What kinds of industry-specific knowledge should your CPA have in order to assist your company?
A CPA for the construction industry should understand new or improved building methods and materials including the increasing desirability of, and prerequisites for, environmentally friendly LEED certification projects. CPAs can help their clients by understanding the nature and scope of all the various insurance risks companies are exposed to, as well as knowing what techniques and cost-saving strategies best protect a company from those risks.
The correct business structure for a company is also important. There are C corporations, S corporations, LLCs and other legal structures available to businesses. Your CPA should help you with the appropriate entity not only for today but also for your long-term goals.
In this current difficult environment, many contractors are now looking to do public work projects. This type of work requires bonding and often has special rules regarding the bidding process. Maximizing your bonding capacity allows you to consider larger, more lucrative projects, but obtaining a bond usually requires a more stringent level of independent CPA involvement. However, even if your bid on a project is not the lowest, you might still get the job because another firm’s bid, for one reason or another, is disqualified. A knowledgeable CPA can help you make sure your bid meets all the requirements of the job.
Of course, CPAs should routinely consider the tax implications and strategies that can be used to improve a company’s cash flow and profitability including both carry-forwards and carry-backs.
How does a CPA’s thorough and deep knowledge of an industry benefit a client?
A CPA with broad and deep relationships in the industry will likely see the best practices of a wide variety of companies. CPAs will have clients that have faced, and hopefully overcome, significant problems and unusual circumstances. In the field of construction, they will also tend to have more robust and widespread relationships with legal, insurance, surety and banking institutions. All of these industries are increasingly important in today’s business climate. For example, the demands of banks and sureties can conflict with the goal of minimizing taxes. Banks and sureties want to see solid earnings and ample working capital and liquidity. An owner’s instinct might be to minimize or defer profit in order to reduce that tax burden. A knowledgeable CPA must work with you to manage this delicate balance.
What are the benefits in having a CPA who is familiar with legal issues affecting your industry?
There are definite and substantial benefits when your CPA has a solid appreciation of the legal perspectives that impact your industry. This knowledge can be critical when disputes or other problems arise. Knowing what documentation is needed and what procedures must be followed to protect your rights can make a significant difference in the ultimate resolution of a problem. For example, as soon as an issue regarding a construction claim arises, a contractor should set up a separate job or phase relating to that claim so that all of the costs in question are segregated and isolated from work that is not in dispute. The party with the best recordkeeping is in the best position to prevail in any legal dispute. Setting up proper accounting procedures for the timely processing of change orders can often prevent potentially costly legal disputes.
A CPA that works with the construction industry should be fully immersed in that arena. There is no substitute for industry-specific knowledge and understanding.
Warren E. Hennagin, CPA, MS-Tax, CCIFP, is the director of Glenn M. Gelman & Associates, Certified Public Accountants and Business Consultants. Reach him at [email protected] or (714) 667-2600.
