July 22, 2015
We’re in the sweltering center of summer, the most fast and furious time of year for our construction clients. At this time, not only do our construction clients need to make sure their jobs are running on schedule, they also need to be diligently checking to ensure they’re on budget. Remember, there should always be enough time to stop and conduct a proper check-in to make sure you have — and will have — the working capital to finish the job.
With a little bit of structure and process, your business will scale and grow strategically. It’s a much better option than cleaning up bookkeeping and accounting messes at the end of the year, or even worse, when your cash runs out in the middle of a project and you’re asking a banker for help.
Our number one recommended best practice for all of our construction clients is to create a one page summary of jobs in process to know the fiscal status of each project at all times. By doing so, you’ll have quick answers to critical questions such as: Are we making money? Losing money? Did something happen? How can we plan better or quickly course-correct? Each job must be monitored to understand the company’s big-picture financial capacity.
Open dialogue and pre-scheduled meetings with your project manager will help to keep track of the money spent on a project, especially if the project requires one or more change orders from the original job specification and bid. If you don’t know how to start a monthly financial meeting with project managers and other key employees (or explain why it is important), our team can step in and help. Many of our construction clients rely on our construction team to start and facilitate monthly meetings to help review jobs and provide recommendations.
“Job costs can escalate quickly over the course of a few hours,” says Ian Grimbleby. “If you’re reviewing jobs at the end of the job — or, even worse, at the end of the year — it’s too late. Our most successful clients know where they stand throughout the project thanks to regularly scheduled check-ins.”
Helping our customers to operate in a more fiscally sound, efficient, and profitable fashion is our goal. Please contact us so we can help you kick off these internal processes.
Interested in learning more operational construction tips from Ian Grimbleby and our construction team? Please click here to check out a construction Q&A with Ian!
July 22, 2015
What is an example of an agenda for the monthly finance check-in meeting?
- Review each line item of the budget: Are we under or over? Need to issue any change orders to accommodate customer requests?
- Billing: Are we hitting milestones and is billing timely for each job?
- Collections: Are we collecting from the customers?
- Estimate to complete and projections: Check your overages and understand the costs to complete, not just the costs incurred.
- Big Picture: How accurate have our estimates been? What in the contract process do we need to change?
What is the best timing to schedule the check-in?
It is best two weeks after the month closes; approximately on the 15th of each month. Often times the financial trail is 2-3 months, which is fine for financial planning; however, from an operational perspective, that is challenging to manage because you are not able to make change orders with a client, if required.
What does budget vs. actuals mean?
Each job should have a budget (estimate) that you can compare to actual costs incurred. Are your actual costs coming in as originally planned? If not, do you know why? Labor overruns? Sub-contractor issues? Unplanned material cost inflation?
How do we manage cash flow and financing requests?
If you have an accurate look at your per job expenses, forecasting will be easy because of the timely understanding of the job. You’ll understand the cash flow and upcoming required purchases. When dealing with cash flow, ask yourself: Is our accounts receivable going to come in, or will we need to pull from the line of credit? You’ll especially need to know this information for bigger jobs because there are more challenges than the typical fixed costs. As Ian Grimbleby explains, “Job expenses are the outliers when it comes to cash flow, especially for sub-contractors. Managing cash flow and financing is critical because subs tend to be paid last, so they have to think about financing upfront.”
When do you contact a banker for help?
Ideally, you want to have an established relationship with a local banker before you need financial support, so that the process will move quicker when you are in need of a loan or line of credit. If you’re in financial trouble and need help now, Ian suggests calling your banker and your accountant immediately to course-correct before it’s too late. Access to working capital is critical, even if it is not needed immediately. Knowing it’s there can help with financing growth or with bonding requirements.
What will the banker ask you if you’re looking for a loan?
They’ll want to review the following financial statements: cash, accounts receivable aging, accounts payable aging and key ratios (KPI’s). Specifically, KPI’s such as gross profit and on-the-job margins, working capital, and current ratio. This will help the banker understand your ratio of assets to liabilities. Lastly, they’ll want a solid understanding of cash balance versus revenue.
How much cash on hand is enough?
Our team recommends a minimum of 10 percent of revenue available as cash and/or in the form of a liquid investment.
