What a well-built accounting and finance function actually returns to a construction business
Determining the optimal investment in an accounting department isn't fundamentally different from selecting a brand of drill for the job site. A Harbor Freight option might work for home projects, but there's a reason contractors pay the premium for Milwaukee. The quality of the tools doesn't directly drive revenue, but tools have significant indirect impacts on day-to-day operations—and, as a result, on the bottom line.
Because the costs and benefits of an accounting and finance system aren't easily traced, determining the appropriate level of investment is not straightforward. In construction, money moves in large amounts, on tight margins, across multiple projects simultaneously. A functioning system can mean the difference between winning projects with sophisticated clients, identifying cost overruns or billing errors before they compound, improving cash flow, and making better business decisions with accurate information.
Milwaukee isn't the right choice for everyone—there are strong cases for DeWalt, Makita, or the pricier Festool and Hilti. The key is understanding current needs and planning for future requirements. If you're reading this, you should be well past the Harbor Freight equivalent.
This issue of The Fieldbook provides a framework for evaluating the current finance function and determining where—and how—to improve.
Before discussing return, it's worth quantifying the cost of the status quo. Most small construction firms don't have a finance problem they can point to directly; they have a slow leak. It doesn't show up as a single line item. It shows up as:
None of these items appear on the income statement as "accounting deficiency costs." They show up as thin margins, missed opportunities, and periodic crises. The firm that builds a capable finance function doesn't just avoid these costs—it converts the avoided cost into a structural advantage over competitors still operating with spreadsheets and a part-time bookkeeper.
A well-built finance function in a construction or development business generates return across five distinct areas. Each deserves specific attention.
Pay application preparation and billing cycle management rank among the highest-ROI activities an accounting function can perform. Contractors with disciplined billing practices are paid, on average, substantially faster than those without. Construction businesses typically experience days sales outstanding (DSO) between 60 and 90 days—significantly longer than other industries. On a $5 million revenue business carrying $400,000 in average receivables, a 10-day improvement in DSO frees approximately $110,000 in cash. This is a significant problem with the general contractors I've worked with, and it can hinder working relationships and commitment between trade partners.
The finance function also serves as the first line of defense against billing errors, overbilling exposure, and lien waiver deficiencies. When the accountant owns the billing process rather than the project manager, rejections and disputes drop. The accountant understands contract terms, required retainage treatment, and tracks which change orders have been approved versus which haven't.
Perhaps the most powerful benefit that a well-executed construction finance function provides is real-time job profitability data. Without it, owners make decisions about hiring, backlog, equipment, and distributions based on incomplete information. With it, they know which jobs are running ahead of budget, which are eroding, and which require management attention before the problem becomes unrecoverable.
The value of this visibility is difficult to overstate. Financial distress in the construction industry is commonly linked to an inability to track unprofitable jobs. A job costing system that surfaces a 15% cost overrun at the 40% completion mark—rather than at closeout—gives the project team a fighting chance to correct course. A system that doesn't, doesn't.
Surety underwriting is fundamentally a financial underwriting exercise. The bonding company is deciding whether to put its paper behind the firm's ability to complete contracts and meet its obligations. The quality of the firm's financial reporting is a direct input to that decision.
Firms with CPA-prepared or CPA-reviewed financial statements, clean WIP schedules, and organized balance sheets typically access bonding at meaningfully better rates and higher single-job and aggregate limits than comparable firms with unreviewed financials.
Construction and development businesses are capital-intensive. Lines of credit, equipment financing, and construction loans all depend on the lender's confidence in the borrower's financial management. That confidence is built—or eroded—by the quality of the financial reporting the firm provides.
A firm that provides timely, well-organized GAAP financial statements, a current WIP schedule, and a clean balance sheet to its banker is treated as a preferred borrower. A firm that provides a QuickBooks cash-basis report a month after the quarter closes is treated as a risk to be priced.
The least quantifiable but arguably most significant return from a strong finance function is what it does for the quality of ownership decisions. When the owner has accurate, timely financial information, they make better calls about which projects to pursue, which to walk away from, when to hire, when to hold, and when to take a distribution versus leave cash in the business.
Construction owners operating without good financial data are making decisions formed by the wrong data. The gut instinct that "the business is doing fine" is often based on the bank balance and the backlog—neither of which reveals what's actually happening on active jobs. The finance function provides the ground truth.
A well-built finance function doesn't require a CFO. For most construction businesses under $20 million in revenue, it includes these components:
This infrastructure doesn't need to be built overnight. For many firms, it represents a 12-to-18-month build: start with accounting system configuration, add job costing discipline, then layer in monthly WIP reporting and annual CPA engagement. Each step compounds the value of the one before it.
The return on a well-built accounting and finance function in a construction business shows up in faster collections, lower financing costs, better bonding terms, and decisions made with accurate information. For a firm doing $5–10 million in revenue, the aggregate value created by a properly functioning finance operation—compared to the industry average—typically exceeds the cost of that function by a factor of three to five, conservatively.
The question isn't whether the investment pays off. It's whether the owner is willing to view the accounting and finance function not as overhead, but as infrastructure—the same way they view their estimating capability, their equipment, or their superintendent bench. The firms that make that shift tend not to look back.
Heywood CPA is a construction-focused financial services firm serving contractors, subcontractors, and real estate developers in the Intermountain West. We combine CPA credentials with hands-on construction experience to deliver integrated financial services—from bookkeeping and job costing to pay application automation and CFO-level advisory. For inquiries, visit heywoodcpa.com.