4 Essential Financial Statements for Contractors
- Cost Construction Accounting
- Jun 9, 2023
- 4 min read
Updated: Sep 26
Effectively managing your construction business finances is crucial for maintaining financial stability and achieving long-term success. Understanding and utilizing the right financial statements of construction company operations provides valuable insights into your company's overall financial health and performance.
These essential financial documents help you monitor your company's financial standing, manage financial obligations, and make informed decisions to optimize cash flow and profitability. In this article, we will explore the four essential financial statements every contractor should know. By leveraging these statements, construction firms can ensure accurate financial reporting and improve operational efficiency.
Table of Content:
1. Income Statement: Measuring Profitability and Gross Profit Margin
The income statement, or profit and loss statement, is a financial report for your company. It displays your company's earnings (revenue), expenses, and profit (net income) over a certain period.
It's a tool to gauge the profitability of your construction projects and identify where to cut costs or boost revenue. You should look at your income statement often. This can show you how your company is spending money. Seeing this, you can make plans to do even better.
Use your income statement to:
Track revenue and expenses and operating expenses.
Evaluate gross profit and net income
Assess project profitability.
Make strategic decisions to improve your bottom line.
2. Cash Flow Statement: Monitoring Cash from Operating, Investing, and Financing Activities
Cash flow is the lifeblood of any construction business. The cash flow statement tracks the inflows and outflows of cash from operating activities, investing activities, and financing activities during a specific period. This statement provides a clear picture of your company's liquidity and ability to meet short-term financial obligations.
By reviewing your cash flow statement, you can identify potential cash flow gaps caused by delayed accounts receivable or high accounts payable owed, enabling you to improve cash management strategies and maintain financial stability.
Leverage your cash flow statement to:
Know when and where your cash comes from.
Identify potential cash flow gaps.
Evaluate the impact of cash flow on your operations.
Improve your cash management strategies.
3. Work-in-Progress (WIP) Report: Keeping Projects on Track
In construction, projects often last months or years. The Work-in-Progress (WIP) report tracks the financial status of ongoing projects. It shows costs incurred, revenue recognized, and estimated costs to complete each project.
It's important to often check the WIP (work in progress) report. This report can show if you're spending more than planned. If you are, you can then make changes to keep your project making money
Use the WIP report to:
Track project costs and revenue in real time.
Identify potential budget overruns or profit shortfalls.
Optimize resource allocation for projects.
Make informed decisions to keep projects on track.
4. Balance Sheet: Assessing Financial Health
The balance sheet is like a photo of your company's money situation at a certain moment. It shows what your company owns, owes, and what's left for the owners. If you're a contractor, you can use it to see if your company has enough money, can pay off its debts, and how stable it is financially.
Looking at the balance sheet helps you spot any possible issues or chances for growth. It helps you make smart choices to use your money in the best way.
Maximize the benefits of the balance sheet to:
Evaluate your liquidity and solvency.
Identify potential risks and opportunities.
Make informed financial decisions.
Optimize your financial resources.
5. CFMA Sample Financial Statements
We've given you some example reports, provided by the CFMA, to help you learn about contractors financial statements. These CFMA samples show you what financial statements look like and how to read them. By exploring these examples, you can learn about their layout and the important parts they include.
Sample Income Statement: Download PDF
This sample income statement shows how revenue, expenses, and net income are presented for a construction company. It helps you understand profitability and areas for improvement.
Sample Cash Flow Statement: Download PDF
The sample cash flow statement provides a clear overview of cash inflows and outflows in a construction company. It helps you understand how cash is generated and utilized, allowing you to monitor and optimize your cash flow.
Sample Work-in-Progress (WIP) Report: Download PDF
This example WIP report shows how project costs, revenue, and future costs are displayed. It helps you follow the money part of projects that are still going on. You can see if you're spending more than planned. Using this information, you can make smart choices to keep your project making money.
Sample Balance Sheet: Download PDF
The sample balance sheet provides a snapshot of a construction company's financial position at a specific point in time. It shows assets, liabilities, and shareholders' equity. By reviewing this sample, you can assess your financial health and stability.
By using these example reports, you can learn better how financial statements look and work in the building business. These reports are useful guides. They can help you get better at making your own financial reports.
In Conclusion
Mastering the four essential financial statements income statement, cash flow statement, work-in-progress report, and balance sheet is critical for construction companies aiming to maintain financial health and operational efficiency. Regularly reviewing these documents enables contractors to monitor financial performance, manage financial obligations, and make informed decisions that support long-term business success.
At Construction Cost Accounting, we specialize in construction bookkeeping services tailored to the unique needs of construction firms. Our expertise in construction financial management ensures accurate financial reporting and provides the insights necessary for sustaining financial stability. Explore our blog for additional resources on construction financials.
For questions or assistance, please contact us. We are dedicated to supporting your construction business's financial success.
