Construction Industry: Seven Tasks for your Year-End Accounting ReviewTopics:

1. Tax Planning2. Budgeting3. Banking Relationship4. Collections5. Close your Books6. Bonding Planning7. Software System Updates

Presented By: Rob Scherer, President, TAG

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Task #1

TAX PLANNING

Timeline: November mid-month

Who: Owner, Accounting, CPA

Task #1

TAX PLANNING

• 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 AP), 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 we are going to miss our previous projection by a significant amount.

Task #2

BUDGET FOR THE NEW YEAR

Timeline: November - December

Who: Owner, Accounting, Manager

Task #2

BUDGET FOR THE NEW YEAR

Start the budget process:

• Revenue forecast (see attached worksheet)

• 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.

Revenue Projection Worksheet

For more information, Contact TAGhttp://www.teamtag.net/contact-us/

Task #3

BANKING RELATIONSHIP

Timeline: November

Who: Owner, Accounting, Banker

Task #3

BANKING RELATIONSHIP

• 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 you 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

Timeline: December – January

Who: Accounting, Customers

Task #4

COLLECTIONS REVIEW

• 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 stop #%cking around with a non-paying account and just send them 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 #4

COLLECTIONS REVIEW

• For Change Orders, take this opportunity to:

Make sure you are carrying companies correctly on the books (proposed, approved, pending, disputed).

Make sure you know all pending companies and/or back-charges

If companies are being negotiated establish a “best guess” for their outcome.

Book accordingly.

Task #5

CLOSE YOUR BOOKS

Timeline: January

Who: Accounting

Task #5

CLOSE YOUR BOOKS

• Just like a monthly close, but even more work!

• Some of those accounts that we put recurring journal entries in need to be tied out (i.e. depreciation – book/not tax, prepaid insurance, petty cash, inventory, loan schedules, bad debt allowance, etc.)

• Review bad debt allowance for extra adjustment. Hold open AP for a week in January to capture any December invoices that should be posted to December.

• Accrue expenses through year-end that may not have been accrued in other months (i.e. payroll and related payroll expenses, interest income or expense, incentives and bonuses).

• Jobs! Take a HARD, HARD look at jobs! Get a handle on change orders and estimated cost at complete for the jobs.

Task #5

CLOSE YOUR BOOKS

3 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

Task #6

BONDING RELATIONSHIP

• Don’t forget about your bonding planning (January). Your bonding relationship is an ongoing balancing act with your banking and tax planning:a) Evaluate your year-end working capital position. How does this compare with last

year-end?

b) Evaluate your debt/equity position and your tangible net worth (TNW) position. How are these used by your surety in determining your bonding capacity?

c) 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)?

d) 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?

e) “S” Corp vs. “C” Corp retained earnings issues.

Task #7

SOFTWARE SYSTEM REVIEW

Timeline: January – February

Who: Accounting, Software Consultant

Task #7

SOFTWARE SYSTEM REVIEW

• Software System Review (January – February):a) 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.

b) Archive: This may or may not be a part of your year-end procedure.

c) 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.

d) 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.

Task #7

SOFTWARE SYSTEM REVIEW

For more information, Contact TAGhttp://www.teamtag.net/contact-us/

Thank you!

Presented By: Rob Scherer, President, TAG