What it means
Construction finance behaves differently from most other sectors. Work is done project by project, often over many months, with payments made in stages and money held back until the job is complete.
That makes ordinary monthly accounting misleading unless the numbers are adjusted to match progress on each job. CFMA exists to teach those methods and to give its members a community of peers.
It runs conferences, publishes research and offers a certification for construction finance professionals, so lenders and owners can see that someone understands the field. Its best-known contribution to day-to-day work is benchmarking.
Members can compare ratios such as gross margin by job type, overhead as a share of revenue, work in progress balances and backlog, which helps a contractor judge whether it is efficient or falling behind its peers. CFMA material also gives guidance on the topics that cause trouble in the sector.
These include percentage-of-completion accounting, where revenue is recognised as work progresses, over-billing and under-billing, retention, bonding capacity, and how to present job schedules to banks and surety companies. The nuance for outsiders is that CFMA is a membership organisation and not a regulator.
It does not set accounting rules, and its guidance sits alongside the official standards your auditor follows. It is nevertheless widely respected by lenders and bonding agents, who often use its benchmarks to judge a contractor.
Finance people outside construction can still borrow its ideas. The habit of reviewing every project on a schedule that shows contract value, cost to date and estimated cost to finish is useful for any business that sells long, staged jobs, such as software implementations, consulting retainers or custom manufacturing.
Banks and investors tend to like that level of project-by-project visibility.
In practice
Real-world examples.
Example
A mid-sized electrical contractor hires a new controller who has a CFMA certification. The controller introduces monthly job cost reviews and a work-in-progress schedule, which the company's bank later asks to see before renewing a credit line.
Example
A property developer is choosing between two contractors for a $20,000,000 project. Its finance adviser asks each bidder for recent benchmark data and checks whether the contractor's finance team belongs to a recognised industry body. The adviser regards active professional training as one sign of financial discipline, though not as a substitute for reviewing the contractors' actual accounts and bonding letters.
Example
A small civil engineering firm is turned down for a bond because its job reports are unreliable. Its owner sends the finance manager to a CFMA training course on job costing and over-billing. Within a year the firm presents clean schedules and secures the bond, which opens the door to public sector tenders that it could not previously bid for.
Case study
Seen in the real world.
Redstone Builders is an illustrative, fictional general contractor with 85 employees that had grown quickly from home renovation work to larger commercial jobs. Its owner noticed that profit looked excellent on paper while the bank balance was often tight.
The company's new finance lead used guidance and benchmarks from an industry association such as CFMA to rebuild the month-end process. She introduced a schedule showing each job's contract value, cost to date, estimated cost to finish and billings, and found that three jobs had been billed well ahead of the work completed.
That early billing had been masking a loss on one contract. Once the numbers were corrected, the owner renegotiated that contract and priced new bids with a more realistic overhead rate. The finance lead also began presenting a one-page backlog and margin summary to the bank every quarter, which gave the lender confidence and led to a larger line of credit. The illustrative moral is that sector-specific finance knowledge can reveal problems that general accounting hides.
Watch out
Common mistakes.
- Assuming CFMA is a regulator that sets binding accounting rules, when it is a professional association whose guidance supplements the official standards.
- Using general retail or manufacturing benchmarks to judge a contractor, which ignores the project-based way construction businesses earn and bill.
- Treating a certification as proof of a company's financial health, when it only shows the skills of one person on the team.
Questions
People also ask.
Who joins CFMA?
Finance managers, controllers, chief financial officers, owners, bankers, sureties and advisers who work with the construction sector, usually through a company or individual membership.
Why do lenders care about construction-specific knowledge?
Because revenue, profit and cash behave very differently on long projects, and a lender wants confidence that the contractor's numbers can be trusted.
Does it matter outside the construction industry?
Mostly not, although its explanations of progress billing and retention are useful for anyone working with project-based businesses.
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