Why Accountants Are To Blame For Building Company Collapses
Russ Stephens
Helping residential home builders to generate more leads and more sales at higher margins while improving the building experience for their clients.
We should probably start off by saying we are not anti-accountants...
In fact, some of our best friends are accountants!
And we are certainly not suggesting that it’s the accountant’s fault that so many residential building companies are failing to make a profit right now.
However, it is the responsibility of accountants to ensure the accounts they are signing off on are accurate and?reflect the true financial position of a building company?rather than an artificially inflated number that enables an insolvent building company to renew their building licence for another year.
Again, let me qualify that last statement.
We are not in any way suggesting that accountants are committing fraud by deliberately signing off on financial statements they know to be incorrect, we are simply saying that most accountants (95% according to our research) do not fully understand how construction financials work and are inadvertently submitting false information that inflates the balance sheet for a residential building company.
The inflated balance sheet delivers the impression of a profitable building company to the government licensing authorities.
A building company with large reserves so they happily licence those businesses to go out and sign up millions of dollars in building contracts for another 12 months.
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When You Know Something Is Wrong
The damage this does to the residential construction industry is huge!
Because it now means we now have a substantial number of poorly-run, unprofitable building companies competing against well organised professional builders who know their numbers and price their jobs accordingly.
When a builder is told by a consumer, “Sorry we went with another builder who was $XXX cheaper,” that builder knows something is wrong.
They may even wonder how another builder can quote the same job and offer to do it at their cost price or even below.
The answer becomes apparent a few months later when the same consumer contacts them to complain about how badly the job is going.?
“It’s now costing more than they originally quoted and it’s taking twice as long as expected.” And whenever the consumer goes onsite, then most of the time there is no one working on their project!
We all know the reason for that. COVID-19 aside, when a building company cannot pay their suppliers and subcontractors on time, then materials and labour fail to show up!