Construction Industry Year End Planning

Working with over 250 contractor clients, Plumb understands the construction industry year end planning needs. Whether you are working on closing your books or upgrading your construction accounting software, here are 7 tasks to help you get started.

Construction Industry Year End Planning

Task 1: Tax Planning

Timeline: November mid-month

Who: Owner, Accounting, CPA

  • When you close your October financials, send a copy to your CPA, along with a revenue and net income projection for November and December.
  • Set up tax planning meeting after CPA reviewed your information and forecast out your personal and company tax forecast. This meeting may give you some more work to do, like taking a hard look and getting a good cost-to-complete on some of your bigger projects as of December 31st, so you can better assess where you are at and what your tax position will be.
  • Set a reminder to set aside a couple of checks (typically just A/P), in case you need to cut a few last minute expenses and you want them to be in numerical order of the other checks.
  • Reassess year-end projections after November closing and communicate to CPA if you are going to miss previous projection by a significant amount.

Task 2: Budget for the New Year

Timeline: November – December

Who: Owner, Accounting, Manager

Start the budget process:

  • Revenue forecast (download a sample copy)
  • COGS forecast (blend the gross profit margin on your existing backlog and expected new work)
  • Indirect Cost forecast (What is variable? What is fixed?)
  • SG&A forecast (zero-based, or just a review of fixed vs. variable costs)
  • Set goals with managers (revenue, safety, operations, etc.)
  • Think the year through; if we grow by X% does that mean we will need to add some more people in certain functional positions? Think through your expected hiring demands now so if/when you hit your revenue goals in the new year, you’ve already planned for it.

Task 3: Banking Relationship

Timeline: November

Who: Owner, Accounting, Banker

  • Prior to the year coming to an end, take a look at your banking covenants, will you be in compliance? If you’re going to be out of compliance, figure out reasons why and how quickly you will be back in compliance.
  • Prep your banker if you are going to be temporarily exceeding the covenants due to year-end distributions. Are this year’s distributions going to be typical with previous years?
  • Will a projected distribution force your balance sheet out of compliance?
  • What are your cash needs projected to be over the next twelve months? Many times as you prepare your budget for the new year, it is a good time to do a proforma cash flow forecast.
  • What type of jobs will you be doing in the New Year? Will they be bonded jobs? If so, how does that work with your existing banking relationship?

Task 4: Collections Review

Timeline: December – January

Who: Accounting, Customers

  • Take a hard look at collections, starting in November if you are going to have a chance to collect anything by the end of the year.
  • You don’t want to pay taxes on money you may not collect.
  • It may be time to send non-paying accounts to collections.
  • Look at your lien rights if you haven’t already done so…file if it’s time.
  • Look at your jobs and change orders. This can be done in this category or when you close out your books.

Task 5: Close Your Books

Timeline: January

Who: Accounting

Three Quick Reasons:

  1. Tax
  2. Bonus payout
  3. Leave some gas for next year if you don’t need it this year

Task 6: Bonding Relationship

Timeline: January

Who: Owner, Accounting, Bonding

  • Don’t forget about your bonding planning (January). Your bonding relationship is an ongoing balancing act with your banking and tax planning.
  • Evaluate your year-end working capital position.  How does this compare with last year-end?
  • Evaluate your debt/equity position and your tangible net worth (TNW) position. How are these used by your surety in determining your bonding capacity?
  • If you are looking to increase your bonding capacity for the New Year will your banker be stepping up with a larger line of credit (LOC)?
  • Will your surety demand a higher level (Audited or Reviewed) Financial Statement due to your future bonding needs?  (Careful here, slippery slope).  Can you forego this requirement by providing accurate and timely quarterly financial statements instead?
  • “S” Corp vs. “C” Corp retained earnings issues.

Task 7: Software System Review

Timeline: January – February

Who: Accounting, Software Consultant

  • Close out the year: Depending on your software program(s), this entails closing out the various modules and typically performing a year-end close to make 2015 your new “current” year.  This usually doesn’t have to happen immediately and you usually want to wait for any year-end adjusting journal entries if possible.
  • Archive: This may or may not be a part of your year-end procedure.
  • Transfer balances forward: If not done automatically, you need to bring forward all of your balance sheet balances to the New Year.  All of your income/expense accounts should be zeroed out as of January 1st.
  • Setup new periods and budgets: if you have established a budget and would like to track against it in your software, now is the time to input it. Most companies that do this typically use a “straight-line” approach to their proforma for the year unless there are significant swings in volume and/or seasonality that they would like to track against.

Construction Industry Year End Planning – Do you need help?

Plumb provides outsourced accounting and construction industry year end project work.  Contact Plumb if you need assistance with your year-end accounting or interested in upgrading your construction accounting software.