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Thinking about Planned Financial Management for success of construction
Companies Part -1
1. Success of construction contractors
Construction companies should think and worry how their constructional financial management truly runs
on the desired truck that assures their firm sustainability. Without bothering about the sweet link of finance
with the respected expenditure must be the general manager worry and control. Without good and trusted
working capital the contractor companies couldn’t exist themselves and manage their project completion
within the agreed day of completion. Since cost control manages construction project expenses to ensure
they stay within budget every managers should to know how to plan and alter to feasible and concrete best
management. The general managers and finance heads always thinks the money they collected from the
payment is not empty soon when they order different expenses even including purchase out of planned.
Starting from unnecessary employing behavior of the managers to make beneficial of their relatives, ethnics
groups, etc. to unnecessary purchases including illegal pays they lose the money collected from different
tittles. Financial and contractual problems of construction companies remembered in many ways with the
influence that seen in their uncollected projects. To manage the finance well and in identified manner
construction finance planning is very important so the construction companies as well their project managers
should be acquainted with the knowledge of financial management since it doesn’t need blind management.
Most Mangers thinks the money that they managed is themselves and not the company, company’s workers
and that country wealth. They don’t want to give their ear to correct their mistakes that observe in their
money management of the company. When tried to correct their wrong walk which take to the cliff tip they
fill sad and fill their boss’s sense. Many coworkers don’t want to tell them their mistake and engage to get
money from the company in wrong way by making link with their managers.
1.1.Financial issues in construction companies: bibliometric analysis and trends
Civil engineers must to concern in having of the knowledge of construction financials management. The secret of
success of construction companies in great degree depends and lay on the financial capacity and strength of the
companies in order to finish timely their construction projects. The company managers and project managers should
have awareness about the magic of leading their projects successfully without the disturbance and shortage of finance.
Many engineers don’t have an interest in the management of cash flows that revolve and circulate in their projects.
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They don’t want to make clear cut in the expenditures which do have priority and those which don’t have. This
happens because of unknowing skill to line up in each expense according to the fund and their importance as well the
income that will be get from that expense. As construction is regarded as an important sector in policy making
due to its strong interactions with other sectors, improved efficiency in the sector should, in theory, further
stimulate the overall economy. One of the critical factors in the efficiency of the construction sector is the
successful management of construction contracting firms that largely depends on the extent to which a firm
can adopt prudent practices in the management of financial resources.
Most of the time contractors suffer with the shortage of money to complete their projects on time. Due to
bad finance managements many contractor companies failed and close their company by returning their
license and become a history. They decrease their employee before completely close their company and
become the source for unemployment among others same companies. An important dimension of the
problem for contractors stems from the availability of sufficient funds in appropriate terms and conditions.
Experience to date has shown that poor financial management and lack of finance are the main causes of
contractor failures (Gupta 1983; Russell 1991; Enshassi et al. 2006; Alavipour and Arditi 2018). The
situation is exacerbated in particular for small-medium enterprises which have limited access to capital
markets (Larcher 1999; Chiang and Cheng 2010). In addition, financing difficulties faced by construction
contractors are recognized as the most significant obstacles to the improvement of innovation in construction
industry (Chiang and Cheng 2010; Raftery et al. 1998; Pries and Janszen 1995; Fox and Skitmore 2007).
1.1.1.Capital structure theories -Debt and equity
Debt and equity constitute the main external and internal capital sources in the construction sector.
Equity consists of funds subscribed in a project by shareholders and of retained profits. Interest-bearing
debt on the other hand is mainly provided by commercial banks through instruments such as short,
medium and long term loans, leasing and lines of credit (Elazouni and Abido 2013). Several authors
argue that resort to external financial sources in the construction sector is limited compared to other
sectors in the economy (Ip and Hopewell 1987; Feidakis and Rovolis 2007; Chiang and Cheng 2010).
In contrast, Hall et al. (2000), Kim (2009) and Tserng et al. (2012) argue that construction has a higher
average leverage than many other sectors in the economy. Evidently, there are differences of opinion
regarding the capital structure behavior or the preferred financing sources used by contracting firms in
construction related literature.
