Precasters can take a few basic steps to get their financial houses in order.
By Bridget McCrea
Precasters walk a tightrope when it comes to financial management. On one hand they are clearly manufacturers, making product and selling it to a broad range of customers. On the other hand, however, they act more like construction firms, producing a high number of specialized items for those clients. “They’re not just cranking out thousands of the exact same type of widget,” says John Bieber, shareholder with accounting firm Mayer, Hoffman, McCann PC in Kansas City, Mo.
Bieber, who works primarily with manufacturers and contractors within the construction industry, sees that dual role as a challenge when a precaster needs to get a handle on accounting and financial management systems. “Everything these firms do is made to specs, much like a contractor’s work would be,” Bieber explains. “It also varies from company to company, which makes it tough to come up with any type of accounting standard for the industry.”
For individual projects, Bieber suggests taking the construction approach by using budgets for each, tracking actual costs against those budgets, and tweaking the process as needed. “Precasters need to know when they’re running over budget, and they need to be able to make the necessary changes to bring things back in line,” says Bieber. “Success in this area starts with solid budgets and accurate estimates that involve assumptions, the cost of labor and just how much it’s going to cost to create a certain product.”
Of course there’s also the issue of overall financial management, which Bieber says precasters can manage by using a generic $300 to $500 software system like QuickBooks or Peachtree, but upgraded to meet the needs of a construction firm. Key additions include job-costing (to help manage jobs and gain a sense of control over the job and its budget) and inventory functions (for tracking raw materials to finished goods), both of which should play an important role in any precaster’s financial strategy.
“The standardized systems (such as QuickBooks or PeachTree) allow you to get up and running quickly, but they should be modified to fit your company,” says Bieber. And once the information is inputted and the system is in use, precasters can use financial benchmarks (such as Benchmark Survey published annually by the National Precast Concrete Association, www.precast.org) to measure their success against that of their competitors.
Rather than getting overwhelmed by the volume of numerical data and reports that can be generated through today’s accounting packages, Bieber says precasters should select six key measures and create a “business dashboard” to help management create a more productive company. Look, for example, at measures like labor force productivity on a weekly basis, and then hone a business strategy that ensures employees are living up to industry standards.
“This is where an accounting system comes full cycle by taking numbers from a historical analysis mechanism,” says Bieber, “and turning them into something that truly helps you manage your company and get future business.”
Steps to success
When selecting an accounting system, Mike Noretto, partner with Rea & Associates Inc. in New Philadelphia, Ohio, says precasters should find one that allows them to compile product costs, generate payroll, and manage both accounts receivables and accounts payables.
“Nearly all of your software providers (QuickBooks, Microsoft, Peachtree and so forth) are going to fulfill these basic needs in an accounting system,” says Noretto, who urges companies to evaluate the packages before going through the purchase and installation process. To avoid the latter, precasters may also want to consider an Application Service Provider (ASP) environment, through which companies avoid the purchase-and-install and instead access the programs online via a password-protected Web site.
Regardless of the delivery method, Noretto says the best approach is to look at how much you’ll be able to get out of the system. “If you’re purchasing an off-the-shelf system, and if it provides you with 70 percent or more of what you’d like to get, then it’s probably a good choice,” says Noretto. “Obviously there are also some very high-end, customizable options out there, but you may be talking a lot of money – say $10,000 or more – when you venture into that territory.”
Donna Ulmer, assistant professor of Accounting Information Systems at Maryville University, St. Louis, Mo., points out that 89 percent of small businesses currently use QuickBooks, while 8 percent use Peachtree and 2 percent use Microsoft. She sees QuickBooks Pro, QuickBooks Enterprise and the newer QuickBooks Premier Contractor Edition as good bets for precasters looking to get a handle on their financial management.
With a good accounting package in place, precasters not only can gain control over the numbers, but they can also pick up on ways to add value within their operations. If, for example, much time is spent moving materials – but if that activity does little to increase the bottom line – then the company might consider outsourcing such tasks. “The idea is to eliminate non-value-added activities,” says Ulmer, “and a good financial management strategy allows you to do this in a simple, streamlined fashion.”
Dollars and sense
A good starting point for any precaster on the way to solid financial management is a reputable CPA who knows what it means to be both a manufacturer and contractor under the same roof. The accounting firm you select should be able to point you in the direction of a workable accounting software package, and should help you (or at least provide names of someone who can assist) tweak the program to meet your firm’s needs.
Within the company, be sure to get department heads and managers involved in the process, says Bieber, who adds that the road to successful financial management shouldn’t start and end at the controller’s desk. “It has to be ingrained in everyone from the owner on down,” says Bieber. “You have to buy into some level of ‘open book’ management with someone other than the owner knowing about the company’s financials.”
Few would argue the merits of good financial management in today’s business world, which is becoming more competitive every day. And where some of the benefits (such as more control over the numbers and improved budgeting capabilities) are obvious, others are hidden and don’t always show themselves until after the systems are in place.
“If you have a system that can determine the correct pricing of your products – both from a competitive and a product standpoint – you can significantly improve your profit margins by simply being able to track product, labor and material costs,” say Noretto. “Overall, it’s just very difficult to operate a business long-term today without a good, sound accounting system.”
Ulmer concurs and says that a solid accounting system can often mean the difference between making money and posting losses. With material and petroleum prices at all-time highs, she says the case for good financial management is particularly crucial for precasters who are striving to price jobs competitively while still making a profit. “The cushion that these companies have left is getting smaller and smaller,” she says. “There doesn’t seem to be any relief in sight, so now is the time to get a handle on the numbers and use them to your advantage.”
8 Tips for Successful Financial Management
Business consultant and CPA Patrick Rogan of Sacramento, Calif., offers the following strategic tips to precasters looking for ways to improve their financial management tactics:
- Check out QuickBooks Premier Contractors Edition. It is simple to use and reasonable to run. Nearly anyone can learn to use it, including the owners, although the best person would be someone who writes checks, deposits money and bills the customers.
- Use the KISS principle. Keep it simple, and avoid complicating the issue with programs and approaches that don’t fit well with your company’s overall business model.
- Utilize reports, and teach your managers and employees how to review those reports and plan accordingly. Most reports should be run as frequently as the user needs them to assist in running the business – at least once a month if not more, depending on circumstances.
- Have the company’s owners allocate time on a scheduled basis to review the company’s operations and results.
- Implement an accounting system that can be used to forecast and budget future activities, and then compare those budgets with actual results.
- Don’t overlook the report that shows how cash is being used in the course of business. This measure is key in that it shows a company exactly how it manages its cash.
- Update your accounting program regularly. QuickBooks, for example, releases a new version annually and should be upgraded at least every two years.
- If the concept of better financial management seems overwhelming, consider that a streamlined accounting system allows precasters to manage their companies more effectively, and spend more time generating business and building their bottom lines.
Bridget McCrea is a freelance writer who covers manufacturing, industry and technology. She is the winner of the 2007 Florida Magazine Association’s Gold Award for best trade/technical feature statewide.