Best PracticesMore Like This

Increase Surety Capacity by Working With a Professional Construction CPA

Almost every contractor can improve the bottom line by working with a good construction CPA. This is equally relevant to those who are just starting out and those who have grown beyond their capacity to take care of accounting internally.

In most cases, sureties are the largest extenders of credit to contractors in the construction industry. Working with a professional CPA significantly increases the chances of a contractor obtaining surety credit, which can empower a business to take on bigger projects. Here’s how a good construction CPA can help a business prosper and receive more surety credit.

Why Picking a Specialized Construction CPA is Important

While it can be tempting to save money and handle accounting internally, accounting in the construction sector usually requires specialized expertise and attention. Construction is such a peculiar field that it even has its own section (section 4020) in the IRS tax code, which is among the most complex sections of the code. But, how to pick a CPA?

Most contractors need an accountant who is specialized in the construction industry, or at least has extensive experience with construction accounting. In fact, some suggest picking a CPA that works only with contractors, even if that means they may work with competitors. There is no need to worry about the accountant leaking vulnerable information; the CPA code of ethics requires them to keep things confidential.

Apart from the fact that they will be well versed in the IRS tax code, the additional benefit is that working with a professional CPA means a contractor is more likely to obtain more surety credit.

How a Good Construction CPA Will Help Obtain More Surety Credit

Surety bond companies make extensive checks before they underwrite a surety bond for a contractor. A contractor has to be sound; financial statements and the owner’s personal credit score are usually taken to reflect a business’s stability. Such checks are done in order to assess the probability of contractor default and claims occurring.

  1. A good construction CPA knows what sureties and banks want to see in the financial statements. Sureties will often recognize whether a contractor is working with a good CPA or not just by looking at their financial statements and how they’ve been prepared. This paves the way to developing a good relationship with a surety and obtaining credit.
  2. A specialized CPA can provide consulting services and explain the implications of a contractor’s financial decisions, such as the relationship between direct and indirect costs. While contractors may have an “intuitive” grasp of such matters, they are often unable to see the bigger picture. A CPA’s job is to understand how things are tied together.
  3. By providing guidance, a good CPA can help contractors improve their credit score over time. This significantly increases their chance of obtaining more surety credit. This can be achieved, for example, through so-called bonding discipline, which emphasizes the retention of some of the profits within the company. This in turn can create greater surety capacity.
  4. A good CPA understands and regulates cash flow appropriately. This includes the balancing of payrolls, and equipment and material costs, such as deciding whether to rent or purchase equipment and when to refinance already existing equipment. CPAs provide a necessary balance by being able to think and work in the long term, which creates a greater sense of security for sureties as well.
  5. CPAs are supposed to help scale the growth of a business and satisfy both a contractor’s push toward expansion as well as a surety’s pull toward safety and security. They can help contractors stay transparent and organized, so as to avoid claims. This is highly valued by sureties, and is yet another way in which CPAs help build lasting relationships and influence the rates contractors receive on their contract bonds, such as performance bonds.
  6. A professional construction CPA can help a contractor take care of tax liabilities. Taxes for contractors are highly complex and require specialized knowledge to be handled. Apart from that, a CPA can help a contractor gain tax flexibility by strategically timing tax payments, which can give a business more cash flow to show the surety provider.

Leave a Reply

Your email address will not be published. Required fields are marked *