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Capital structure theories have long been used to explain the financing behavior of firms in various
industries. The trade-off theory for example, states that firms trade off the benefits (i.e. debt tax shield)
and costs (i.e. financial distress) of debt financing and define a target capital structure ratio, i.e. debt to
equity ratio. Pecking order theory (Myers 1984; Myers and Majluf 1984) on the other hand argues that
firms follow a financing hierarchy, which is shaped by their preference to use internal funds over
external sources. Although theoretical propositions on capital structure have been developed and tested
in finance related literature since 1950s, the field has not gained a well-deserved place in construction
research arena. As the studies are limited in number and a robust foundation has not yet been set, there
is still inconsistency and confusion in literature. The present research is motivated by the desire to
identify the productivity and performance of scholars in enlightening the financing behavior of
construction contracting firms. Conducting a systematic analysis with purpose regarding financial issues in
construction companies using the Scopus database is good input, so many researchers used it for their study
regarding to financial managements of construction companies. In this concept; in some research papers
researchers explain how they collected their input data, a bibliometric analysis of research and theory
development in construction finance is undertaken in order to:
observe how publication and citation patterns have evolved throughout the years,
map the evolution of core literature in the field, identify trends and patterns, and
classify the major subjects and contextual themes in construction finance research.
Regarding the topic and of the Tittle, also these some researchers devoted their time to the best of authors’
knowledge; no earlier study has taken stock of the state of the art in the construction finance literature. A
comprehensive bibliometric analysis of construction finance fills a key gap in this respect. Bibliometrics is
a tool for tracking information on the scientific orientation and dynamism at a given level of specialization
(Okubo 1997). The number of papers, citations, patents, co-publications and other more complex indicators
are used as a proxy in determining the current state of science. Originating from the library and information
sciences, bibliometric analysis provides an overall view of the intellectual structure in a given research area,
through assessment of the contribution of different journals and authors to a specific field and through
determining research trends (De Bakker et al. 2005; Gundes and Aydogan 2016). Moreover, as the primary
method of quality measurement in research known as the peer review system has its own disadvantages,
tracking scientific research through bibliometric analysis supports research progress (Van Raan 2014).
1.1.1.2.Real Time
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Makes sure you are on top of things… in Real-time!
Real-time profit control
You control when you actually can make an impact.
Keep real-time control on the financials and future cash flow
Know what to invoice and when
Keep control on invoicing milestones.
Automate invoice creation
Make clear agreement with your suppliers
Create and approve purchase orders with a click.
Track your commitments real-time and ensure you pay your suppliers according to what was
agreed and delivered
Simplified onboarding
No need to change your accounting processes.
All customer invoices and supplier invoices can be managed in your ERP system.
Xpectify integrates directly with your accounting system and allows for full automation.
puts you in control of your project financials
All data related to project financials in one place.
Spend less time on data management and more on securing progress and profits.
1.2. Construction finance management
It is a critical aspect of the success of any construction project. Effective construction finance management
ensures that projects stay on track and within budget, from creating and monitoring budgets to managing
cash flow and financial reporting. Thinking in providing of a comprehensive guide to construction finance
management for 2023 many authors contributed many articles. The construction industry is constantly
evolving, and the landscape of finance management is no exception. Exploring the latest best practices,
strategies, and emerging technologies for managing construction finances is practiced nowadays. Covering
the basics of construction financial management, including budgeting, cost. Also delve into the future of
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construction financial management; exploring the impact of new technologies and how they change the
industry should be the assignments of construction companies. Whether somebody is a
seasoned construction professional or just starting, taking time with this knowledge will provide him or her
the tools and insights he/she need to manage construction finances successfully. So, if anyone who wants to
stay ahead of the curve in construction finance management, should read much about the construction
finance management
1.2.1. The Basics of Construction Finance Management
Construction finance management is a complex and multifaceted process that involves several key
components. Understanding these components is essential for ensuring the success of a construction project.
A. Understanding the Key Components of Construction Finance Management
1.Budgeting:
Budgeting is a crucial part of construction financial management. It involves:
creating an estimated budget for the construction project and
monitoring expenses throughout the project to ensure they stay within the budget.
This includes:
forecasting future expenses and
preparing for unexpected expenses, such as change orders.
2. Cost Control:
Cost control manages construction project expenses to ensure they stay within budget. This involves:
regularly monitoring construction expenses,
identifying areas where costs can be reduced, and
taking steps to control expenses throughout the project.
3. Cash Flow Management:
Cash flow management is critical to construction finance management. It involves:
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managing the inflow and outflow of funds to ensure that the construction project has enough
cash to pay bills and complete the project on time.
This includes:
securing funding for the project,
managing accounts payable and receivable, and
ensuring that the construction project has a positive cash balance throughout its life cycle.
