Operations & Accounting Integration

There are many possibilities that can come from the tight integration of the accounting systems with the operations of the company.

Start integrating your operations and accounting today - book D. Brown Management for an on-site facilitation which includes book and dozens of group exercises.  Contact us for more information. 

Unfortunately most businesses have accounting systems that are externally focused on providing the reports required by the IRS for taxes, banks for credit lines and surety company for bonding capacity.

These reports are too general and too old to provide any more than a rough historical account of what happened 60-120 days ago.

How Integrated Is Your Business?

• Do you get regular monthly financial statements?
• Do you get them within 20 days of the close of the month?
• Do they include at least the following: P&L, Balance Sheets, Work-In-Progress (WIP), Backlog, Margin Fade, Labor Indirect Analysis, Equipment Utilization, Cash Flow and Profit By Market Area?
• Does your accounting system match your bank account balance within 1 day? 5 days? 30 days? Worse?
• Can you project your cash needs?
• Are all labor related indirect job costs (health benefits, yard and delivery personnel/trucks, safety equipment, small tools, etc.) allocated to job costs during every payroll cycle and are they included in your estimates?
• Are all equipment/vehicle costs that are job related charged to the job costs on a regular basis and included in your estimates?
• If you log into your accounting system and run a job cost report right now how old is the information?
• Do your Project Managers, Superintendents and Foremen regularly use the job cost reports from the accounting software to track and manage their jobs?
• Do you have a Purchase Order process in place and does it integrate with your accounting system to help project cash flow?
• Can all of your project personnel including PM's, PE's, PA's, Foreman, Superintendents, Estimators and Operations Managers define clearly how their actions impact Gross Profit, Net Profit and Cash Flow?

The Integration Process

D. Brown Management is not an accounting firm and I am not a CPA. What we bring to the table is a deep understanding of contractor operations, technology and accounting. Each company has different levels of complexity bringing different needs. Each accounting software package has good points and bad. In general the integration process is as follows:

• RCCA - Rapid Construction Company Analysis: We will not start anything without first completing a detailed analysis of the company to make sure that we are a good fit together and that results can be achieved and guaranteed. The initial analysis will provide a general overview of the organization and should develop a pretty detailed list of action items.
• Basic Accounting & Reporting: The integration process cannot begin if the accounting system is not turning out at least regular and accurate summary reports including the P&L and Balance Sheets.  If these are inaccurate we will recommend a CPA firm or work with your CPA firm to get these corrected and get the processes in place to keep them accurate on a go-forward basis.
• Indirect Costs: The next critical step is to put the systems into place to properly account for indirect job costs including those indirect costs driven by labor and those driven by equipment.  
• Summary Job Costs (WIP): After we can be sure that the costs allocated to the project are 99% accurate we start regular production of a Work-In-Progress report which is a standard requirement for banks and bonding companies.  At this point we will have the basics working and can start the next phase of integration.
• Detailed Job Cost Reporting: At this stage we work to standardize job cost or phase codes and make sure that the internal processes are in place to correctly allocate both direct and indirect costs.  The successful completion of this stage is marked by being able to run job cost reports showing details of costs, summaries by cost code, job-to-date versus budget, etc. These reports should be accessible at anytime and the information should never be older than the last payroll cycle.
• Training:  Now that detailed reporting is available it's important to train everyone on the project team how to use that information and how their actions affect Gross Profit, Net Profit and Cash Flow both positively and negatively.  They need to understand what Purchase Orders are really for and how they affect Cash Flow.  Having the information without the training can lead to just as many problems as not having the information.
• Committed Costs:  The training will have taught everyone why Purchase Orders are necessary.  At this stage we focus heavily on this process, documenting and streamlining it along with producing the reports necessary to manage it properly.
• Budgets & Projections:  It is only at this point that this process can be fully streamlined.  With accurate financial statements and a good purchase order process we can start focusing on how the estimate can roll right into a budget, be summarized into a company-wide operating plan and how regular projections on the job affect that operating plan and the financials.

What's Next?

With the above in place you now have the strong foundation to move forward in any direction you want. There are a lot of things you can do and those needs will change depending on where you at at in your growth cycle, what your culture is like, etc.

• Annual Business Planning:  Use your financial data to come up with annual operating/business plans and track your progress using your accounting system. 
• Integrated Compensation Program:  Change how you reward people - tie your team to the same risks and rewards you receive and watch your organization grow while your personal stress
• Desktop Display:  Provide real-time feedback to yourself and everyone involved in executing your annual plan about how you are doing.  Automatically ties to the accounting system and other information resources and can be configured to provide varying levels of information.
• Net Profit By Market Area:  As your organization grows use your accounting program to track not only the Gross Profit made at the job level but also how much overhead that market costs and therefore what it really contributes to the bottom line - many times the actual information is different than what people think and talk about.