The success of any business predominantly depends on the level of ROI (Return on Investments) and ROA (Return on Assets). Hence, it is critical to ensure that your business is run optimally at any point in time as these two elements of accounting actually present to interested parties just how well a particular business is managed within a financial year.
The return on investment basically provides interested parties an in-depth view of how much the returns are on every dollar that is invested into the business whereas the ROA gives shareholders and stakeholders a glimpse of how well assets are being utilised.
It is important to note that by assets, what is meant is both current and fixed assets, current assets being liquid assets that may be converted into cash very quickly whereas fixed assets may take longer as they are usually in the form of equipment, materials and property. What business owners need to understand is that from the perspective of bankers and investors, having assets that are not generating income is a sign of bad management and hence their interest in funding your construction projects or investing into your business diminishes rather significantly.
Here are some simple steps that construction business owners may take in order to make their business look much more attractive from an accounting perspective.
The first thing that those who own construction outfits need to do is look through their inventory, and identify assets that are just sitting about and not generating revenue. On way to handle such assets that have lingered for more than a year without being used is to get rid of them and put the proceeds into the bank where interest is generated regardless of how small the interest amount is. Subsequently look at the equipment that you have, are they actually necessary to own, maybe it would be wise to selloff equipment such as the mini excavator or mini dumper that is not used as often or on the other hand find ways to monetize these equipment by renting them to sub-contractors who are not able to buy such equipment.
Putting to use your equipment such as mini excavator hire and mini dumper rental would certainly improve your ROAs quite significantly. The justification behind buying equipment such as a mini excavator or just renting them on an ad-hoc basis depends largely on how frequent the jobs that require a mini excavator comes by. If you only have 2 or 3 jobs at the most within the period of a year, then it would be feasible just to obtain mini excavators for rent. On the other hand if you have on average two jobs every month that require such machines, then it would be best to just buy them and find ways to maximise returns on them and one way is to not just use them for your own projects, but also rent them out to other contractors.