Better Budgeting Means Better Business

Before awarding credit, lenders demand detailed budgets, including cash flow forecasts. They want realistic projections, not unfounded profit and revenue estimates. Cash flow projections are an important element for lenders because they show how you plan to repay the money.

Even if your construction firm doesn't need credit, a well thought-out budget, including cash flow projections, is important for the ongoing operation of your business. For some construction projections, surety companies look closely at budgets before issuing the bond needed. Additionally, by preparing an effective annual budget and comparing it to your actual financial performance, you can find certain situations that need to be addressed.

For example, a construction firm that expects $5 million in new projects in the first half of the year, but is awarded only half of that amount in contracts, need to review its bidding procedures. Perhaps the company needs to tighten up its bidding process, have someone review the work of the estimator before bids are submitted, and review other internal procedures to get more work.

Upon review of the actual performance, you may find expenses that are out of line and you want to look at instituting controls, safeguards -- and perhaps even institute a bonus system for those responsible for controlling the job.

Effective budgeting requires knowledge of the technical aspects of the construction industry -- as well as experience with projections, job costing, bonding and a host of related financial matters.

Contact us. We can help you develop a meaningful and reliable budget that will help your company now and in the future.

About the Author(s)

Nick is a Principal in the Youngstown, Ohio office of HBK CPAs & Consultants. He began his public accounting career in 2004 with HBK.

Nick has extensive experience working with closely-held companies and their owners. He provides tax and assurance services to a wide range of clients, particularly those in the transportation, construction and manufacturing industries. Nick is relentless in promoting HBK and he works hard to help clients make informed decisions. He is a member of the HBK Transportation & Logistic Niche and the HBK Construction Niche. He is also very involved in the community and volunteers with several organizations.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.