Until 2020, not many people were aware of how dependent American businesses were on the global supply chain. Then the pandemic hit, and entire businesses ground to a halt as their suppliers were unable to provide materials.
The construction industry in particular was hard hit by the crisis, but it weathered it better than most, according to WTW, a global risk advisor. Its 2023 Construction Supply Chain Risk Report found that the supply chain challenges that followed the pandemic, including major labor and materials shortages, have been more difficult to overcome.
About 80% of businesses have made some improvements to their approach to supply chain management because of the pandemic, according to the report.
Small businesses are just as vulnerable to the global market factors at play. Lisa McCarthy, founder and Chief Strategy Officer of Out of the Box Technology, a QuickBooks Solution Provider, noted on a recent episode of the Constructing Growth Podcast that the biggest challenge for these companies is often cash flow.
“Construction accounting is probably one of the most difficult,” she said. “Not only do you need to track the general inflows and outflows of money, but you also have to track things down to an individual project level."
Construction companies often have to make big investments up front to purchase materials, but they may not get paid for a project until months later. This delay can be difficult to manage without the right reporting and insight into the business’s cash flow, McCarthy noted.
She helps her clients use QuickBooks to do accrual-based accounting, so that they can track revenue and expenses at the right moment in a project, rather than when the cash changes hands.
“There are great tools in QuickBooks to do that revenue recognition process,” she said.
McCarthy adds that, by better managing cash flow, construction and contracting businesses can go a long way towards protecting themselves from the supply chain risks that continue to challenge the industry.
Another way that businesses can ensure they can weather supply chain risks is by getting the right systems in place, including migrating to the cloud.
Relying on desktop software limits your capabilities and your ability to take advantage of new tools to help you manage your construction projects, McCarthy notes.
“You need to move to the cloud because you need to integrate with all the other technologies that you’re going to need, especially in the construction space,” she advises. “If you don’t embrace those other technologies, you’re going to get left behind.”
Get in touch with a QuickBooks Solution Provider for an assessment of how your business can protect itself against supply chain and other risks.
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