skip to Main Content

How to Increase Profit Margins with Material Shortages and Delays Using Construction Accounting Software

November 4, 2021

As material shortages and price rises continue, it is important that construction companies continue to ask themselves how they can protect their profit margins and reduce costs now to ensure a healthy future.

In this article, we will cover the post-contract processes which you can improve on to save your businesses profit margins.

If you’re interested in how you can save money and protect your margins in the pre-contract phase, read our article on How to Increase Profit Margins with Material Shortages and Price Increases Using Construction Estimating Software.

Post-Contract – How to Save Money During a Job with Construction Accounting Software

What is the Post-Contract Phase?

“The post-contract phase means that you can now start working on the won job. Similarly to pre-contract, there are several processes in the post-contract phase of a job that can be utilised in a way to save money and protect your profit margins.”

These processes include Job Costing / Purchase Orders, Applications & Retentions, Plant Hire etc.

We’ll be breaking down these post-contract processes and identifying key areas in which people can improve their existing processes.

Job Costing / Purchase Orders

Let’s start at the top – you can’t undertake a project without materials!

“A purchase order is a document issued by the buyer to the seller before any goods or money is transferred. This document lists the type of material, the quantity of materials, and the price agreed.”

With material shortages and the costs of materials so high, it’s extremely important now more than ever to accurately track your purchase orders so you can track these against what you originally budgeted for – often referred to as ‘job costing’.

Losing visibility of these costs can lead to overspending on jobs and be detrimental to your businesses profit margins.

Using software, such as Eque2’s Construction accounting software, allows you to create purchase orders against specific items, such as materials or labour giving you total visibility not only of costs committed but also budgeted vs actual costs.

Applications, Valuations and Retentions

Although they can be considered individual processes, applications, valuations and retentions all link into one another:

  • An application is a document submitted by a contractor that outlines how much a contractor will be paid, and is aligned with the amount and quality of work completed.
  • A variation is when part of the project is changed. This could be through additional work, removal of work, or an alteration of the original work.
  • A retention is when a percentage of the payment is withheld to ensure the construction is completed to the standard of the client.

The way that these three processes link into one another is that they all affect how much the contractor is paid.  For any contractor, submitting applications and claiming retentions held or owed by your construction business can be a lengthy, complex process.

Whether it’s reliance on manual spreadsheets, having to chase up overdue payments or simply trying to keep on top of multiple applications across different projects, there’s a lot that can go wrong.

Using software, such as Eque2’s Construct for Sage and EVision solutions, you can help manage the application process whilst monitoring retentions.

This offers greater project visibility and ensures both the contractor and the client stick to deadlines. These perks minimise the chance for errors appearing and payment deadlines being missed, saving your business time and money.

Plant Hire Management

Plant hire, unsurprisingly, is one of the easiest and quickest ways for a construction company to lose money.

Internal and external plant and machinery used for construction projects can cost a lot more than just the rental price if poorly organised.

Without effective plant management, hired equipment can be left onsite longer than necessary or even not returned on time, incurring expensive fees which are easily avoidable.

Therefore, if there was a way to track your plant hire effectively, and alert you when plant needs to be returned or if it is not in use, then you would be able to save money, right?

Software, such as Eque2’s Construct for Sage and EVision, can you help you improve your operational cashflow by helping you manage your plant hire.

The software allows you to generate plant purchase orders whilst recording on and off hire dates. This then automatically calculates the plant costs, saving you money and avoiding additional charges which impact the project’s profitability.

Reporting

Reporting on the surface may seem out of place here in this article. It’s not necessarily a process that directly affects the work that is being done, the receiving/ sending of money or even produces outlying costs that can reduce profit margins.

However, reporting is key to understanding what is happening in the project. Reports can track time, materials, budgets, labour and many more things.

Therefore having strong, core reports is a huge must for any construction company. However, having reports in standalone, manual spreadsheets has the potential to cost a company a fortune.

Manual spreadsheets are prone to human error and corruption. Setting up reports on Excel alone is very time consuming and challenging.

Most importantly, standalone Excel reports aren’t accurate. By the time you input your most recent information into the report to display the correct values, there is going to be more recent data to input.

Therefore, utilising a tool such as Construct for Sage means you can have constant live reports which take live financial data relating to your projects, and makes them available in a variety of formats, including Excel, without you having to worry about human error and corruption.

With Construct, you can run WIP, Plant Hire and retention reports instantaneously whilst creating custom dashboards that automatically populate in real-time.

For enterprise companies, EVision provides detailed Cost Value Reconciliation reporting which allows companies to gain accurate visibility into the progress of a project at any point in time so proactive decisions can be made and any financial implications understood before it is too late.

How Construction Software Can Save You Money

Our construction-specific solutions are cloud-based meaning companies can manage their pre and post-contract accounting processes from anywhere – be that from site, working from home or in the office.

Construct for Sage is a solution designed for small-medium businesses, and is used to increase accuracy, efficiency and organisation through your post-contract processes. With Construct Cloud, you can access your construction accounting solution anywhere, anytime, on any device.

Our Construction ERP Solution, EVision for Dynamics 365 Business Central, is our enterprise-level cloud-based software and is designed to help you to complete projects on time and budget by giving you full control of your commercial, financial, and operational processes and data.

To learn more about how Eque2’s solutions can benefit you, register for one of our free, online webinars and discover how Construct for Sage and EVision can benefit your business

To learn which solution is best for you, take our quick survey to identify which software would be the best fit for you.

 

Back To Top
Search