Did you know there are accountants who specialize in the construction industry? When it comes to managing money, the construction industry is unique in many ways. That’s why we always recommend working with financial professionals who have specialized knowledge and experience working with contractors. This week, find out what you should look for and expect from a good construction-oriented accountant.
Topics we cover on this episode include:
- Construction accounting as an artform
- Why taxation is different for the construction industry
- How your accountant should help with your planning and cash flow
- Why your accountant should work with your bond agent
- What a good construction-oriented accountant will prioritize first
Find all episodes and related links at ContractorSuccessForum.com.
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Rob Williams, Profit Strategist | IronGateESS.com
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | McWins.com
[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. So today, we’re talking about what to expect from a good construction accountant, and it’s such a great topic for the Contractor Success Forum. I think we talk about that a lot and we do discuss financial strategies for running a more profitable, successful construction business.
And we have Stephen Brown with McDaniel-Whitley bonding and insurance agency. And Wade Carpenter with Carpenter and Company, CPAs. And I am Rob Williams with IronGate Entrepreneurial Support Systems.
So guys, Stephen, I know we’ve got our own construction accountant here, but what do we expect from a good construction accountant?
This is an–
[00:00:47] Stephen Brown: Well, first of all, I want to say this was not Wade’s idea for the topic.
[00:00:52] Rob Williams: That’s right.
[00:00:53] Stephen Brown: It was mine and yours because I mean, I can’t do my job without financial reports. And with a construction accountant that’s not giving good advice, that’s giving bad advice, they lose money and then I can’t get them bonds. So it’s frustrating.
I was telling y’all earlier, as a bonding and insurance agent, I’m obsessed with you not going under. And that’s one reason that I’m enjoying these podcasts. And I can just tell you that you can’t frame without a hammer or a nail gun. You need a good hammer, you need good financial reports to run your company.
[00:01:30] Rob Williams: So do you need a good carpenter to do your CPA work? Sorry. A pun there. For uh–
[00:01:36] Wade Carpenter: Good.
[00:01:36] Stephen Brown: Frame out your she shed.
[00:01:38] Rob Williams: Yeah.
[00:01:40] Stephen Brown: Yeah.
In the last episode, someone called Wade thinking he was a carpenter to frame–
[00:01:45] Wade Carpenter: To build a– build a wall in their she shed.
[00:01:49] Rob Williams: Yeah, I just built a she shed this weekend. So I will not build someone else’s she shed, I promise. And–
[00:01:55] Stephen Brown: Is a he shed or a she shed?
[00:01:58] Rob Williams: He said she shed. So–
[00:01:59] Wade Carpenter: It was a she shed that was done by a he.
[00:02:03] Stephen Brown: Well, I mean, I’m wondering if you could even have a shed that’s a we shed, of you go out there. But I guess the object is to get away from your spouse. So either–
[00:02:14] Rob Williams: Yeah.
[00:02:16] Stephen Brown: Either way, what do you expect from a good construction CPA?
Construction accounting as an art form
[00:02:20] Rob Williams: One thing that just occurred to me on this is, as I talked to people, people probably ask other people what their accountants are doing for them. But I do not talk to very many people when they come to us that have a good CPA or construction accountant They usually don’t have a construction accountant.
They’ve got someone that takes the information off of their receipts and their packages, and figures out how to put it on that form that goes to the IRS. And that’s what their accountant is. So I think we’ve got a whole expectation level that people just don’t even know that construction accountants even exist.
[00:03:00] Stephen Brown: That’s right. And implementing these systems for contractors is a specialty. And then you’ve got taxes. I’m sorry, I mentioned the T word. got taxes that you need help with, too. A great construction accountant is everything. And because we talked about this before, and Wade’s probably too humble to brag about himself. But a good construction accountant is an art form. It really is. And it’s an art form that comes from years and years and years of working with just contractors. It’s not like handling a manufacturer or a bakery or even an insurance agency. A good construction oriented accountant understands contractors. Wade, please.
[00:03:45] Wade Carpenter: Yeah. I can’t say much, cause it’s going to seem self-serving and you guys are putting me on the spot.
