The Importance of Hiring an Expert on Construction Industry Accounting
An accountant is a valued professional that is essential in various industries. Just as hiring the right accountant is very important in the banking industry, it is equally important in the construction industry.
Here are some reasons why a CPA with an expertise in the construction industry is important:
1. There are various prerequisites needed for building construction. An expert CPA can help identify improved methods of building and information on how to increase desirability of the construction project by helping the company get LEED certification for environment friendly establishments.
2. There are many risks involved in the construction industry. Hence, an experienced CPA can help clients understand the nature of their industry and the scope of insurance that they need. CPAs can also provide clients with various techniques or strategies to save on costs and protect the company from such risks.
3. A construction business can fall into different categories. There are various business structures to choose from like C corporations, LLCs, S corporations and other possible legal structures in various states. Only a reliable CPA can help clients start up the right kind of business structure. The accountant can help measure the company’s goals and match it with the structure that would best fit the desired outcome.
4. Most construction companies are faced with a difficult situation in today’s economy. Most contractors are now trying to look for projects with the government. But this type of work entails putting up a bond in order to comply with special rules on bidding for construction projects. It this case, it is very important to maximise bond capacity in order to bid for larger and more lucrative projects. All this will be very hard to achieve without a CPA to help. A knowledgeable CPA will be able to make sure that a client has all the requirements needed to submit a competitive bid.
5. CPAs also consider tax strategies and implications. This can improve a construction company’s cash flow and profitability that will allow the company to work on more projects in the future.
Given the many benefits a construction industry accountant can give, it is very important to find the most qualified CPA for the job. Here are some things to take note of in choosing the right CPA partner for your construction company.
a. What is the definition of construction accounting?
Given the term construction accounting, let’s dissect the words and tackle construction first. Construction is the process of organising labour, gathering materials and capital resources in order to build infrastructure like roads, buildings, bridges, dams and the like. Construction is a very diverse industry in itself. There are various types of works under this industry. There are general contractors that oversee every phase of the construction project and there are also subcontractors that only focus on finishing a specific part of it like the plumbing or electricity. Contractors can also handle various types of projects – from simple house rehabilitation projects to building super highways or shopping complexes.
Accounting, on the other hand, is the systematic recording of financial transactions of a business in order to make sound economic decisions that would benefit the company.
Construction Accounting, therefore, is the financial system employed by contractors in order to track cost and revenue of a particular project from its inception up to its completion.
b. Why is accounting for construction companies different?
One of the most obvious reasons why construction accounting is different lies on the fact that construction projects don’t have a fixed business structure. A construction site’s workforce is made up of contractors and subcontractors. The site manager doesn’t employ all the people working on the project. There may also be temporary workers for a particular day that will not be needed on a daily basis. This alone is already going to be a big headache for an accountant who is not well-versed in the idiosyncrasies of the construction industry.
c. What are some accounting requisites that are specific to the construction industry?
In the construction industry, costs and revenues are usually dependent on estimates provided by the contractor. Hence, construction accountants need to be knowledgeable on the percentage of completion method. This method attempts to match a company’s revenues with costs that were incurred in the same period.
Given the fact that the percentage of completion method requires wise judgments on estimates, it is then very important for an accountant to be knowledgeable on the industry’s figures. It is possible to have modifications in the original contract, called “change orders”, every now and then because numbers are only based on estimates.
d. Why is it important to hire accountants that have experience in the construction industry?
There are various requirements in the construction industry. Aside from its specific accounting principles, there are also a lot of tax regulations and auditing requirements governing construction companies.
There are investors and surety companies that require annual audits. Hence, to be able to comply with audits, a contractor’s books should always be ready for it. Also, it should be noted that a financial statement prepared by a reputable CPA can help a construction company enhance its bonding and borrowing capacity with investors.
e. What are the benefits of hiring an accountant instead of doing the books yourself?
Accounting is not something that can be easily done. Experts studied for years to master this craft. In fact, not all accountants can say they know the ins and outs of the construction industry. Hence, it is not advisable to do the books of a construction company on your own. If you hire an accountant, you can get at least two benefits. First, you will surely save money because they have the knowledge to help you get through legal and tax issues. You will also save money because you will have a clear idea of your financial status. Second, you will have peace of mind. Tax requirements can take a lot of time and effort. You will save yourself the trouble and avoid legal hassles by hiring an expert in construction industry accounting.