By Timothy Kennedy
As we formally say good bye to 2018, we enter a new year that brings lots of promise. In order to seize the opportunities that will be presented to you in 2019, consider solidifying your approach to the following areas of your business:
A robust accounting software that is customized for your needs is a must in 2019. Contractors have unique needs that need to be addressed in order to have an accurate financial picture. Some of the items that you should consider when switching to a construction based accounting software:
a) Retention – whether you hold retention on your subcontractors or your customers hold retention on you, your accounting software should be able to track and maintain the retention separate from accounts receivable or accounts payable.
b) Job costing – in order to prepare an accurate schedule of contracts in progress which can be included in your financial statements, all direct job costs should be assigned to separately identifiable contracts within your accounting system. You should have a rational method of allocating indirect costs to contracts in progress or be prepared to discuss why they shouldn’t be allocated. Overhead costs should also be clearly identified so that you know what your true overhead rate is.
c) Insurance – unlike other commercial entities that pay insurance on a straight line basis, insurance costs for contractors (specifically workers compensation and general liability insurance) are typically calculated based on a percentage of actual direct labor dollars or contract billings over the insurance period. Your accounting system should track the rates and premium modifications by worker classification and these rates should be updated on an annual basis based on changes in your insurance pricing and coverage.
Relationships with professional service providers
Contractors often need a suite of professional services in order to stay competitive in this fast changing world. Professional services you should consider utilizing if you haven’t already would be:
a) Surety bond professionals – you never know when your next bid will require a bid bond or when your next contract will require a performance bond. Contractors need to be able to work for a variety of clients and some clients require surety bonds.
b) Construction IT consultant – going hand in hand with accounting software, you should be able to pick up the phone to bounce construction software related questions off of an experienced construction IT professional.
Protecting your successes from prior years
While this blog focuses on what to do to be successful in 2019, let’s not forget about our past successes. Here are some things to consider doing to solidify your spot as the top dog:
- Protect your wealth – have a stockpile of cash sitting in a checking or savings account? Did you receive your 1099-INT yet for $4.63 in 2018? The bank is the only one winning in this situation. Consider investing your excess cash – even the lowest risk investments will still pay 2-3% APY.
- Estate planning and business succession – As baby boomers look to become snow birds and enjoy the fruits of their success, the next generation will be entering the business in key management roles. Careful estate, gift and succession planning is a must in order to minimize future tax liabilities and ease the burden on the future generations of the business.
- Catch up on tax issues – in the event that you received a tax notice from the federal or state government, ensure that you provide the information to your CPA and that a response letter was sent to the government with your position on the matter. Also, take advantage of opportunities to save cash through tax amnesty programs. Lastly, ensure that you have PDF copies of at least the past seven years of corporate and individual tax filings in the event you need to share the information with outside parties.
These are some of the things you can do to be successful in 2019. Wiss wishes our clients and business partners tremendous success in the new year and we look forward to assisting you in the near future.
Tim Kennedy, CPA is a Director at Wiss with over ten years of accounting experience. Tim is dedicated to providing guidance on business, identifying audit and accounting issues encountered on an engagement, and maintaining communicative relationships with his clients. Reach Tim at 973.994.9400 or email@example.com.