[00:03:51] Stephen Brown: Stop Stop it. Hey, look. Wade’s one of the best. Wade, I can tell you from having been on this show with you for over a year, that you know what you’re talking about. Because Rob and I have learned a lot from you.
And I have some of my best contractors say, hey, everything I learned about accounting was from so-and-so. Everything. And that’s good and bad. Because when they complain about the cost of a year-end review that I need for bonding or something, I just tell them, can you afford to pay for bad advice? You get what you pay for.
[00:04:25] Rob Williams: Yeah.
Why taxation is different for construction
[00:04:26] Wade Carpenter: Well, the only thing I can say, number one on the taxes, you’re right. Construction taxation can be very different and there are some nuances. And what we would report to Stephen on a financial statement on, percentage of completion, it may not be the right tax method for you for your tax purposes. And structuring it properly can mean a big difference between you minimizing your taxes and maximizing your financial bonding capacity.
[00:04:54] Rob Williams: Oh, yeah, that can be a big thing. So starting out, we’ll kind of set Wade up, because I know he doesn’t want to do this. So the first thing that, that–
[00:05:02] Wade Carpenter: Crap. You didn’t tell me you were doing this.
[00:05:04] Stephen Brown: Yeah.
[00:05:04] Rob Williams: — construction accountants do is, I mean, they do file your taxes, just like the other ones.
And so I know I went through quite a few because I didn’t understand the difference. Because I was hiring a CPA firm, and their job, in their eyes, was not the same as my eyes. Their job was to prepare the tax return with the numbers that my people gave them. That was their job.
So yes, a construction accountant does prepare your tax returns, typically. I mean, they don’t even have to, I guess we know some people that just do the bookkeeping stuff, and they may be good. But that’s one job.
So now, the whole CFO and advice and organizing things, that did not exist for me with most of the people that I worked with. So, what are some of these other things that could be offered by the accountant? Because some things you have in-house and it’s expected to be in house. I had a bookkeeper in one company, I had a full blown CFO in another one. I had sort of, I guess, I’d call it an accountant without a CPA type person. I’ve had different levels. It looked very different in each situation. And the roles of the CPA would have been different, but it took me a long time to figure that out.
So preparing the taxes and knowing how to do that is the one thing. But what are some of these other things that we can do?
How your accountant should help with your planning and cash flow
[00:06:23] Wade Carpenter: I would say the biggest thing is planning. Year-end planning should be very different. And most CPAs, I hate to admit, if they do any planning at all around the taxes. And what I like to do is a three-pronged approach and I’ve said this before, but, maximize your financial statement, minimize your taxes while not screwing up your cashflow in January, February because you got a big tax bill. We do something to minimize the tax bill, it wrecks our cashflow first part of the year. But a true construction CPA should be doing more advanced planning for you, especially if you’re getting bonds.
[00:07:02] Stephen Brown: Absolutely.
[00:07:03] Rob Williams: One big thing on that is I love you’re saying cashflow because the CPAs, I wish their job in their head was to maximize cash flow, rather than minimize taxes. I think a lot of these people, they just have an obsession, and this is what the contractors are asking for, to pay the least taxes possible. And most people don’t think about that that can really wreck your cashflow. You just said wreck cashflow, but I think that is where you were going with that.
[00:07:34] Wade Carpenter: And the health of your company. Absolutely.
[00:07:36] Rob Williams: And the health of your company, yeah. And the other thing is delaying cash flows because it took me a decade or two to realize when people said I’m saving you all this money this year, a lot of times, that meant, well, we’re just going to make you pay it next year instead of this year. I want to pay my taxes with the money that I made, not put it off on next year’s jobs to pay this year’s. Your ROI might be a little bit better, but if you have a bad next year, the consistent profitability, that consistent cash flow is big.
Contractors, the cash flow. I don’t know if there are any industries more volatile than these contractors of cash going up and down. I don’t know if it’s, I think it’s the way the business is. It might be a little bit of the personality as well, but you’re handling so much cash that’s really, we’ll say it’s other people’s cash.
Cause you’ve got the cash, but it’s really owed to the lumberyard already, or the subcontractor or something like that. So you’re being put in control of these big amounts of cash. And none of my CPAs helped me with that. That’s what my CFOs did. And there are CPAs like Wade that can play both roles.