4. Financial Reporting:
Financial reporting is an important part of construction financial management. It involves:
providing regular and accurate financial reports to stakeholders, including the construction
project
team,
clients, and
financiers.
Financial reports help ensure that everyone involved in the construction project has a clear understanding
of the project’s financial status and can make informed decisions about the project’s future.
B. Importance of Having a Solid Financial Management Plan
A solid financial management plan is essential for the success of a construction project. A well-structured
financial management plan outlines:
the construction project’s budget,
cost control measures,
cash flow management strategies, and
financial reporting processes.
A solid financial management plan helps to ensure that the project stays on track, within budget, and that
everyone involved clearly understands its financial status.
C. The Role of the Construction Finance Manager
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The construction finance manager is responsible for overseeing the financial management of a construction
project. This includes:
creating and monitoring the budget,
managing cost control,
ensuring cash flow management, and
providing financial reporting to stakeholders.
The construction companies as well managers of construction projects should be aware of the plan of
construction finance with specific, tangible and sound formulation and report system so the following points
should be clear:
The construction finance manager plays a critical role in the success of a construction project, as
they are responsible for ensuring that the project stays within budget and that everyone involved
in the project has a clear understanding of its financial status.
Understanding the basics of construction finance management is essential for ensuring the
success of a construction project.
From budgeting to financial reporting, the key components of construction finance management
play a critical role in managing construction finances successfully.
Having a solid financial management plan and a skilled construction finance manager is crucial
for ensuring that the construction project stays within budget and on track and that everyone
involved in the project has a clear understanding of its financial status.
2.Need of Developing Work Plan before going to any Project Execution System
Respecting professional ethics in entire life passing with engineering jobs is very quiet and important task.
As medical Doctors healing the patients’ physiology and Physic problem don’t goes to another action the
same is true for engineers before they are going to start the construction projects activities primarily they
have to finish everything on their paper how the tasks can be healthy or need change and variations.
Developing a work plan helps to articulate the steps required for achieving a goal. These plans help simplify
the process when things get too complicated. Many companies use work project plans, and these guidelines
explain how to create them.
2.1. Work Project Plan
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A project plan is a document that represents and specifies:
the goals,
objectives and tactics of a program or project, as well as:
its tasks,
leading activities,
timing,
sequencing and
who will be responsible for everything.
It sets demonstrable objectives with measurable objectives that are possible to be transformed into concrete
actions. When team collaboration is effective, a work plan project document can act as a tool for guidance
to help companies realize outcomes. Many companies use project plan templates to help them develop their
work project plans from beginning to end.
2.2. An Outline creation
The work project plan should consist of an outline that’s broken down into:
goals,
strategies,
objectives and
tactics.
In this way, you’ll be able to better determine the overall outcome for success. Your goal should state the
mission of your project. When outlining your strategies, you should focus on your goals and what you need
to achieve them. Your objectives:
tie into your strategies in the form of deliverables. For example:
if you want to make your business more profitable, an objective could be reducing
marketing costs, and the strategy for that could be achieving a reduction of 25 % per
acquisition and
The tactics you add to your outline are the checklists you’re using to achieve your goals,
strategies and objectives.
2.3. Goals defining
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Create a clear and concise definition of your goals so that you can develop your work plan project around
specific goals. When you see the advantage and gaining comfort zone in the management of construction
projects:
Defining your goals as narrowly as possible will help you develop an understanding of your
overall needs.
In doing so, you’ll ensure that:
deadlines will met,
the project will stay on track,
there will be enough resources available and the task will be completed.
You’ll see more success if you keep your work project plan organized, plan it around your team and make
sure it’s not designed solely around the project’s process.
2.4. Team’s Progress Measurements
Team progress and efficiency management is a vital task that shouldn’t be missed by the project managers
when they are assigning for construction projects execution. The following points should be noticed when
you’re working on developing a work project plan:
you need to remember to measure your team’s progress
You’ll be responsible for looking at the work they’ve accomplished, as well as what they still
need to do to reach their goals.
However, it is important to note that looking at too much information will muddle the results. So don’t
focus too much on the results. Instead, focus on the project itself.
2.5. Planning Activities and Resource Management
There are methods of planning Activities and Resource when desiring managing successfully projects.
The planner should notice:
Utilize planning worksheets to develop step-by-step activities and tasks for your team to
follow throughout the project.
