It is common practice for construction companies to obtain an annual audit of their financial statement for borrowing, bonding and governance purposes.
While the audit may seem like a routine accounting expense, it is important to understand how a quality CPA firm can help construction companies mitigate financial risks and provide significant value not just during the engagement, but throughout the year.
During the financial statement audit process, many construction companies focus solely on financial reporting compliance and fail to leverage all the ways in which their CPA firm can help maximize value. For example, a CPA firm with a specialized construction practice not only has the expertise necessary to present a reliable financial statement specifically focused on meeting the needs of the audience requesting the statement, but the knowledge to anticipate how potential operational changes will impact the construction company’s financials in the future. Another consideration is while the audit focuses on the past, construction companies should understand how present and future opportunities and challenges will impact their financial position.
A CPA firm with a specialized construction practice will have a significant concentration of construction clients of all sizes and trade specialties and therefore the ability to look at industry trends to help benchmark their construction clients. This information can provide a value-added resource to be used for custom management reports and executive meetings.
For instance, a common decision construction companies make is whether to buy or lease equipment. A qualified CPA firm can review the construction company’s specific set of circumstances and explain the impact each choice will have on cash flow, profitability and income tax expense. Furthermore, a CPA firm can also provide meaningful feedback by advising the construction company on proper segregation of accounting duties and establishing an effective system of internal controls.
Mitigating risks related to fraud or accounting errors can provide business owners with additional comfort, often without expanding additional resources in the accounting department. These insights and recommendations go far beyond the financial statement or tax planning and shine a light on strategic or operational challenges the construction company may face throughout the year.
Looking further into the future, the right CPA firm will also focus business owners and key executives on proper succession planning, an area in which preparation is key in meeting the goals of owners and ensuring the long-term success of the business.
Many construction companies either do not realize the full value of their CPA firm, or risk the use of an unqualified CPA that has not developed a construction niche. Aligning with a CPA firm that does not understand the intricacies of accounting for construction companies puts construction companies at financial risk and raises red flags to key business partners and users of the financial statements. The level of confidence business partners place on the construction company’s financial statements based on their accuracy are critical to the ongoing success of the contractor. If the statements are not prepared in accordance with generally accepted accounting principles, if they lack necessary disclosures, or omit useful supplemental schedules, it could raise scrutiny from the bank and surety. Additionally, an experienced CPA can help communicate difficult financial results in terms familiar to the bank and surety and can help organize a plan to retain business partner confidence.
All companies face business risk on a daily basis, but knowing how to use resources to mitigate risks is important to long term success. Selecting a CPA firm that has experience with issues specific to construction companies is a good first step in mitigating financial risk. However, utilizing a qualified CPA firm’s expertise year-round for strategic planning, benchmarking, cash flow planning and addressing operational challenges helps ensure that construction companies are experiencing the most beneficial gain.