[00:08:47] Wade Carpenter: Well, cash flow for a contractor, too, is very different. And especially if you’ve got long-term contracts. But I guess I probably should say at this point, I’m planning a little bit of revenge on Stephen, because we’re going to do another episode about a great bond agent, but —
[00:09:01] Stephen Brown: Look me up. Give me a ring. No, I’m kidding.
Why your accountant should work with your bond agent
[00:09:04] Wade Carpenter: But one of the biggest things I would say about planning, some of the best, most successful contractors I’ve ever had, and most successful arrangements were when I was working with the bond agent before the end of the year. And the bond agent said I needed this much in cash. I want working capital to look like this. And we couldn’t always accomplish everything, but we could work towards it and try to dress it up, instead of saying, let’s spend everything we can so we can minimize the taxes.
So having a good bond agent to tell you ahead of time, and a lot of CPAs feel like that’s stepping over a line. We’ve got to draw a line between we’re going to give you a true picture, but if we’re going to help you, there are some planning things we can do. And they don’t want to get into that side of it. They’re, they’re afraid to get into that side of it. They’re afraid to talk with the bond agent. And that–
[00:09:59] Rob Williams: It’s not lying. You are really creating the cash and you’re not, like, Enronning something, you know, reporting something. You’re helping that person create that cash to have it. It’s not like he’s making something up on the things after the fact. You’re helping this happen.
[00:10:15] Stephen Brown: We know how much bonding that you think you need, or you’re telling us you need, and we’re pushing hopefully the edge of the envelope on keeping you bonded up to your capacity. So we’ve got to have the numbers to support that.
[00:10:28] Rob Williams: Yeah.
[00:10:29] Stephen Brown: And the most frustrating thing is we always say, please meet with your CPA before the year end to do–
[00:10:36] Rob Williams: You know, contractors have this, we have this impression that you just do your work and everything is just going to come out the same way. Doesn’t matter. We’re going to do these jobs, we charge this price. But there are cash drivers, cash things that you can control that are different.
I don’t think a lot of beginner contractors understand that. How much money are you going to take out? How much should you leave in? How much do you need to leave in? What kind of terms are you doing? All these things control your cash. You are in control of the company. Builders, a lot, when you start off, you think I’m going to build it, I’m going to charge for it and everything else just works it out.
I’ve actually heard so many people say that it’s all just going to work out. There’s so many things that you control that you don’t know about. And they don’t teach us that even with an MBA. Nobody taught me any of that. It was afterwards. I had an undergraduate degree in real estate finance. You’d think they would teach you some of this stuff. They didn’t. There was nothing, none of that.
[00:11:38] Stephen Brown: That’s just a perfect point. You specialize in things. We always talk about your financial board of directors, and your accountant is one of those people that have to be the best. You get the best financial board of directors you can find. That’s it, period. And then you take their advice and you learn.
You don’t have to pay for their advice every time. You learn. And for example, Rob, we talked about percentage of completion accounting methods, all the different methods involved in contracting, and the expertise that goes along with it. How many questions did we ask, Wade, when we were studying for our Certified Construction Financial Professionals tests?
[00:12:22] Rob Williams: A lot.
[00:12:24] Stephen Brown: A whole lot. And then we were constantly amazed, weren’t we? And Wade only told us like that much of what he knows. What we were asking about was so fundamental. It was amazing that he didn’t laugh in our faces, but I–
[00:12:39] Rob Williams: Sometimes he didn’t understand what our question was cause he assumed we knew that!
[00:12:42] Stephen Brown: He’s like, you idiots, how long have you been in this business? I know, well, I think one of the keys to my success is not pretending to be an accountant, or a lawyer, or a banker, or the other people on your financial board or even a contractor.
[00:12:57] Rob Williams: Actually, I had a compliment to me. I’m not a CPA, but I was working with their cashflows and stuff and it really occurred to me, I had a really short meeting with him and he’s paying me and he said, no, you’ve done your job. I was like, the call was five minutes, supposed to be an hour. He said, you’ve made it so simple. It’s just, it’s simple. It’s there. So, can your tax accountant, your CPA, can he simplify and make this simple for you and not over-complicate it?