Use an outline or template to create these worksheets, like a health and safety plan template or
a campaign plan template.
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Assign specific activities to team members to help meet the objectives of your work project
plan.
Also look at how you’re managing your resources. For example:
if you’re working on a project that calls for 25 people and your team currently
consists of 15,
you’ll need to recruit temporary workers (perhaps using a recruitment plan template)
or be strategic with how the work is assigned to each member of your team.
3. Making a Financial Plan for Your Business
Preparing a financial plan for your business is important if you plan to pursue business finance options
such as:
loans,
according to Inc. Business finance companies look at the short-term viability
as well as the long-term potential of a business before lending to make sure they’ll be repaid.
3.1.The Difference Between a Financial Plan and Accounting
Financial plans may include some accounting information, but a plan differs from accounting in the direction
it looks. Accounting deals with records of things that have already happened. A financial plan, on the other
hand, looks to the future. While you do use some accounting records when creating a financial plan, the
accounting records are foundational. With solid information about the existing state of your company’s
activities, it’s easier to show projections based on facts. In addition to information this provides to potential
lenders, it helps you have a clear understanding of where your business is in terms of finances, and you can
create a realistic plan for it instead of guessing.
3.2.Sales Forecasting
List the different categories where you plan to do business. Then calculate the overall market for your
product or service in the area you serve, and estimate how much of the market share you are likely to capture.
For the purpose of getting a loan, this should go at least three years into the future. Putting this information
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in a spreadsheet makes it easy for lenders to review. To help with the process of calculating profitability,
include data on the cost of goods sold. This will be deducted from the money coming in, so bankers and you
are able to see when the company is likely to break even and when it is expected to begin making a profit.
3.3. Itemize Expenses
Generate a detailed list of expenses. Include major expenses such as:
rent,
utilities and
labor costs.
Also add less obvious expenses such as
the cost of advertising,
shipping costs and
the cost of cleaning and maintaining your facility
3.4. Including About Personnel Information
The personal information can be including by:
List the people you will need to keep your business operating smoothly.
Add information about planned pay levels and the cost of any benefits you plan to offer.
If you already know your key people, list their skills to help paint a picture of how they’ll
benefit your company.
3.5.Using a Business Financing Calculator
A business finance calculator, or business loan calculator, is used to determine how much your monthly
payments will be if you borrow money for your business. To use one of these calculators, enter the amount
you need to borrow to meet your business goals. Enter the term you would like to get the loan for in either
years or months, then add your desired interest rate. To use the resulting information in your financial plan,
enter the details and explain why your business will be able to repay the loan at the given monthly payment.
The lending institution may come back with a counter offer, but showing you researched it and have a plan
to repay is important information from a banker’s perspective.
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3.6.Financial security
It is one of the most common life goals around the world. It’s the reason why people save, scrimp and budget
their money. But sometimes, they fall behind on their efforts. Whether it’s due to a drastic setback or a series
of small stumbles, you might find that you’re not where you want to be in terms of handling money. While
this can be frustrating, it doesn’t have to be the end of the world. You can learn to create a financial plan
from the bottom up and work toward a more financially sound future.
3.7.Start by Setting Goals
Most people work better when they have something to work toward. Give yourself both short-term and
long-term savings goals to serve as motivators. Use a financial plan template to get started if you’re unsure
where to begin. Do you want to retire on time? Take a big trip in two years? Pay off your student debts
before you get married? Your individual initiatives will be personal to you, but make sure they follow the
S.M.A.R.T guidelines. This means they should be specific, measureable, actionable, realistic and timely.
3.8. Create a Budget
Next, you need to understand exactly where your money is going every month. You don’t need to use
elaborate software to get organized, but try to use a simple financial-planning worksheet to track your
income and expenses. Most financial experts recommend following a 50/30/20 budgeting rule. Put simply,
this means that 50 percent of your income should go directly toward recurring, time-sensitive needs,
including your mortgage, car payment, transportation and similar bills that you pay on a regular basis. From
there, you should allocate 30 percent as “fun money” to be used for dining out, subscriptions, entertainment
and the like. The remaining 20 percent you’ll apply toward saving for the future and paying down debts.
References
Construction Finance Management: The Ultimate Guide for 2023 Articles Financial-Management Study
Materials- Construction Finance Management: The Ultimate Guide for 2023-by Admin February 9,
20230342-Last Updated on February 9, 2023 by AdminApril 14, 2023- Contact them:
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