To all our friends and family we want to wish you a very Merry Christmas!
One of the most important things to understand in the construction industry is how to bill for services. Once you have a better understanding of the billing structure it is much easier to compare bids and construct the contract.
This post is not a complete list of all forms of construction contracts and there may be instances where contracts have portions of each type of contract.
Fixed price / Lump sum contract:
From the name you can understand fairly easily that the lump sum or fixed price contract is a construction contract that stipulates the price of the building project based upon the needs included in the design/per your written contract. However, it is important to note that usually these construction contracts are fixed as it relates to the agreed service level. In the construction industry changes happen constantly. For this reason, construction contractors should get signed change orders as changes occur so they are not left eating the cost of construction changes when the contract is complete.
Cost plus contract:
With the cost plus contract, the construction company says that they will charge the contract out at the cost of materials plus a percentage or fixed price for their own construction time. This model is based upon the thought that construction materials represent the largest portion of the overall construction contract.This model is nice in a scenario with many change orders, because it usually avoids the need for many signed change orders (as long as the change order can be supported in some manner). This is also nice for construction companies because purchasers are more concerned with the reputation of the company they hire, not the cost of the project. These types of contracts are also helpful as they can be bid before the scope of the project is known completely. Certain preparatory work such as site preparation, utility work and other prep stage projects are agreed based upon a cost plus model.
Maximum price contract:
Under a maximum price contract, or a price not to exceed contract, the construction company bids on the job, or part of the job and gives an overall estimate of the fees involved with a cap on the price charged for the project. Under this model, construction companies have an incentive to cap overall costs, while still making sure that the project is done appropriately. Many buyers are more willing to sign a cost plus contract with a price not to exceed, than a cost plus contract. The fact that these contracts are more valuable to consumers is the incentive for this type of contract. Many construction contractors include incentives to share the “cost savings” if the actual cost of the construction project comes in lower than the maximum price. This blending of risk and reward makes the maximum price contract a very attractive option in the construction field.
Unit price contract:
Unite price contracts are usually used in construction for repetitive tasks, which at the start of the contract the actual amount of the service is unknown. Examples of this type of contract include an agreement to deliver a certain amount of rocks, soil or other aggregate for a specified price per yard/ton. These types of contracts are used extensively in the road construction contracts as the tasks are usually repetitive and the costs can be estimated on this basis with relative ease.
Construction accounting can be very complex. If you are in the construction industry and do not use someone who specializes in the industry you are throwing money away. Let us focus on your business so you can run operations.
Thanksgiving is a time to reflect on everything we are thankful for. With that in mind, I wanted to take a minute to thank my family, friends and loved ones for all of their love and support in the last year.
I love Thanksgiving because it is a time to get together over a meal with everyone I love and catch up with them.
I hope you have a wonderful Thanksgiving with everyone you love.
Happy Thanksgiving from Anthony Momany, managing partner – Capstone CPA Group
Five tips to help small businesses reduce the risk of a tax audit.
While you cannot assure someone that they will be able to avoid a business tax audit, you can help them reduce the risk. You will also notice that most of these items are generally good advice, so if you do find yourself facing a small business tax audit, you can feel a little better knowing you followed these principles. While you still made some mistakes (especially if you do not follow item #1) at least you will know that you were on the right track, which is important when you are dealing with a business tax audit.
- Hire a professional: Unlike most personal returns, business returns are more complex and usually have multiple forms to fill out just to file a single business tax return. For this reason it is important to hire a professional and not leave your business to chance. This is most important if you do not know what types of expenses you can include on your business return. This step alone assures that you have a professional to work with you, if you do face a business tax audit.
- Be honest: While it is tempting to “fudge the numbers” if you are facing a small business tax audit, it is much better to know that you have followed at least reasonable standards of filing and that you have a process in place to be able to review the numbers.
- Review the numbers: Depending upon the tools you use in your business, it may be very hard to review the numbers in your business. This is actually a big reason why we recommend that all businesses use some formal accounting system. Without a formal accounting system, not only might you be under reporting your income. You actually might be under reporting your expenses as well (we find both in business). In a business tax audit situation it is important to be able to rely upon your processes to find errors.