I think some people, they may be afraid they don’t know everything, so they make sure you don’t understand it. They complicate it. They throw out these things that make it complicated. Can your CPA talk to you to where you understand things? Or is it one of those meetings you just go to and you look at the ceiling while he’s talking and you say, where do I sign? You know, Let me file this thing.
[00:13:46] Stephen Brown: Right. Time is money. You want to deal with the best and get the right advice. It’s like that mechanic that opened the hood and reached in and turned one screw and said that’ll be $50. And they said $50? All you did was turn a screw! And he said, yeah, but I knew what screw to turn.
[00:14:04] Rob Williams: Yeah. I’ve definitely heard that. In a lot larger dollar amounts, but–
[00:14:07] Stephen Brown: Okay. So Wade, somebody comes to you, how do you start working with them? What are your priorities?
What a good construction-oriented accountant will prioritize first
[00:14:15] Wade Carpenter: Well, number one, I think it’s a matter of, let’s talk through the business. And sometimes we’ll spend a few hours talking through what’s going on with the business, looking at where your financials are and whether you’ve got numbers you can trust.
It depends, what are your main concerns? A lot of times it’s around cashflow or, too often it’s taxes when maybe taxes shouldn’t be the driving force, but sometimes that’s the driving force for coming to see me.
But, I guess going back to, the training. It’s on-the-job training. The specialized training that you guys did with CFMA, they do not teach that, even in college. They have different accounting courses and they have cost accounting courses. But cost accounting and those courses are more driven towards manufacturing and standard costing and stuff like that. I mean, manufacturing is one thing and it’s tough to figure out every little thing, but construction’s got so many more variables. And you’ve got a tougher job than any manufacturer really does.
And, manufacturers, Rob will tell you, they’ll analyze this to the nth degree, but this is something that you can’t really learn in school. And you just have to learn it on the job. Unfortunately, there’s a lot of CPAs that hold themselves out to be construction experts. Well, they may be able to file your taxes, but they don’t know much more than that. And I guess now I’m sounding self-serving again. So I’ll shut up.
[00:15:39] Stephen Brown: Hey, look, if you’re listening to this podcast and you’re interested and you’ve made it this far along, I just want to hug and kiss you. That’s how important it is for you to understand how important it is to get a good construction oriented CPA.
And yes, there are lots of great bond agents all over the country. Fantastic people. And there’s lots of great construction-oriented CPAs all over the country.
[00:16:00] Rob Williams: Yeah, we’re not being self-serving on here. You know, we’re out here to help these contractors. And if we can’t tell them what to expect and what to do, we’re not going to help them. So we’ve just got to put it on the line.
[00:16:12] Stephen Brown: Keep on trucking, baby.
Wade, thank you. You handled that very professionally and humbly.
[00:16:20] Rob Williams: Yes. Very humble man. Humble man.
[00:16:21] Wade Carpenter: Well, thank you. But let’s just say payback’s coming, so.
[00:16:26] Rob Williams: All–
[00:16:27] Stephen Brown: I’d still like you to come frame out my she shed.
[00:16:29] Wade Carpenter: That’s, yeah.
[00:16:30] Stephen Brown: Okay.
[00:16:32] Rob Williams: Call Carpenter and Company, CPAs for your she shed! No. Don’t do that.
[00:16:36] Stephen Brown: Oh, it’s we shed I’ve invented.
[00:16:38] Rob Williams: Yes, the we shed. And the iron gates. We don’t build iron gates at IronGate Entrepreneurs.
[00:16:46] Stephen Brown: And Wade is not a carpenter. He’s a construction-oriented CPA.
[00:16:50] Rob Williams: Lots of irony on this show. So.
[00:16:52] Stephen Brown: Crazy stuff.
[00:16:54] Rob Williams: Before everyone tunes out now, so we will declare this, this, another great, wonderful episode of the Contractor Success Forum. We are Wade Carpenter, Carpenter, and Company, CPAs, Stephen Brown, McDaniel-Whitley bonding and insurance agency, and Rob Williams with IronGate Entrepreneurial Support Systems. So come back and listen to the next Contractor Success Forum.
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