estimated revenue, fixed costs, variable expenses, one-time expenses, cash flow, and profit.

Project = Job-related costs such as labor, materials, and equipment. It considers the anticipated costs of each phase within the project.

Duration                         

Business = Annually or other specified time frame.

Project = Limited to the start and finish of each project.

Scope                                        

Business = Entire construction business. It covers financial activities, such as investments, hiring, and future project horizons. 

Project = Individual projects. This includes financial aspects of a specific project, including labor, materials, equipment, and other project-related costs.

Financial Planning: It’s the Same, but it’s Different

Some contractors mistake project financial planning for business financial planning. While they both involve developing a viable spending plan, they have noticeable differences, as we’ve pointed out above.

Do you need help with financial planning for your construction business? The team at The Profit Constructors is well equipped to help you sort through the various components, develop workable spending plans, and take your construction business to the next level, so you can confidently Run With the Big Dogs.

Hint: Call today to find out how we can assist you with the financial planning necessary to grow your construction contracting business.

Ambitious Construction Contractors look to The Profit Constructors to provide advocacy in dealing with:

• Clients and customers

• Employees and subcontractors

• Vendors and service providers

• Governmental entities

Working with The Profit Constructors gives Construction Contractors the means to organize their operations in ways that help them:

• Remain informed

• Avoid hassles

• Reduce risks

• Be future-ready

Ready for action? Or want to know more? Get in touch today to schedule a complimentary discovery call. 866-629-7735