A Scaffolding companies set of accounts must be aligned with their revenue and expense activities but it is also important to get uniformity across the forecasted set of financials.
As with all construction accounting, when designing a set of accounts for a scaffolding company we need to identify the revenue streams that have direct costs associated to them. We can get this information from your quotes and past jobs. We also need to identify any other major revenue streams that we would like to identify separately.
Once we have set up your income accounts we then create the accounts for the direct costs associated with deriving revenue. This is a great way to ensures all of your business operations are individually profitable. For example, there are no direct costs to renting out your scaffold, so having the income and costs identifiable will allow you to check at the end of the month whether your expected profitability on your active income is actually being recognised as your business goes about it's operations.
Lastly we want to ensure that no other variable costs are sitting in our overheads section and vice versa. Commonly we find that management salaries have not been pulled apart from the operating wages. This must be done to ensure a correct reading of the accounts.
This completes the top half of the income statement and the gross profit, this will give you some good insights into the company.
Different forms of profit, balance sheet, tracking categories and timing are discussed below.
We like to show different levels of profit, typically most statements might have net profit and profit after tax. However another good figure is you operating profit or EBITDA. This shows the companies performance before the current ownership structures costs, this can have better comparability over time as the companies capital structure changes.
Due to the higher than normal investment in capital assets it is important to stay on top of your items in the balance sheet. You asset register will show you the value of each individual asset. If however this starts to become under valued, we may need to look at recording the fair value of these assets. If this is not managed a company can become technically insolvent as the companies assets are under represented on the balance sheet, this could result in a damaged credit rating, higher interest costs and a restraint on capital.
Timing is the last key issue for scaffolding companies, we must do our best, sometimes creatively, to align the revenue streams with the costs otherwise we risk throwing out our gross profit. Typically what can happen is that as larger jobs may be partially built at the months ends but not quite ready to be invoiced, this will result in your labour cost being separated from the revenue. There are a few ways around this depending on the companies structures.
Further breakdown of the income statement can also be achieved through tracking categories, most accounting systems have this extended feature. This is not represented in the above example as it is even more company specific. We do however believe that most construction companies should be utilising this feature.
If you have any further questions or need assistance with Construction Accounting's services, feel free to reach out to us anytime
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