Preparing Your Year-End Snapshot : Are You Asking the Right Questions?

by Danny Parrish

Year-end is traditionally regarded as an accounting phenomenon, primarily involving the preparation of financial statements. But in reality, year-end processing should be considered on a more global scale.

Year-end financial statements present a “snapshot” of a construction company’s financial condition at one moment in time. As we all know, however, that picture is the culmination of many complex transactions and assumptions, the most important of which are those behind the estimated cost-to-complete numbers for each active project. 

Preparing to take your year-end “snapshot” should warrant the same attention as getting ready for a family portrait – wherein you want everyone to look their best. With regard to year-end, the object is also to have the entire “family” looking their best at the right moment in time. In the construction world, this doesn’t happen without substantial planning and preparation, including considerable cooperation and interaction by accounting, project management and field operations staff.

Starting two months or more before year-end, savvy financial managers begin paying particular attention to jobs in progress, looking for margin fade or margin gain trends. They ask many questions about active jobs and remind project managers to fine tune their estimates.

If jobs are nearing completion, can they be 100% complete by the year’s end? 

Are accounts receivable current or are there past due items that need to be collected or cleared prior to year-end? 

Have all of the adjusting entries been made to pre-paid accounts (sureties love to have those minimized at year-end)?

Is every account reconciled so that there are no surprises when the final numbers are prepared?

These are just some of the questions that must be addressed before you’ll be ready to take your company’s year-end “snapshot.”

So, with sincere apologies to Mickey and the Mouseketeers: “Everybody neat and pretty? Then on with show!”

Danny B. Parrish is President of Parrish Consulting Group, which provides a wide range of consulting and temporary services to construction companies in the areas of accounting, finance, strategic planning, marketing, human resource and information management. A former national president of CFMA, Danny is a frequent speaker at national and regional industry events. His experiences in the A/E/C & Design-Build environment have given him opportunities to serve as an advisory board member for organizations seeking outside expertise and assistance and as a consultant to insurance agencies, software enterprises and accounting firms seeking insight into the construction financial management environment. For more information, call 972-567-2381 or e-mail dbparrish@msn.com.