I did a great visit to my friends at Granite Construction for 3 and ½ days of Financial Intelligence training. We had a great time. I also found two great sushi restaurants. Yep great sushi in Stockton who would have thought…
Granite is always an interesting company to train because they are a project based business. What that means that they measure their profit and revenue in a large extent by how they track their projects. Project companies are unique in that they have statements that are more loaded with estimates and assumptions than any other financial statement. The reason for this comes from the fact that when your business involves several multi-year projects it creates a real challenge to figure out how month money you are making month-to-month and quarter-to-quarter. Since Granite is public they need to publish their financials quarterly by law. That forces companies like Granite to estimate completion on projects to understand their profit.
Project based companies handle the challenge of their financials in many ways. At Granite they don’t count any profit on any project until they got beyond the 25% complete point in terms of cost. What Granite is implying by doing this is that until they get to 25% complete on their large projects they do not know if they will be profitable so they just report the projects are break-even. That is a conservative approach. In project based accounting one needs to be careful. Granite is an example of a very careful company financially.
At our company Setpoint Systems we use an approach described on our book Project Management for Profit to handle the challenge of project financials. We find our system works and other do too. Many use the system we describe in our book. The message for you is if you run projects in your business you need to have a system to track financially that probably isn’t what a typical accountant would use. In other words, GAAP accounting for project based tracking does not work. You need to develop your own system. Granite and Setpoint Systems are two examples of just that.