Management Accounting Services Brisbane for Construction Businesses

What Are Management Accounting Services?

Management Accounting Services provide financial information that helps the people running a business, rather than focusing primarily on reporting or tax compliance.

That distinction is particularly relevant in construction businesses who often struggle with cash flow from project to project and from payment claim to payment claim. A monthly Profit and Loss Statement may show the company was profitable overall while concealing a deteriorating margin on one Project, unrecovered overhead, unrealistic WIP, or costs not yet reflected in the Project forecast.

Management Accounting brings together Project budgets, actual costs, commitments, revenue, variations, WIP, forecasts and overhead so management can see what is happening while there is still an opportunity to investigate the cause and respond.

For a Construction Business, that usually requires information at both Project level and business level. The numbers need to reconcile with the accounting records while also reflecting what is actually happening on the Projects.

Management Accounting sits within our broader Business Advisory Services, where financial information can be considered with the commercial, operational and structural issues affecting the business.

What Does a Management Accountant Do in a Construction Business?

A Management Accountant helps management understand the financial performance of the business and its Projects.

The work commonly includes reviewing how Project revenue and costs are recorded, comparing actual performance with budgets, assessing WIP, examining forecast costs, analysing overhead recovery and preparing Management Reports that explain significant movements.

The useful work starts when a result has moved away from expectation and management needs to understand why. A Project that was tendered at a healthy margin can deteriorate because labour hours increased, subcontract costs moved, procurement savings did not eventuate, variations were not recovered or the original estimate understated the cost of delivery.

If Project reporting only compares invoices issued with costs already paid, management may not see the full financial position until much later.

Management Accountant Brisbane for Construction Businesses

A Construction Business does not necessarily need another external Accountant preparing historical accounts when the problem is poor visibility of current Project and business performance. It may need access to a Management Accountant who understands how Project delivery affects margin, WIP, cash flow, overhead and the expected final financial position of each Project.

Shannon provides Management Accounting Services from Blaze Business & Legal’s South Brisbane office. His work draws on more than 25 years of Management Accounting, Financial Management and Business Advisory experience, including extensive work inside and alongside Construction Businesses.

This allows the Management Accounting work to extend beyond producing financial reports. Project results can be examined against budgets, forecasts, commercial assumptions and information from the people responsible for delivering the work.

Where the business requires broader financial planning, forecasting or working capital support, our Construction Financial Management Services address those issues separately.

Project Profitability Should Be Visible Before the Project Finishes

One of the most useful functions of Management Accounting in a Construction Business is showing the expected final financial position of a Project before completion.

Actual costs alone are not enough. Management also needs to understand commitments, work remaining, unresolved variations, forecast costs and the revenue reasonably expected to be recovered.

A Project may appear profitable halfway through delivery because substantial costs have not yet been incurred or because the current forecast assumes the original budget remains achievable. That position can change once revised labour forecasts, subcontractor claims, procurement increases or unrecovered variations are recognised.

Management Accounting should allow management to compare the original commercial assumptions with the current expected result and investigate significant movements while the Project is still active.

How Does WIP Affect Construction Management Accounting?

Work in Progress, or WIP, can materially affect management’s view of the financial performance of a Construction Business.

WIP needs to reflect the relationship between work performed, revenue recognised, costs incurred and the expected financial position of the Project. If WIP is overstated, profit can appear stronger than the underlying Project performance. If it is understated, the reported position may be unnecessarily negative.

Management therefore needs a basis for the WIP position that can be reconciled to Project information and explained. It should not simply be a figure inserted into the accounts at the end of the reporting period without reference to what is happening on the Project.

Where Project Managers, commercial staff and finance are working from different versions of the expected Project result, the WIP position becomes particularly difficult for management to rely on.

Cost-to-Complete Shows What the Project Is Expected to Cost From Here

Historical Project costs tell management what has already happened. Cost-to-complete analysis looks at what is still expected to be spent before the work is finished.

For Construction Businesses, this can include labour, plant, materials, subcontractors, preliminaries, site overhead, rectification, demobilisation and other Project costs that may not yet appear in the accounting records.

A cost-to-complete forecast should be updated when the Project position changes. If the forecast remains tied to the original budget after management already knows costs have increased, the Project report is not giving decision-makers a reliable expected final position.

Input from Project Managers and commercial staff is important. Finance can identify movements in the data, but the Project team usually holds the operational and commercial information needed to explain why those movements have occurred and whether further costs are expected.

Budget Versus Actual Reporting Needs to Explain the Variance

A budget variance has limited value if management is only told that one number is higher or lower than another. Useful Management Reporting identifies the material variance and investigates its cause.

A labour variance, for example, may relate to productivity, additional scope, programme delay, incorrect estimating assumptions, rework or a change in labour mix. A subcontract variance may reflect procurement outcomes, scope gaps or variations. Revenue may be below budget because work has slipped, claims have been delayed or contractual recovery has not kept pace with delivery.

The Management Accountant can then work with the relevant people in the business to understand the financial effect of those changes and incorporate them into current reporting and forecasts.

