How Can We Optimize Savings?

One of the most overlooked ways to boost your cash flow is through strategic tax planning. Ask your accountant about opportunities for accelerated expenses such as bonus depreciation or the Section 179 deduction on equipment and other fixed asset purchases. In addition, the tax laws for contractors can be extremely favorable. An accountant that is knowledgeable in these areas could help a contractor to defer revenue and/or accelerate deductions for tax purposes.

Tax credits can be a game changer for construction firms, offering reductions in tax liability. With your accountant, explore whether you qualify for industry-specific credits, such as the Research & Development (R&D) tax credit for innovative construction methods or for energy-efficient building practices. Also, some construction companies may be eligible for the S179D deduction for energy efficient projects for a government agency or not-for-profit organization. These credits and deductions not only minimize taxes, thereby improving your financial position, but also promote sustainable practices that can set you apart in a competitive market. All of the above serve to reduce taxes, which helps to retain more cash in the company as well as increasing the equity of the company.

What Operational and Financial Oversight Should We Implement for the Year Ahead?

Ironically, one constant of the construction industry is to expect the unexpected. Between design challenges, fluctuating material and labor costs and weather or compliance-related delays—firms must be able to plan for the unforeseen elements that can push back project timelines. You should be sure to ask your accountant to assist with financial projections for three of the most likely scenarios. By developing these ahead of time, contractors will be able to be proactive and more adaptable to situations that come up.

Fundamentally, cash flow is the lifeblood of any construction company. Ask your accountant for guidance on effective forecasting and cash flow strategies to handle the capital-intensive nature of your projects. This could include adjusting billing schedules, negotiating better payment terms, or using financing options to bridge payment gaps. Beyond year-end considerations, planning for the future is crucial for growth and stability. Engage your accountant in discussions about your financial strategy for the next year.

By setting a financial roadmap, your business can navigate economic uncertainties and capitalize on growth opportunities.

How Can We Improve Our Billings and Collections?

Managing billing efficiently is critical, especially in construction where payments can be delayed due to project progress. Your accountant can help you implement best practices to stay on top of receivables, such as more frequent follow-ups and leveraging software that automates invoice tracking.

It’s crucial to ensure that contract language explicitly outlines responsibilities, procedures for managing change orders and how to handle delays and additional costs. An internal, operational review can also track for necessary controls and identify how efficiently billing is being done and how to get invoices out quicker. Job cost accounting systems should be structured to track and document any additional costs, ensuring they are well-supported. Moreover, contracts should address materials cost escalations, detailing how these should be tracked and who is responsible for the additional cost. Responsibilities should be assigned on each project as to who oversees monitoring for out-of-scope work and escalations and to discuss and resolve issues in a timely way with the client.  

Are There Changes in Tax Laws or Accounting Standards We Should Prepare For?

The construction industry is heavily influenced by regulatory changes, and staying informed is essential to avoid unexpected tax burdens or compliance issues. As noted in my column last month, depending on the election outcome we may see shifts to the tax code and the expiration—or extension—of TCJA. Ask your accountant about upcoming changes in tax laws or accounting standards that could impact your firm’s financial health.

How Can We Better Manage Our Project Costs?

Construction projects are notorious for cost overruns. Consulting your accountant about improved cost accounting methods can help you more accurately track expenses, identify potential overruns early and manage project budgets more effectively. Diligent tracking can also help to identify for any additional costs for potential change orders. Too many times inadequate tracking, monitoring and documentation of these additional costs affect the company’s ability to obtain approval for additional change order work. Capturing these costs accurately and timely can have a direct impact on the projects and company’s profitability.

What Financial Documentation Should We Prioritize?

Year-end reporting can be overwhelming if financial documentation isn’t in order. Work with your accountant to prioritize documentation that will streamline reporting processes, facilitate tax preparation and support other business needs like loan applications or bonding. Accurate and comprehensive records ensure that you’re ready to meet deadlines and reduce the stress of last-minute audits or inquiries.

In conclusion, asking all these questions can help you transition from simply closing out the year to proactively preparing for the next. The right guidance from your accountant can uncover savings, improve cash flow management and strengthen your financial position. Don’t wait until it’s too late. Start these conversations now to ensure your construction firm ends the year strong and prepares for a successful 2025.

About the author: Phillip Ross, CPA, CGMA is an Accounting and Audit Partner and Chair of the Construction Industry Group at Anchin, Block & Anchin, LLP. For more construction industry thought leadership and content, log on to www.anchin.com.