Business owners can learn a lot about their companies by using key performance indicators, or KPIs. These data points provide insight into the profitability of a company and give owners an early indication of potential issues. Architectural business consultant Lucas Gray of Charette Venture Group recommends three KPIs to help firms measure their profitability: break-even point, utilization rate, and billable ratio.  Lucas Gray View profile Related: 8 KPIs every construction company should track 1. Break-even point A company’s break-even point is the minimum amount of revenue needed ..read more

Running an architectural firm is a bit different than other companies in the construction industry. You’re providing a service to your customers, but your contracts are often lump-sum, and billings are often determined by the percentage of completion. However, like any other business, you need to maintain positive cash flow or you may find yourself unable to pay your workers and other expenses. Let’s take a look at the basics of cash flow and how architects can budget their expenses and forecast their income to stay in good financial standing. More for architects – KPIs for Architects: 3 Perfo ..read more

Construction projects rely on contractors completing the work they started and meeting the design intent. In an attempt to hold contractors accountable, many projects use retention holdbacks, also known as retainage. These holdbacks need to be accounted for by every party to a project: owner, general contractor, and subcontractor. Tracking these amounts ensures that everyone gets paid the money they are due when the project is completed. Read on to see how to record retention receivable and payable, and why it can be essential for your business. What is retention? Retention, also called retain ..read more

There are a lot of things that are different about construction accounting, but retainage may be one of the most unique. These amounts withheld from project payments can be a challenge, since they often account for a contractor’s entire profit margin on a job. Not only does retainage make it harder for a construction business to manage cash flow — simply recording the transaction can be a feat. This is especially true if your accounting software isn’t tailor-made for construction companies (like QuickBooks). In this article, we’ll show you how to set up a QuickBooks account to record and track ..read more

The construction industry runs on credit. Contracts are almost never paid up front, so contractors provide labor, materials, and equipment on credit with their customers. As a result, every construction business records transactions to Accounts Receivable (A/R) until they actually receive payment. If your company uses QuickBooks – one of the most popular entry-level accounting platforms for contractors – you already have built-in tools that can help you manage, track, and report on their accounts receivable. In this article, we’ll show you how to manage A/R in QuickBooks, with screenshots to h ..read more

Overhead costs in construction can be a heck of a thing to pin down. On the surface, it looks simple: Overhead is the cost of doing business. But in reality, there are several types of overhead costs. Rather than lumping the types into one arbitrary construction overhead percentage and tacking it onto every bid, they need to be accounted for separately — and they often use different calculations.  Sounds intimidating, right? It doesn’t have to be. This guide will help explain the different types of overhead and how to calculate them. There are even a few tips concerning lessening your ove ..read more

Across the construction industry, the average net profit margin is nearly 6 percent according to research from IBIS World — though Levelset’s Construction Payment Report reports that many builders often see higher profit margins. In order to clear a profit, construction businesses need to account for their costs, including labor, materials, and overhead. Many construction companies fail to take their overhead into account when preparing bids, and that can lead to trouble down the line. Ultimately, neglecting overhead costs could lead you to underbid on projects and cut into your own profit mar ..read more

Debt isn’t a bad thing when it is used strategically to grow your business. The smartest way to approach business debt is to know what you will need the money for, what it will allow you to do in terms of growth, what type of construction financing you will need, and how you will account for the cost of financing. That last part can be tricky. Unfortunately, it is the step many business owners omit from their planning. In this article, we share a step-by-step approach to calculating the cost of financing — and deciding whether your construction business actually needs it. 1. Determine wha ..read more