A contractor can reach a point where the bookkeeping is in place, the monthly statements arrive, and the owner still cannot answer the questions in front of them. Will cash cover the next two months of payroll? Can the backlog support another crew? What will the surety ask for at renewal? The reports describe what happened. The decisions are about what happens next.
This article describes the situations that can signal a contractor needs CFO-level work, what that work covers, and what it does not.
Corey Roder, CPA PLLC does not itself perform audits, reviews, or other assurance engagements. This article is general information and not advice about a specific business or set of financial statements.
Where CFO work starts
Bookkeeping records activity, and controller work oversees how the close and the reporting are produced; Fractional Controller describes that level. CFO work starts from reporting that already shows what happened and asks what the business does next. If the books do not yet show job-level results, start with Job Costing for Contractors.
Seven situations that point to CFO-level work
1. A bonding conversation is coming. A surety asks for a WIP schedule, and the job cost data will not support one. Or a renewal or increase is coming and the question is how the numbers will be read. See What Sureties Look At in Contractor Financial Statements.
2. The income statement shows profit and the bank account does not. Timing is one explanation: profit can sit in retainage, underbillings, and receivables while labor and materials are paid before customers pay. It is not the only one. Loan principal payments, equipment and other capital spending, and owner distributions all use cash without appearing as expenses on the income statement, and a company can also be short of cash because some of its work or lines of business are losing money. A cash forecast and a statement of cash flows show which of these is at work.
3. Recent jobs are finishing below the margin they were bid at. The open question is whether that is a pricing problem or an execution problem. The answer is in job-level cost-to-complete data, and it is the kind of question described in Construction Profit Fade.
4. Growth decisions are being made from last month’s profit. Adding a crew, a project manager, or a second location changes cash needs months before it changes revenue. Those decisions should be tested against projected cash.
5. A lender or investor wants a forecast. A line of credit renewal, equipment financing, or a refinancing is evaluated against forward-looking numbers. A contractor may have last year’s return and a year-to-date statement and no forecast.
6. Seasonal cash is being managed by feel. For a roofing company, that is how much working capital the next storm season requires and whether to carry crews through the trough. For an HVAC company, it is how many technicians the shoulder season supports and how to fund the pre-season inventory build. The trade pages cover these patterns: Roofing and HVAC.
7. An ownership change is under consideration. A sale, a buy-in, or succession plan puts the financials under a different kind of scrutiny. See Mergers & Acquisitions.
Not every contractor needs a CFO. A company with one or two of these, and job-level reporting that already works, may need a defined piece of work rather than an ongoing role.
What the work covers for a contractor
The Fractional CFO page lists the full scope. The points below are how that scope applies to contractor numbers:
- Cash forecasting tied to billing and collection timing. A rolling forecast built from the schedule of values, progress billings, retainage release, and payment terms, rather than from the income statement. A worked 13-week example is in Contractor Cash-Flow Forecasting: A Practical Rolling 13-Week Forecast.
- Backlog against capacity. Whether the backlog on hand can be delivered by the crews, project managers, and working capital the company has.
- Margin forecasting from the WIP schedule. Where margin on open jobs is heading, and which jobs are consuming cash rather than producing it.
- Financing and bonding preparation. Assembling the package a lender or surety will ask for and evaluating terms and covenants against the company’s cash profile. We prepare the schedules and the supporting accounting records; any audit or review of financial statements is separate work performed by an independent CPA firm.
- Scenario analysis. Testing the plan under less favorable assumptions: a slower season, a delayed payment, a job that fades.
- A short list of management measures. A defined set the leadership team actually reviews.
What it does not replace
Fractional CFO work depends on the accounting underneath it. It does not replace the close, the reconciliations, or job costing, and it does not include an audit, review, or other assurance engagement.
Is there a size threshold?
Our fractional CFO work is built for specialty trade contractors doing roughly $5 million to $30 million in annual revenue. We scope outsourced accounting and business tax strategy around the business, not a revenue range.
Revenue is a guide, not the sole test. The right level of support depends on the complexity of the business, the reliability of its reporting, and the decisions ahead.
What an engagement can look like
An engagement may begin with a defined piece of work: a forecast, a financing package, a reporting rebuild. Depending on what that work surfaces, ongoing support may or may not make sense. The scope and rhythm are set from the decisions the business is actually making, not from a standard package.
Questions to answer before you hire one
- What decision is coming in the next six to twelve months that the current reports cannot answer?
- Can you see, for any open job, the contract amount, costs to date, estimated cost to complete, billings, and gross profit to date?
- Does anyone own the cash forecast today, and what is it based on?
- Are job costs reconciled to the general ledger?
- Who in the company will supply the cost-to-complete estimates the forecast depends on?
If the answer to the second or fourth question is no, start with job costing and the close.
Where this connects
Fractional CFO describes the full scope. For the underlying contractor accounting mechanics — WIP, retainage, change orders — see Construction & Contractor Accounting. Where the close and the reporting need structure first, see Outsourced Accounting and Fractional Controller.
If a bonding renewal, a financing request, or a growth decision is in front of you, start a conversation.
Corey Roder, CPA is the founder of Corey Roder, CPA PLLC. He is a licensed CPA who founded a construction company and served as its COO and CFO, managing the financial and operational decisions of that business. Earlier in his career he worked as an auditor at Grant Thornton. More about the firm: Company & People.
Corey Roder, CPA PLLC does not itself perform audits, reviews, or other assurance engagements. Need an audit, review, or other assurance engagement? We can help coordinate it. Corey Roder, CPA PLLC maintains referral relationships with independent CPA firms that provide these services. The assurance engagement is separately contracted with and performed by the independent CPA firm.