Last question! How can the Grimbleby Coleman construction team help?
Ask us to help you launch project management and financial review meetings. We’ll prioritize and kick off the internal processes that will help you with long-term profitability and financial planning.
Interested in more operational construction tips from Ian Grimbleby and our construction team? Please click here to learn more!
Ian Grimbleby has been with Grimbleby Coleman since 2011 and heads up the construction team while serving as a lead client contact for many of the firm's attest services. Ian is a Modesto native but spent seven years with PriceWaterhouseCoopers, where he started as an intern in San Jose, then joined the firm's Los Angeles office before eventually transferring to their offices in Edinburgh, and later Aberdeen, Scotland. Ian enjoys spending time with his young family, and they can often be found camping or relaxing at the beach. This year, Ian started Bean Counter Coffee Roasters, a hobby small-batch coffee roasting business, with his wife!
July 22, 2015
Now that we’re halfway through the year, from a tax-planning perspective it’s time to start thinking about how to build your business or personal portfolio. Mid-year tax planning is a great idea for both businesses and individuals to plan for long-term success.
Instead of waiting to get your ducks in a row in November or December, meet with your tax advisor early to develop a strategic plan for next season rather than scrambling at the last minute. As President and Principal Clive Grimbleby explains, “Meeting mid-summer gives your advisor the chance to check in with you and take stock of your unique situation.”
A mid-year tax planning session will help you prioritize your plans and alert you to opportunities or challenges. It will also give you a chance to ask your advisor any nagging questions that have built up over the past six months, and the space and time to deal with them before the end-of-year crunch. Instead of waiting to get your ducks in a row in November or December, meet with your tax advisor early to develop a strategic plan for next season rather than scrambling at the last minute. As President and Principal Clive Grimbleby explains, “Meeting mid-summer gives your advisor the chance to check in with you and take stock of your unique situation.”
Your mid-year planning session could include:
- Reviewing recommendations based on your previous return
- Reviewing your retirement plan, including options and deadlines
- Strategic succession planning discussion
- IC-DISC, employment and R&D credits discussion
- Review of captive insurance company options
- Review change in entity type options
- Upcoming asset acquisitions
- Discuss tax law regulation changes so far this year
- Discussion of your estate: Is it performing as expected?
These topics are proactive points for further discussion, but they may not be relevant for all. You’ll find many tax and financial planning articles online and on our website; our team is here to help you cut through the chatter and discuss your unique options.
"It's summertime! Can I write off any of my vacations?"
July 2, 2015
As you're planning your trip to the cool mountains or to the sunny beach, stop and ask yourself: is this vacation deductible? You might be surprised at the answer. Jeff Coleman, CPA and Principal, walks us through your options.
For Domestic Travel
A business day is defined as a period of time during regular business hours when you perform business-related activities. This is generally considered to be Monday through Friday between 9:00am and 5:00pm and excludes weekends and public holidays, although industry-specific exceptions may apply. If more than 50 percent of your vacation days are spent primarily on business purposes, then 100 percent of your transportation is deductible (including airfare, car, train, cab - even tipping, when travel related). Also, travel days are considered business days. Even if you have to move your travel date to save money on a flight, that day is still considered a travel day. However, lodging and meals are deductible only on the business days.
Of course, the sticky problem is that when less than 50 percent of the trip is business related, the transportation expenses are not deductible. However, lodging and meals are still deductible for the business days. We recommend combining and coordinating your travel schedule to get you over the 50 percent mark.
The Coleman family on a summer hiking vacation in the
Fitzsimmons Mountain Range, near
Whistler, British Columbia
For International Travel
Allocate your international travel expenses based on business days, as a percentage of total days traveled. There are a few key differences:
- The transportation expenses are 100 percent deductible if the trip is predominantly for business and is no more than 1 week in length.
- The transportation expenses are 100 percent deductible if the trip is over 1 week and more than 75 percent of your time is spent on business.
- The transportation expenses are 100 percent deductible if the trip is predominantly for business, the employee is traveling for an employer, and the employee is not a managing executive.
Again, lodging and meals are deductible on business days only. Remember, spouse and family expenses are not deductible. Only employees who are there for true business purposes may deduct expenses.
For more information on how you can save on upcoming business travel, please give us a call.