Small construction companies or sub-contractors in the construction services industry have many financial challenges to consider when running their day to day operations. Key to ensuring prosperity, success and stability in the industry is preparation and sound management. The best way to simplify management and assure accuracy and accountability is to hire an experienced accounting services firm or CPA.
The benefits of working with an accounting firm begin with proper management. If a company is not properly managed, contractual misunderstandings, tax code and compliance errors, job tracking and job costing mistakes and, labor cost errors could cost the firm thousands if not tens of thousands of dollars in lost revenue or worse.
Partner wisely
Further, when you partner with a reliable accounting firm with decades of experience in the construction market, in addition to their ongoing industry knowledge you also benefit from their tried and true relationships. They know bankers, bonders, and law firms and how to work with each of them to provide valuable advice and insight in handling your accounting to maximize your workflow and ensure that your firm represents the best practices of the industry.
In addition to providing expert accounting, your team will help you think and work within a long-term framework. They help you manage your money efficiently and record all your project-related expenses accurately. This area alone is one of the most time-consuming and important as it represents a significant amount of work and focus that would have to be done by the business owner.
Share what you know
Knowledge sharing is another essential area that is offered by the accounting professional. She will help you understand how to properly allocate labor costs, material costs, and subcontractor utilization. Add to that expertise, your accountant can help you categorize indirect costs for supervision, equipment, tools and insurance. Can you imagine having enough time to run your business, oversee construction project and bid on the next job. All that and still try to handle the accounting of your business operation? It is easy to see how invaluable having a depending accounting partner can be?
Contracting and construction firms must also have aggressive cash management and reliable financing and bonding programs. Your CPA firm will also position your business to better capture revenue, reduce overhead costs, and keep bids coming your way from your best customers.
Inform the IRS
Your firm will also be responsible to inform you of your options when it comes to every aspect of working with the IRS. From filing tax returns for your company to knowing how to qualify to report income and on what basis. For example, does your firm qualify to report income on the cash basis or the accrual basis? A pro will be able to tell you which one will save you more money? Your CPA will help you determine those highly important decisions.
Here are a few additional aspects to consider when reviewing your accounting program:
- Defining costs – overhead and general and administrative
- Accounting methods
- Cash accounting – record income and expenses in the same year they are conducted
- not used if revenue exceeds $1 million
- Accrual accounting — count income at the time you have earned it, even if you have not physically received the money
- generally, this means you report income when it’s earned, due from the customer or received from the customer, whichever is earliest
- Cash accounting – record income and expenses in the same year they are conducted
- Percentage of completion method – estimate the percentage of the project completed and count the income earned for that percentage
- For the year of completion, you report the remainder of the contract income.
- Exempt percentage of completion method – With the EPCM, you use the accrual method to determine both G&A and job costs. Like the PCM, it has the advantage of spreading out your reported income over the life of the contract
- Completed contract method — report all income and deduct all expenses from a project in the year it’s completed, as with the cash method
No matter the size
Regardless of the size or complexity of your company’s project work, you should consider all the ways an accounting firm can help you better manage your company, ensure not only profitability but compliance, and the ethical and legal way you approach the growth and reputation of your business
Your trusted advisor at TYSLLP.com is here to help. We provide a competitive advantage by delivering over 60 years of construction market experience to our clients.
Contact us on the West Coast at 925-498-6200 or the East Coast 585.678.9015.