The biggest mistakes Contractors make and how to avoid them

The biggest mistakes Contractors make and how to avoid them

  1. Inaccurate Cost planning

It is not enough if the Contractors do only the valuation and pricing bit. You need to check the costs for the project specified during the contract and control them. Lack of control might result in future cash flow problems and profitability.

To prevent the error you need to compare the actual figures to the budgeted figures and correct them in real time. It is important that you divide the project into stages and plan the revenues and costs accordingly.

  1. Lack of a written contract

When you start a bigger project, you need to specify the terms and condtions. You might easy find yourself in a situation where you don’t get money on time. You also have to plan for purchasing the materials, paying sub-contractors or need to do extra work for the client. That extra work was not specified in the first place.

In order to avoid this situation, state clearly the works you will undertake and stages of payment. Make sure that each stage is accepted and signed off by the customer.

  1. Wrong Costs allocation

In the UK most contractors use the accrual basis for the cost allocation. It means that the costs and revenues are recognised in the period they are earned or incurred.

Quite often Contractors don’t recognise the costs due to the delay in invoices being issued for the job.

It is important that you recognise those costs and revenues at the end of each period (month) and accrue for them correctly. Only with good planning and regular control you will avoid mistakes. You need to recognie the costs as liabilities (accruals) and record them as costs incurred.

  1. Not recognising the loss of a contract in a period the loss has been determined.

If you use a percentage of completion method, then an error could occur, as a loss could be incurred in a future period. If you don’t estimate correctly, the contract could result in a future loss.

To avoid the mistake you need to control a budget and the whole project costing on a regular basis.

Also, you need to prepare a profit and loss and compare to the whole profit and loss forecast with actual results.

Contact us to find out more how we can help to manage your project.

Catherine Machalinski

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