In the latest episode of Builders, Budgets, and Beers, we had the pleasure of hosting Luke Holcomb, the VP of Operations at Apparatus, a leading firm specializing in construction accounting. Luke walked us through the four stages of financial maturity that builders go through as they grow their businesses. If you’re curious to learn what your stage might be as a builder, read on!

If you’ve ever found construction accounting confusing, you’re not alone. Luke explained that construction accounting is one of the most complex forms of accounting, with money constantly moving in different directions and contracts that are tricky to manage. As Luke pointed out, “There’s so much money moving so many different places that it’s easy to get into trouble.” That’s why having someone in your corner who understands the nuances of construction accounting is crucial, whether it’s a specialized CPA, a fractional controller, or a partner like Apparatus. Now, let’s dive into the four stages of financial maturity that Luke outlined, and how understanding them can help you make smarter financial decisions.

Stage 1: Groundwork

The groundwork stage is where every builder starts. This is typically when a project manager from a larger company decides to strike out on their own. They’re familiar with project finances but may not yet fully grasp how those individual projects fit into the bigger picture of their new business.

Builders in this stage are laser-focused on project-level finances, things like cost versus actuals, change orders, and project profitability. They likely have a solid understanding of how to budget for a project, but the challenge comes when they realize that the overhead and back-office expenses of running a business don’t take care of themselves.

The biggest risk in this stage? Underestimating how much profit you need at the end of the year to cover overhead. Many builders come from a background where they were making money working on jobs in a larger organization, only to realize that when you’re the boss, you probably start off with less volume, and you’ve got lots of expenses to cover—everything from trucks to back-office staff.

Key takeaway: In this stage, you need to focus on laying the groundwork with real accounting. If you don’t know how much profit you need to cover your overhead, you’ll quickly find yourself in a financial bind.

Stage 2: Framework

Once you’ve survived the groundwork stage, you enter the framework stage. This is where you start to build the systems and processes that will help your business scale. In this stage, you’re no longer running your company off spreadsheets—you’ve got real accounting software, like QuickBooks Online or Sage, and you’re implementing formal financial controls.

Builders in this stage are still heavily focused on the day-to-day operations but are now thinking about company-wide financials, not just project-level profitability. You’re also establishing standard processes, like requiring employees to turn in receipts and following a formal closing process to reconcile accounts.

The main risk here is mistaking your Profit and Loss (P&L) statement for what’s in your bank account. As Luke pointed out, many builders in this stage might say, “It says I made $100,000 last year, but where’s that $100,000?” It’s important to remember that not every financial transaction shows up on your PnL. Things like buying equipment or taking owner’s draws affect your balance sheet, not your profit statement.

Key takeaway: In the framework stage, it’s all about building solid financial controls and understanding the nuances of your financial reports. Don’t confuse profit with cash flow!

Stage 3: Expansion

In the expansion stage, you’re no longer just managing project-level finances. At this point, you’ve likely delegated that responsibility to your project managers. Your focus is now on the bigger picture: the overall profitability of your company and what you need to sell to keep things running smoothly.

Builders in this stage have a gut feel for when things are going well—but as Luke cautioned, relying on instinct alone can be dangerous. You’ve been in the game long enough to develop a good sense of when projects are on track, but if you’re not checking your gut against real numbers, you could end up in trouble.

The key risk in this stage is not staying on top of your financials and trusting your project managers without verifying their reports. You need to be sitting down with your team regularly and checking the actual numbers against the budget. This is where “death by a thousand paper cuts” happens—small slippages in costs can add up quickly if you’re not paying attention.

Key takeaway: Use the real-time financial data you’ve built in the framework stage to guide your decisions. Don’t rely on gut feelings alone—fact-check everything with hard numbers.

Stage 4: Strategic Mastery

The final stage of financial maturity is strategic mastery. At this point, you’re no longer just thinking about the next year—you’re thinking five, ten years down the road. Builders in this stage aren’t just focusing on their PnL anymore; they’re focusing on their balance sheet and the long-term value of their company.

In stage four, you’re looking at whether you’re growing your assets and reducing your liabilities. You’ve probably delegated most of the day-to-day tasks and even sales responsibilities to trusted team members, and your focus is on the long-term financial health of your company. Builders in this stage aren’t chasing revenue for revenue’s sake—they’re thinking strategically about how to build a valuable, sustainable business that meets their goals.

The risks in this stage aren’t about internal operations anymore—they’re external risks driven by the market conditions. Things like economic downturns, interest rate hikes, and increased competition pose the biggest threats. You’ve built a well-oiled machine, but you need to be aware of market forces that could impact your business and focus on building a competitive moat.

Key takeaway: In strategic mastery, your focus shifts to long-term financial strategy. You’re building a company that can withstand external challenges and grow in value over time.

Revenue Doesn’t Define Your Stage

One of the most interesting insights Luke shared was that these stages of financial maturity aren’t really defined by your revenue. You can be a $6 million-a-year builder and still be in stage four, focusing on long-term growth and stability. It’s not about how much money you bring in—it’s about how well you control your finances and scale your business effectively.

No matter where you are in your construction business journey, understanding the four stages of financial maturity is important. In the groundwork stage, it’s all about managing project-level finances and ensuring you have enough profit to cover your overhead. As you move into the framework stage, you start to build real financial controls, transitioning from spreadsheets to formal accounting systems. The expansion stage is where you delegate project-level finances and focus on company-wide profitability, while making sure you're checking the numbers regularly. Finally, in strategic mastery, you’re thinking long-term, managing your balance sheet, and preparing your business to withstand external risks. Each stage builds on the last, helping you grow a scalable, financially sound company.

Take Advantage of Luke’s Offer

Want to dive deeper into your company’s financials and take the next step toward financial mastery? Luke is offering podcast listeners a special deal—50% off a consultation where Apparatus will review your books with the promo code “ADAPTIVE.” This offer is available until March 25, 2025, so don’t miss out!

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