Contractors drive an average of 75 miles every day, according to a recent study by The Aberdeen Group. Those miles equate to more than $10,000 in tax write-offs each year However, the vast majority of miles go unreported and dollars are never claimed due to lack of awareness or failure to use tracking technology.
A successful contractor does everything possible to run a lean, financially sound company. Finding ways to save money while increasing margins, improving cash flow and operating more efficiently is key. Following are 12 financial strategies contractors can implement to stay financially healthy.
There was a time when non-recourse financing for commercial real estate projects protected borrowers against personal liability for a loan gone bad. Lenders would look solely to the underlying assets of the project to recover losses when a loan defaulted. However, as times have changed, so too have these protections.
The new presidential administration is poised to lead to a number of proposed tax and regulatory changes, many of which will impact the construction industry.
Cash is essential to running day-to-day operations and improving a company’s financial position when presented to banks and other creditors, so contractors continue to search for ways to keep cash available. One of the best opportunities to keep more cash in the company is to create a tax deferral. Tax deferral strategies for contractors are often overlooked or misunderstood.
The construction industry pays the highest effective tax rate of any sector of the economy. Given that realty, contractors should be proactive in tax planning, which includes taking advantage of tax incentives and understanding the internal revenue codes specific to contractors when filing tax returns.
Though many contractors are aware of the upcoming changes to lease accounting, many are unsure of how to transition to the new accounting standard, known as Accounting Standards Codification Topic 842 (ASC 842).
With profit margins averaging around only 3.5 percent, construction companies can not afford to waste money. It is imperative that company owners plug any and all leaks in their financial systems, including any possibilities of fraudulent acts by employees or outsiders. Unfortunately, fraud has been widespread in the construction industry for a long time.
In the construction industry, cash flow is an important part of keeping operations up and running effectively. With insufficient cash flow running in and out of the business, a construction firm may start to run into complications. When this occurs, the only solution for the company is to try and boost their cash flow. Following are the best kept strategies to boost cash flow in construction to help improve a firm’s overall success and operations.
For large businesses in the construction industry, the accounting function lies in the hands of an experienced controller or CFO. This person understands and has experience with construction accounting. Accurate financial statements are produced on a monthly basis. There are no surprises at year end or difficult conversations with the bonding company because the figures reported throughout the year have changed.
While the construction business continues to flourish, the competitiveness of the industry and contractors’ access to working capital continues to get more complicated. Most contractors get paid during various stages of a project, or sometimes only when the project is fully completed. This complicates things when it comes to acquiring capital through traditional lenders.
The approval of the new lease accounting standard by the Financial Accounting Standards Board (FASB) means construction companies can now move forward and prepare to adopt it. The new standard will not impact the ability of companies to acquire productive equipment to grow their businesses or to obtain financing.