Is Your Business Recovering Its Overhead?

Construction Businesses can be profitable at Project level and still produce an inadequate overall return if overhead is not being recovered properly.

Head office salaries, systems, vehicles, insurance, tendering costs, premises, professional fees and management time still need to be funded even when those costs do not sit neatly against one Project.

Management Accounting can examine how overhead is being allocated and whether the margin generated across the Project portfolio is sufficient to support the operating structure of the business.

This becomes increasingly important as a company grows. The overhead structure that supported a smaller contractor can increase substantially as additional Project Managers, Estimators, Commercial Managers, systems and administrative staff are added. If new work continues to be priced using an outdated overhead assumption, additional turnover does not necessarily produce an adequate additional return.

Where broader operational or organisational issues are contributing to financial performance, our Management Consulting Services consider how the financial, operational, commercial and management issues fit together.

What Should Be Included in Management Reporting?

Management Reporting should be designed around the decisions management actually needs to make.

For a Construction Business, a useful reporting pack may include:

• Project revenue and margin;
• Project budget versus actual performance;
• expected final Project position;
• WIP;
• cost-to-complete;
• Project and business overhead;
• aged debtors and significant payment issues;
• cash position where relevant;
• significant financial variances;
• forecast performance; and
• issues requiring management investigation or a decision.

The reporting structure depends on the size of the business, its Projects and the information already available from its accounting and Project systems.

A long Management Report adds little if owners and decision-makers cannot identify which figures require attention, what has caused a significant movement or where further investigation is required.

Why Project Managers and Finance Need to Work From the Same Numbers

Construction Businesses often have several sources of Project information. Finance may be working from the accounting system. A Project Manager may have a forecast spreadsheet and another Project Manager may have a different spreadsheet that isn’t forecasting correctly. Commercial staff may have a variation register and cost report. The owner may be relying on a monthly Profit and Loss Statement or their bank account and the yearly financials of the business.

When those sources do not reconcile, management can spend substantial time trying to establish which number is current before it can assess the Project position.

Management Accounting should bring the relevant financial and Project information together and give management a consistent basis for assessing performance. That requires more than transferring accounting data into a separate Management Report.

The Project Manager still needs to understand the operational position, and the commercial team needs to understand contractual recovery and outstanding variations. The financial information needs to incorporate relevant information from those functions rather than sitting beside them as a separate version of the Project.

What Is the Difference Between Management Accounting and Financial Management?

Management Accounting and Financial Management overlap, but they perform different functions. Management Accounting is primarily concerned with analysing financial performance and producing useful internal information for management. For Construction Businesses, this commonly includes Project profitability, WIP, cost-to-complete, budgets, overhead recovery and Management Reporting.

Construction Financial Management has a broader forward-looking focus on Cash Flow, Working Capital, Financial Forecasting, funding requirements and the financial controls needed to manage the business.

Where the immediate issue is future cash requirements, our Cash Flow Forecasting Services deal specifically with forecasting receipts, payments and likely cash pressure.

Where the issue is whether management can reliably see what is happening financially inside the Projects and the business, Management Accounting is usually the more direct service.

Is Management Accounting the Same as Bookkeeping?

Management Accounting and bookkeeping perform different functions.

Bookkeeping records the financial transactions of the business and maintains the underlying accounting records. Management Accounting uses financial and operational information to analyse performance and provide information for management decisions.

Blaze Business & Legal does not provide bookkeeping services.

Shannon can work with records maintained by your Bookkeeper, internal finance team or Accountant and use that information for Management Reporting, Project analysis and Business Advisory.

Is Management Accounting the Same as Tax Accounting?

Management Accounting is not tax accounting.

Tax work deals with taxation obligations, tax advice, returns and compliance. Management Accounting is concerned with internal management information and financial performance.

Blaze Business & Legal does not provide taxation advice or tax compliance services. Your existing Accountant can continue to perform those functions while Shannon provides Management Accounting and Business Advisory Services.

The information required to manage a Construction Business is often more detailed and more frequent than the information prepared for periodic tax and statutory reporting. Management Reporting can therefore be developed around the way the owners and management team actually run the business while continuing to use the underlying accounting records.

Who Provides Management Accounting Services at Blaze Business & Legal?

Shannon Drew | Management Accountant, External CFO and Business Adviser

Shannon Drew has more than 25 years of experience in Management Accounting, Financial Management and Business Advisory, including extensive experience working inside and alongside Construction Businesses.

His Management Accounting work includes Project profitability reporting, WIP assessment, overhead recovery, Management Reporting, budgets, forecasting and analysis of the financial information used by owners and management teams.

Clients work directly with Shannon. Where a business requires ongoing senior financial management rather than assistance with a defined reporting or analysis issue, Shannon can also work as an External Chief Financial Officer.

Where an issue also involves broader Business Advisory, Rachelle Hare and Shannon can work together on the commercial, financial, operational or governance considerations affecting the decision.

