Role of CFO in the Construction Industry

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    12 Jan 2023

    Role of CFO in the Construction Industry

    The construction industry is one of the most dynamic and fast-paced sectors in the world. With multiple large and small-scale businesses competing for limited resources entwined with a constantly changing work environment, construction companies often face numerous financial challenges. Some of these problems include misallocating costs, insufficient cash reserves, dealing with tax issues, and late payments. Therefore, to avoid such issues, land developers and contractors are now putting sophisticated financial management at the forefront of their business model.From ensuring quality materials and payment collection to verifying vendors, not to mention all the safety management and project planning that goes behind the scenes––running a construction business is a lot of work. Due to these multifaceted tasks, construction companies are left with no time to keep an eye on their finances. Therefore, they are always on the lookout for an experienced financial professional like a Chief Financial Officer (CFO) to manage and oversee all the financial aspects of their business. A CFO in the construction industry acts as a custodian of a company’s revenue and expenses and prepares financial projections in support of the organization’s overall business plan. Furthermore, they interpret complex financial statements and ensure compliance with all applicable laws and regulations. In this article, we have highlighted what a Chief Financial Officer does and why they should be involved with the day–to–day operations of a construction company. Risk Management Oftentimes, construction firms face a variety of risks, like safety, supplier performance issues, client default or bankruptcy, financiers, contract constraints, and interest rate volatility. However, a CFO establishes and maintains an adequate risk management process to identify, evaluate and manage these critical risks. Moreover, they assist in
    • Reducing the impact of risks that are inevitable and nontransferable 
    • Ensuring a complete execution of risk plans 
    • Keeping a rigorous check if the corrective actions are taken as per the requirement or not 
    • Identifying areas of improvement  
    • Verifying appropriate controls 
    Compliance Management One of the most important aspects of managing fluid construction projects is having effective compliance management procedures in place. Between credit and background checks, building codes and meeting safety requirements, construction companies must comply with all regulations to minimize health and safety accidents and avoid penalties and delays.  An experienced CFO helps in meeting all regulatory and legal requirements including those related to environmental protection, health, and safety. They identify opportunities for compliance improvement across all facets of the business including internal controls, policies and procedures, and disclosures.Financial Control Due to the inherent risks, the construction industry requires effective financial management even more desperately than other industries. Research studies have indicated that inadequate financial management is a major contributing factor to many construction company failures.Therefore, it is necessary to have good financial control systems to manage the company’s finances effectively and efficiently. This will help in avoiding any unnecessary expenses, such as operating costs, and ensure that the project is carried out as per budget and schedule. A professional CFO, such as CJCPA, reviews all expenditure processes and keeps track of progress and cost overruns daily.  Furthermore, a CFO also helps in:
    • Setting up a system to find out exactly how much money has been spent on project construction, marketing, and design
    • Ensuring that all accounts are accurate and up-to-date
    • Overseeing all the financial matters including budgeting, taxation, and accounting 
    • Identifying any potential problems with the company's financial statements
    Financial Reporting Financial statements not only show a corporation’s current financial performance, but they also offer valuable indicators of future trends. Thus, maintaining current, accurate financial reports help contractors identify potential red flags, accurately forecast budget, and maintain long-term financial health. Many organizations don’t have associates with the resources, time, and experience to generate and analyze financial results. This is where a professional and certified CFO can help. Chief Financial Officer assists in the preparation of monthly, quarterly, and annual financial statements which consist 
    • Income Statements 
    • Cash Flow Forecasts 
    • Balance Sheet 
    • All costs associated with the project, including labor, materials, equipment, and supplies. 
    The aim of these reports is not just to determine information about company finances but also to provide insight into how well you are doing in terms of completing projects on time and within budgeted costs.At CJCPA, we help businesses and contractors analyze, organize and create accurate financial reports.  Safety ManagementIn construction, safety is paramount. Effective safety management includes a systematic approach to managing risks, identifying hazards, and maintaining high safety standards on a job site. Involving CFO in an active safety management program will save you money by reducing insurance premiums, eliminating lost time due to accidents and injuries, and avoiding legal costs and disruptions caused by claims. Final Words Since the construction industry is one of the top economic drivers, many organizations focus more on day-to-day operations and often neglect strategic duties. It is high time for contractors to re-look at their financial management and start getting professional help from CFOs. Chief Financial Officers typically prove to be beneficial for construction companies due to their experience and understanding of unique financial needs. They play an important role in the success of a company by helping and managing accounting and finance practices, making sure that financial records are up-to-date and accurate.If you’re looking for a CFO to help manage your company’s finances, look no further. At CJCPA, we offer reliable bookkeeping and accounting services to multi-sized private and public institutions, contractors, builders, and consultants. With a team of real estate and construction tax accountants, we cater to your personal and business demands. Contact Us Now to know more about our accounting and CFO services.  
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