- Watch your deductibles: We have a theory that you should not pay one more dollar than necessary in taxes. That does not mean that you make numbers up. It also doesn’t mean that you leave numbers out. If you are in business you have more accounting and record keeping duties than an individual taxpayer, this is just part of your duties. But, there are ways to make sure you are reporting all of your business income and expenses. That is a large reason why CPAs are in business. If you are struggling with business accounting, hire someone that can help you out. This is what we do every day.
- File electronically: When you fill out your tax return by hand, you increase the chance for errors at multiple times. Business and personal returns can be very complex, but they become more complex when you attempt to fill out the forms by hand (most preparers would have a hard time filling out a tax return by hand as well). Computer software has streamlined the process of filling out and filing a return.
If you would like personal advice on some tax issues you have, and you are worried about a business tax audit (or you have received a tax audit notice), reach out to us. We are business and personal advisors that have an extensive background in business and personal taxation and can help you with your problem.
This is a blog article that uses content as included in a recent article by: CPA Practice Advisor. However, some of this material is new material. If you would like to check out the original article, click here.
Outsourcing- Definition: Obtain goods or services from an outside supplier in place of an internal source.
American companies embrace innovation almost as much as they embrace outsourcing. If you think about it objectively there are very few manufacturing companies that obtain goods from an internal source, in the truest sense.
So why would you consider outsourced accounting services:
- Save time and money- Time and Money, if only we had more of each. If you only had more time or money (or both), most of our problems would go away. How many of your vendors are offering you time and money savings? Outsourced accounting services can offer both.
- Real time access to accurate data- Large companies agree that having access to accurate reports is invaluable to decision makers. So why would small business be any different? If anything this information may be more important to Presidents, CEOs and CFOs.
- Your documents/files stored securely- If you ask any client that has had to recreate lost data due to a computer crash, they will tell you what it is worth to have multiple layers of backups available in case you lose that data.
- Eliminating the knowledge power holder- Most small to mid-sized businesses have gone through this transition. They had a bookkeeper/controller employee who knows how all the systems come together. What happens when you need to replace this employee? Or worse, what happens if they quit expectantly? Sometimes an in-house knowledge base is fine, but how do you deal with one person who runs everything, and maybe knows a little too much about employee compensation.
- Other benefits- When you outsource, inherently you are going to avoid many concerns associated with hiring employees. Benefits like: avoiding sick-time calculations, unemployment claims and miscellaneous employee baggage. Usually our business owners also find that due to the fact that they do not have to worry about execution of specific objectives they can focus their time executing their own business growth objectives. This re-allocation of time can be very beneficial for business leaders (and their investors).
If you would like more information about outsourced accounting services, please reach out to us. We offer many different service levels for many different sizes of clients. We tailor our accounting services to your particular business needs.
If you don’t like regulations you might as well not show up to the world of skilled trades.
Of course you have to hire good employees, like any other business. But, most businesses don’t have to worry about being a good year away from things like a Worker’s Compensation Audit where they hit you with a $20,000 to 100,000 audit adjustment…Let alone special considerations like:
Bonding, special financial reports requests by banks for equipment loans, or to secure that large construction bid. The list goes on and on. So if you find yourself asking why you got into this business. Maybe you are asking the wrong question.
Maybe you should be asking, “Who can help me navigate these issues so I can focus on my company, expanding my company and getting that next bid in on time for once?”
Skilled trades are important for this country but too many companies fail while trying to navigate the road on their own. Don’t take the road alone, come to a company that understands your issues and can have a real conversation about more than just a tax return.
So You Want to Take the Leap of Faith?
As a small business adviser I see many business owners that truly do not understand the time commitment that is necessary to invest to make their dream a reality (or underestimate the size of the endeavor).
I encourage small business owners to stop and take the time to speak with another business owner in their industry. This discussion is worth its weight in gold, because it helps the new owner(s) to understand what has to go into their project first hand, before they take their leap of faith.
I am almost always optimistic when it comes to a new business venture, after all I had to take my own leap of faith.
But, ultimately it is important to have a business adviser or mentor that you can go to, through thick and thin. Not a friend, but someone that is going to tell you when you are heading in the wrong direction. If you don’t have that person you have to find them for your business to succeed.
Also, you have to be realistic in your endeavor and find people that are smarter than you. Yes I said it, you might not be good at everything. This is a harsh reality. But the sooner you come to terms with the fact that you are not the best ever at everything, the sooner you will find smart people that can take care of those things for you.