Cost Value Reconciliation
The Cost Value Reconciliation system is an excellent financial reporting tool for any progressive construction company.
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The Freelance Quantity Surveyor provides a simple but very effective Cost Value Reconciliation system that shows the monthly application figure, the actual certificate paid by your client, the cost of your materials and labour to date and finally the sanity of profit or the despair of loss.
So why is it important to report the financials of a contract on a monthly basis?
Well lets first look on the positive side of things. After the first 3 months of a 6 month contract you have made 35% profit. Rightly so you would be very happy and perhaps treat your Wife or Husband to an expensive meal and maybe buy yourself an Ice Cream to celebrate!!
But what if you looked at it another way.
Maybe I have priced this job too high?
Maybe I was lucky to get this job at such a high profit margin?
If I'm making 35% profit maybe I'm losing a lot of other tenders because my price is too high?
On the next tender I will drop my prices a little and try and achieve 25% profit but hopefully win more work. Higher turnover at 25% profit will generally make you more money than a low turnover at 35% profit. After all if your business is not growing, it's going backwards or so they say.
Either way the above example is a happy one. But what if after 3 months of the 6 month contract your Cost Value Reconciliation system showed you were losing say 10%? Ouch, this would not be cause to buy an Ice Cream. But on the positive side the Cost Value Reconciliation system has flashed a warning light to you. You have time to ask yourself questions.
Why am I losing 10%?
What can I do to change this and claw that 10% back before the contract finishes?
So suddenly you have an opportunity to alter your loss and try to make some profit before the contract is finished or realise that you under-priced this contract and inflate your rates for the next tender.
So hopefully the above examples show why you should have a simple but precise Cost Value Reconciliation system. It prompts you to ask questions of your pricing structure and also allows you to react to the Profit and Loss of a contract on a monthly basis. At the end of a contract it's too late to react.
We provide an excel based Cost Value Reconciliation Template.