Where Legal Advice is required, Rachelle is engaged separately as the Lawyer under a Legal Services engagement. Her Commercial Law Services address the legal issues arising from Commercial Contracts, Business Structuring, Shareholder and Director arrangements, Corporate Governance and other commercial decisions.

When Does a Construction Business Need Management Accounting Support?

Management Accounting becomes particularly useful when the business has reached a point where the owner can no longer obtain a reliable view of financial performance by watching the bank account, reviewing the Profit and Loss Statement and speaking directly with every Project Manager.

Indicators that the Management Accounting function needs attention include:

• management cannot quickly identify which Projects are making or losing money;
• Project reports and accounting reports do not reconcile;
• WIP changes substantially from month to month without a clear explanation;
• actual margins regularly finish below tender margin;
• Project Managers maintain separate spreadsheets because central reporting does not give them the information they need;
• overhead has increased but the assumptions used in pricing have not been reviewed;
• management receives financial information too late to investigate a deteriorating position;
• the company is busy but profitability has not increased;
• Project forecasts are not regularly updated; or
• the owner cannot obtain a reliable current financial position without asking several people to rebuild it.

These conditions do not necessarily mean the accounting records are wrong. They can arise because the reporting and analysis used to manage the business have not developed as the business, Projects and management structure have become more complex.

Management Accounting Services Brisbane, Queensland and Australia

Blaze Business & Legal provides Management Accounting Services from our South Brisbane office to Construction Businesses in Brisbane, throughout Queensland and across Australia.

Shannon works directly with business owners and decision-makers by phone, videoconference and in person where appropriate. Management Accounting can be engaged for a defined Project or reporting issue, as part of broader Business Advisory Services, or through ongoing External CFO Services where the business requires regular senior financial management input.

Blaze Business & Legal
Suite 8, Level 7
154 Melbourne Street
South Brisbane QLD 4101

Phone: (07) 3063 3373

FAQs About Management Accounting Services

What are Management Accounting Services?

Management Accounting Services use financial and operational information to help management understand business and Project performance. For Construction Businesses, this commonly includes Project profitability, WIP, cost-to-complete, budgets, Management Reporting, overhead recovery and financial variance analysis.

What does a Management Accountant do for a Construction Business?

A Management Accountant analyses Project and business financial performance, including actual costs, budgets, WIP, expected final Project position, overhead and significant variances. This gives owners and management information they can use to investigate financial performance and make business decisions.

How can a Management Accountant in Brisbane help a Construction Business?

A Management Accountant can bring together accounting information and Project data so owners and management can assess how individual Projects and the broader business are performing. Shannon Drew provides Management Accounting Services from South Brisbane to Construction Businesses in Brisbane, Queensland and across Australia.

What is the difference between Management Accounting and Financial Accounting?

Management Accounting is prepared for internal management purposes and can be structured around the information the business needs to manage Projects and make decisions. Financial Accounting is generally concerned with maintaining financial records and preparing financial information for external or statutory purposes.

What is the difference between Management Accounting and Financial Management?

Management Accounting focuses on analysing performance and producing internal management information such as Project profitability, WIP and Management Reports. Construction Financial Management has a broader focus on Cash Flow, Working Capital, Financial Forecasting, funding and future financial requirements.

Does Blaze Business & Legal provide bookkeeping or tax accounting?

No. Blaze Business & Legal does not provide bookkeeping, taxation advice or tax compliance services. Shannon Drew provides Management Accounting, Financial Management and Business Advisory Services and can work with financial records maintained by your Bookkeeper, internal finance team or Accountant.

Can Shannon work with our existing Accountant?

Shannon Drew works closely with your Accountant and your Bookkeeper, while filling in the “gaps” that the client needs in order to understand their forecast cash flow and money coming in and out. Your other advisers can continue to provide tax, compliance and other accounting services within their engagement while Shannon focuses on Management Accounting and the financial information management needs to run the business.

Can Management Accounting help identify why Project margins are falling?

Management Accounting can identify where Project performance has moved away from budget by examining costs, revenue, forecasts, WIP, cost-to-complete and other Project information. The financial analysis can then be considered with operational and commercial information from the Project team to identify the causes of the movement.

Does a Construction Business need an in-house Management Accountant?

Not necessarily. The right arrangement depends on the size of the business, the complexity and number of Projects, the capability of the existing finance team, and how often management requires financial analysis and reporting. An external Management Accountant can provide defined or ongoing support where employing an additional senior finance person is not required.

How much do Management Accounting Services cost?

Management Accounting Services are scoped according to the work required. A Strategy Session with Shannon Drew is $650 + GST for 60 minutes. Larger or ongoing engagements are quoted in writing once the reporting issue, available information and required work are discussed with you.

Book a Management Accounting Strategy Session

If you need better visibility of Project profitability, WIP, Management Reporting or the financial position of your Construction Business, start with a Strategy Session with Shannon Drew.

The Strategy Session allows Shannon to review the problem with you, understand the information currently available and work out what reporting, analysis or further work is required.

Book a Strategy Session with Shannon Drew: $650 + GST for 60 minutes

Or Call Blaze Business & Legal direct on (07) 3063 3373