Your Accountant Should Be A Construction Industry Expert

Date November 1, 2022
Authors Michael Kapics
Categories

When it comes to accounting, the construction industry is among the most complex and nuanced. Maximizing your bottom line and capitalizing on your opportunities requires the support of a CPA firm that specializes in the construction industry.

Before engaging a CPA firm, be certain they have the capabilities and expertise to support you in key areas:

Beyond your financial statement and tax return

A CPA firm with expertise in the construction industry has a deeper understanding of your business than what is reported on your financial statements and tax returns. The professionals should have real experience, in such roles as CFO, and be able to help you build more accurate and efficient estimating models and procedures, implement technologies to improve reporting and communications, and develop tailored training programs to help your employees perform more efficiently.

CPAs specializing in the construction industry understand risk management and cost controls, and help contractors understand the nature and scope of the various financial risks they are exposed to as well as advise them on techniques and cost-saving strategies for guarding against those risks. They understand how cash flow impacts earnings, bonding, prequalification and financing. They help project managers understand cash flow management and provide strategies and techniques to improve your cash flow cycle.

CPAs with a construction industry focus can provide you with a better understanding of your place the industry. They can benchmark your performance relative to your niche or region, and use that comparative analysis to determine the key performance indicators that reveal areas of strength and weakness—and help you correct weaknesses with best-in-class practices.

Key vendor relationships

Construction-savvy CPAs regularly deal with industry vendors. They can introduce you to bankers who finance construction projects, and to surety firms, insurers, and regulators. They understand the type of financial information these vendors rely on to loan money, provide a bond, or approve a zoning request. They can turn review and audit engagements around expediently, which can be the difference in your company winning that next project.

Costs and profits

CPAs with construction industry expertise understand your cost allocations and estimating strategy, and can help you analyze your costs to avoid what can lead to poor project estimating, and eventually, inability to cover operating costs. They can work alongside you to increase your bid-versus-win ratio and your ability to secure more profitable work. The right CPA firm for your business will analyze overhead, help you determine your cost indicators prior to bid submission, and use work-in-progress reports as a tool for running your business more efficiently. They can help you unearth all your operating costs, and help you know your costs as a job progresses to diminish the incidence of unaccounted costs at the end of a project.

Taxes

Two of the most important decisions relative to income taxes are the type of business entity and accounting method to use for reporting purposes. Experienced, construction-focused CPAs understand the pros and cons of those decisions for every type of construction business entity. If you are operating your business in an entity that isn’t the most favorable, they can help you choose a more fitting entity, and assist with the conversion. They will also ensure you are using your most advantageous income tax reporting method.

A CPA firm educated in the construction industry can identify practices that could be the source of, or lead to, financial liability, for example, not knowing all applicable state and local taxes (SALT), the taxes that must be paid and returns that must be filed. Expertise in SALT will be essential to your initiative in a new market. Understanding all the tax requirements and how they will impact your costs will show you where you are exposed and allow you to bid and propose more accurately.

Your CPA should be proactive, continually looking for new tax-saving ideas and deferral strategies that best serve your interests. It is a key reason for engaging an accounting firm dedicated to your industry.

Business Valuation

In the construction industry, determining value is key in many situations: from the need for buy-sell agreements to estate planning to shareholder transitions, to selling or buying a business, to divorce, to stock-based compensation agreements. A CPA firm with business valuation expertise will be able to provide you with a clear understanding of the true value of your business.

A CPA firm with business valuation expertise typically provide litigation support and forensics. When the need arises, having litigation and forensic experts on your team is a substantial advantage.

Capital utilization and investment returns

A CPA firm with intimate knowledge of the construction industry can advise you on spending, including establishing or updating an equipment maintenance schedule or making improvements to equipment mobilization strategies. A CPA experienced in reviewing equipment purchases and their application can advise on whether buying, leasing, or renting will generate a greater return. They can provide advice on such investments as pension funds, which can be complicated by union regulations.

Contract claim advisory processes

When a change order is delayed, construction company owners and operators might have to file a legal claim to ensure all the details of the change-order process are documented accurately. Your accountant should be able to walk you through this process as well as provide expert testimony and other litigation support.

Keeping current

Industry-dedicated CPAs remain current on regulations and industry trends, so they can advise you proactively on such issues as changes in reporting standards and tax laws and steps you can take to minimize their impact on your operations. They attend industry and regulatory conferences and seminars to be able to arm you with current, relevant information.

Your CPA firm should not only understand the specialized rules and requirements of the construction industry but have the depth to provide the wide range of financial and business consulting you need to improve your bottom line and remain competitive in the ever-changing and challenging construction industry.

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