How accountants can help seal building sector against the storm

A specialist understanding of the construction sector is increasingly important for accounting firms servicing building companies as they deal with escalating costs, delays and financing issues, according to Pherrus Financial Services. 

Setting firms up for success in this sector requires accountants to have an in-depth understanding of the complexities and challenges within the construction sector and implementing tailored strategies for businesses, the Sydney-based firm said. 

Pherrus, which specialises in the building sector, said construction companies can often have complicated tax situations and are very much at the mercy of external variables.

Where there is a dip in the economy it is also one of the first sectors to feel the pinch, with the current economic environment already starting to place pressure on the sector.

Construction company insolvencies have started to rise as escalating costs place pressure on fixed priced contracts and the pipeline of new orders slows.

ASIC’s latest insolvency statistics show that 2143 construction companies became insolvent this financial year to 23 April this year, a 75.6 per cent increase from the same period last year.

Pherrus said its building and construction clients are managing to "weather the many challenges currently hitting the sector", with some of its clients continuing to see growth in their business.

Longer-term planning strategies relating to cash-flow planning, debt management, educating clients on changes in the marketplace and analysing investment opportunities have helped prepare its business clients for some of the difficulties currently facing the sector.

Cash-flow is a significant challenge for many companies at the moment, partly due to the nature of construction projects and also the current economic environment.

One way that Pherrus has addressed cash-flow issues for its clients is by providing in-depth training on financial systems, processes and software.

“We’ve trained the people in these companies responsible for chasing debts and managing account payables and implemented systems to help automate these tasks,” the accounting firm said.

“We’ve also set up more effective structures for debt management for these businesses to ensure they have access to funds while they’re waiting for invoices to be paid.”

Actively working with clients to grow their profits and analyse potential investment opportunities has also bolstered the financial position of its clients, according to the firm.

“We advise clients on the factors which are likely to affect the return they’re likely to see on an asset, suggesting options such as changes in ownership, timing of works, and offsetting profit against loss in order to ensure the company enjoys a good return on every dollar they spend,” said Pherrus.

“For example, a firm might come to us with an opportunity for a project. We’ll look at their finances to assess whether it all adds up and whether they’re likely to actually make a profit.”

The firm also assists clients with the acquisition of large assets such as machinery or buildings by helping them assess whether it’s a viable purchase for the business.

As a multi-disciplinary firm, Pherrus said providing the right insurance solution and level of cover has been another important service for the construction and building companies it works with.

“Many construction companies are surprised to discover that they have some gaps in provision, at the same time as being over-insured in other areas,” it said.

With workers compensation insurance mandatory in all Australian states and territories, the firm works particularly closely with its clients in this area to ensure they have met their requirements and have selected the right coverage based on their circumstances. 

Quality record keeping is another area that some construction and building businesses struggle with, particularly for firms experiencing a period of upheaval, the firm stated.

Pherrus has worked with its clients to put in place appropriate record keeping systems and to build the financial capacity of these businesses.

"Having access to good quality, accurate data also ensures that tax and compliance audits can be undertaken by the firm in a timely manner," it said.

Given the high use of contractors within the construction industry, the taxable payments annual report (TPAR) is one of the more challenging compliance obligations that construction and building companies must comply with. 

The firm has played an active role in educating its clients on what their obligations are with these reports and assisting them to lodge them accurately and on time. 

Pherrus is expecting the next 12 months to continue to bring a raft of economic challenges and will focus on helping its clients to maintain their revenue.

ABS data released this week indicated that building approvals in the March quarter were the lowest in over a decade with rising interest rates, increasing costs and labour uncertainties having a significant impact. 

“We’re encouraging businesses to maintain their marketing despite the downturn. While businesses sometimes pull away from spending on marketing during tougher times this can hurt them in the long-term,” Pherrus said.

“The businesses that are still visible and actively reaching out to potential prospects and potential clients, they’re the ones that tend to survive.”