By Rob Jafek, Principal | Boomerang Capital
Keeping records clean and accurate will make your life much easier. Although it’s not fun or glamorous, it is necessary for your project and bottom line. Management and productivity guru Peter Drucker would say “You cannot manage what you do not measure.” Since the only way a project can be managed effectively is through measurement, we are going to need records. This is not a new insight, so let’s review at a high level how to figure out if the juice is worth the squeeze.
What to Record.
You’ll want to start with a good budget, which will help you plan and allocate resources effectively. It is also useful to project a clear picture of your financial situation in relation to the progress of your project.
Next, you’ll want to monitor things along the way, as it happens. Trying to backpedal and fill in the expenditure gaps after the fact, not only creates undue stress but also perpetuates errors and inaccuracies. Be sure to include not only money but time as well. Speaking of money, it is important to note that cash and profits only match up at the end, not during the process, so plan and monitor both. Also, don’t forget to include a bit of contingency.
Why Record? So, You Can Make Decisions.
- Clear data leads to clear decisions. Full stop.
- Decisions like: What is going well and what needs improvement?
Not where you want to be? Look at your records to see where you started going off then how much time and money it will take you to get back on track. Even if you are on track, are there any interesting or concerning trends? What is changing over time? Can you do anything about it? Does your next bid need to include different numbers? You’ll need information for that analysis.
And decisions like: Do you even want to do another one of these?
- Investors: If you have other investors, you need this or you are in for all sorts of trouble. Especially since they want a record of how their funds are being used.
- Credit: Lenders require detailed financial records when considering loan or credit applications. Therefore, having accurate and complete records improves your chances.
- Tax: You know this is coming, so being prepared can take some of the dread out of it. Not all, but lots. On the plus side, if you have good records, you may be able to go through and find places you can reduce your tax liability. This is a big reason we chose this very dry topic at this festive time of year – year end is coming and so the window for making most of these adjustments will close soon.
- Regulatory: Lots of projects or parts of projects, require an external sign-off. You will be very happy if you have all your receipts and proofs ready for when, say, your inspector comes to grant your final certificate of occupancy or signed off on your electrical needs. And you may want to be asking the same from your subs if you aren’t already. There may be some other legal requirements that you will want to be prepared for. Many of these regulators operate under the mantra of ‘trust, but verify’ and if you make their job easy, they are much more likely to make your life easy.
Red Flag Warning: Think Hard About Commingling.
Co-mingling means you are using assets for more than one purpose, and it leads to conflict, or at least questions of conflict. For example, suppose you are doing two projects, and you use the same drywall sub. The work is complete, and he sends you a bill. Which project does the invoice get paid out of? The easy answer (to avoid co-mingling) is to get two invoices and avoid the hassle. That one is also pretty simple but think about the same thing with cash. We see a lot of people using a personal credit card for business expenses, thinking they will get reimbursed or otherwise clean it up later. The better solution is getting a business credit card and avoiding crossovers altogether. However, you can’t do that per project but having the separation between business and personal will clean up lots of issues.
The biggest possible reason you want solid records is peace of mind. Knowing where you are, where you are going, and being prepared for the future while ensuring fairness to everyone involved, including yourself, is priceless. This assurance allows you to relax when you’re off the job.
You know you need to do this even though it is unlikely to be high on the list of your favorite things to do. Overall, by reviewing the reasons and benefits, one can enhance the utilization of the tools, potentially shedding light on ways to become more efficient and effective.