How 4 Construction-Oriented Accounting Methods Impact Your Bond Program

Welcome back, Friend,

If there's one thing, I hope you've heard loud and clear from me so far, it's this........

Work with a construction-oriented CPA or bookkeeper who truly understands your construction business.

Now, why is this so crucial? Well, our industry is unlike any other. It's a beast of its own, where we essentially 'eat what we kill,' and certainty is a rare commodity.

One moment, we're raking in millions, and the next, we could be facing substantial losses due to a single project gone awry, for one reason or another. We don't operate like the hospitality, retail, or technology sectors, where things typically flow smoothly day in and day out.

In our line of work, we rely on a specialized form of accounting called Job-Based accounting.

It's essential that your accountant comprehends?construction?projects inside and out and knows how to track them accurately.

This is where the real magic happens – when your accountant understands this, it can make or break the financial statement you provide me when qualifying for your bonds.

If the statement is entered incorrectly, this is what it looks like when I try to figure it out.

I crack myself up ?? on a serious note it becomes nearly impossible for me to analyze it effectively and obtain the precise numbers needed to advocate for your bonding program with the surety company/underwriter.

To help you avoid this common pitfall, I've compiled information on 4 accounting methods you should be aware of. These insights will empower you to sidestep the mistakes I see contractors make time and time again when they approach me to qualify for their bonding programs. ?I know you’re busy so let’s get right into it:

1. Cash Basis Method: Cash Basis is like counting the money in your piggy bank when you put it in or take it out. This method only counts your cash and expenses paid out. ?

Why You Should NOT????♂? Follow This Method as A Contractor: As a contractor, your cash is always tied up in projects. If you were to give me a cash basis financial statement, I would only see roughly 30% of what you really have going on, killing your bonding program chances. Think about it; you would only qualify for 30% of what you really qualify for.....

2. Accrual Basis Method: Accrual Basis is when you track not only your cash but your receivables (projects billed) and payables (bills received)

Why You Should Follow This Method as A Contractor: Since roughly 70% is tied up in projects the receivables (projects billed) and payables (bills received) entered gives us a true estimate of what we really qualify for in our bonding program.

3. Completed Contract Method: Completed Contract Method recognizes all revenue and expenses only when a project is fully finished, providing a clear financial picture at the project’s conclusion.

Why You Should Follow This Method as A Contractor: This will also help us identify which projects were profitable and which oneswere not, allowing us to learn from our mistakes and avoid repeating them....

4. Percentage of Completion Method: The percentage of completion method recognizes revenue and expenses based on the progress made on a project, providing a more accurate picture of financial performance during long-term projects.

Why You Should Follow This Method Out All of Them as A Contractor: This is the gold standard in construction accounting and what I encourage my contractors to aim for. It allows us to monitor the project's progress and fine-tune its performance.

Think of it as a proactive way to identify issues promptly..

If there's one thing, I hope you've heard loud and clear from me so far, it's this:

Work with a construction-oriented CPA or bookkeeper who truly comprehends your construction business.

Now, the ball is in your court. I've done my part; don’t say I didn’t tell you so...????♂?

See you next weekend, Friend.

Cheers,

Neb Aynu

Founder & Owner Kingdom Bonding

[email protected]

????703-547-4945

????Read Our Kingdom Testimonials

PS: If you need a recommendation for a construction-oriented CPA. Reply back to this email and I will hook you up.?