Academic journal article Journal of Accountancy

CPAs Can Help Builders Increase Profits, Cash Flow

Academic journal article Journal of Accountancy

CPAs Can Help Builders Increase Profits, Cash Flow

Article excerpt

At a time when the construction industry is faced with unprecedented economic conditions, companies must do everything possible to remain profitable and maintain positive cash flows. Consider the following tips to help your clients in this industry:

* Take every available tax credit. These include, for example, various Enterprise Zone tax incentives, credits and deductions for placing in service energy-efficient properties, and taking advantage of cost segregation. This technique allows taxpayers to depreciate certain components of a building faster than the 39 years generally required for real property. By classifying certain building components (for example, non-load-bearing walls or lighting systems) as five-, seven-, or 15-year personal property, taxpayers can take higher depreciation deductions. However, taking full advantage of cost segregation generally requires a componentization study, the cost of which should be weighed against the potential tax benefits.

* Save on workers' compensation insurance with safety programs. Make sure your client's insurance agent files for the appropriate credits on your client's workers' compensation policy, such as the Drug Free Workplace Credit, Safety Credit and the Contractors Premium Rate Credit. Also, double-check the accuracy of the National Council on Compensation Insurance (NCCI) Mod Factor Rating.

* Update overhead percentages. Occasionally, builders complete several projects with no cash at the end. This could indicate that the contractor is applying overhead rates that could have become obsolete from the aggregate effect of many small increases to overhead costs.

* Hold a weekly collection meeting. Have a collection meeting to review overdue receivables. Keep a close eye on retainage (final payment held by the owner). …

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