CPAs are sophisticated professionals that have in-depth accounting and financial knowledge. However, they are generally not associated with hard hat construction firms. Building large projects with cement, steel and industrial machines do not go hand in hand with financial analysis. However, CPAs can make the difference between success and failure for a construction firm. There are a few important reasons.
1. To Make Smart Financial Decisions
Constructions companies must make important decisions on staffing, buying expensive equipment, investing in projects and overhead costs. If they do not make the right decisions, they can take a profitable job and turn it into a loss from the terms, conditions and financial implications of a contract. In particular, the company has to understand the taxes and fees they may absorb from taking on a project that are not obvious at first blush. Those fees can make a project very low margin or unprofitable.
2. Save on Taxes and Penalties
The government imposes a number of financial and safety standards on construction firms. A CPA can help to monitor these guidelines and alert senior management when their is the penalty to violate guidelines and get penalties. For example, CPAs help make the right decision on staffing and benefits from a tax perspective so that there is a smaller bill to the government at the end of the year. They also educate management on how to use purchases and depreciation to reduce tax expenditures.
Sales taxes are also important to remit to the government on time to avoid penalties, usually within the same month as the sale is made. However, different volumes require different payment schedules including monthly, quarterly and annual reporting. Without paying those taxes, a firm can be fined double or triple the value of the taxes. Instead, management can place the CPA in charge of e-filing these payments.
Arizona’s sales tax (called the Transaction Privilege Tax or TPT) changed its rules regarding construction contractors in 2015. All firms should consult with a CPA to be sure that they are getting all of the tax deductions possible from the TPT. They should additionally determine if they are compliant with the new MRRA (Maintenance, Repair, Replacement, Alteration) tax laws.
3. Improve Relationships with Surety Bond firms and Banks
Construction firms require surety bonds and occasionally bank loans to get the job done. But these can be expensive and difficult to obtain. A CPA that can speak the language of finance can accompany senior management to explain how the investment makes financial sense and how the money will be guaranteed.
Those financial institutions will be more comfortable if a CPA is overseeing the management and more likely to provide their service or funds. Additionally, the CPA will be able to negotiate the best terms for the construction firm on those financial transactions.
4. Understand General Contractor and Development Contracts
Construction companies are hit with contracts that may be dozens of hundreds of pages long. While a lawyer should also look through these, a CPA can provide clarity on the financial aspect of the contract and whether it makes sense for the firm. In particular, there are several concepts including LD’s (liquidated damages), payment terms, cash reserve, inventory, insurance value and project valuation among others that must be confirmed by the CPA. Once the CPA has studied the contract and explained the details clearly, the senior management can sign-off on the project.
Tax Tips for the Self-Employed
An Overview of the Net Operating Loss Tax Provisions in the CARES Act
How To Decrease Your Small Business Debt? A Step-By-Step Guide
Why Every Small Business Needs a Bookkeeper?
Tax Credits That Could Benefit Small Businesses
Why You Should, and Shouldn’t, Apply for a Tax Extension