As seen in Providence Business News

Historically, the construction industry has not been immune to economic volatility. In recent years, COVID-19 caused initial setbacks for non-residential construction, while rising unemployment and supply chain issues disrupted the macroeconomic environment even further. Those challenges have been compounded by high interest rates, which have increased the cost of capital, weakened construction activity, and caused planned projects to be delayed or canceled altogether. On September 18, 2024, the Federal Open Market Committee (FOMC) lowered the federal funds rate by 0.50%, which has provided relief to many debtors using variable rate agreements. This rate cut could signal to the market that the FOMC believes employment and inflation are stabilizing, indicating that the overall United States (U.S.) economy may be moving towards the soft landing for which many have hoped.

During difficult and uncertain economic times such as these, the most successful businesses separate themselves from their competitors through strong leadership and their management teams’ ability to make fully informed decisions based upon accurate, relevant, and timely data. This kind of data does not just appear; it results from a strategic vision that includes proper planning and the adoption of new technologies, which can aid companies in navigating the decision-making process and, in some instances, streamline operations by automating tasks. Based on the IBISWorld report for Construction in the U.S., the industry is expecting annualized revenue growth of 2.1% through 2029. In order for leaders to set their construction business up for success, they should consider evaluating their budgeting and cash flow projection processes and leveraging technology.

Budgeting and cash flow projection

Simple, yet often overlooked, tools are budgeting and cash flow projections. Effective budgeting is an essential building block for any financial management plan. It gives management the best available information to evaluate business performance relative to expectations, assess any changes in assumptions and events, and identify underperforming areas for improvement, enabling them to focus attention where it is needed most. Budgeting is a long-term management tool, typically created annually, with adjustments made once or twice during the year for major changes.

Cash flow projection is a short-term management tool and is typically prepared on a quarterly, monthly, or weekly basis. When properly prepared using reasonable and appropriate assumptions, cash flow projections can alert management in advance to potential cash shortfalls or excess cash available for additional investments into the business or quicker repayment of high interest debt, ultimately saving the company money in the long run.

Leveraging technology

Construction companies can immediately bolster their management, reporting, and decision-making abilities through the adoption of new and emerging technologies. Today’s enterprise resource planning (ERP) systems are highly capable and customizable, offering functionalities that older systems simply cannot perform. ERP systems now offer a range of new features, including automation, which is in high demand due to challenges with finding, hiring, training, and retaining qualified employees. Many companies are instead turning to automation and artificial intelligence (AI) platforms to help them perform certain functions within critical financial cycles, such as accounts payable. Many companies have seen significant benefits from systems like these when properly set up and rolled out, improving their recordkeeping and record retention while also achieving greater efficiency and cost savings. Automation and AI can also reduce the frequency of data input errors by digitally reading source documents, extracting relevant data from those source documents, and recording that data in the accounting system with greater reliability than manual human entry. This allows employees to focus on larger, more challenging, and more impactful tasks and projects.

Help your company build for the future

Investing in frequent cash flow projections and leveraging technology can provide you with the detailed insights needed to make more informed decisions, setting your construction business up for success. If you would like to explore how your construction business can build for the future, please contact your Citrin Cooperman advisor or Carlos Carvajal at ccarvajal@citrincooperman.com.