Copyright Notice. Special Thanks to. The Basics of Construction Accounting CFMA. All rights reserved. 1. Day 4

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1 The Basics of Construction Accounting An Introduction to Construction Accounting & Financial Management Principles Day 4 1 Copyright Notice This presentation and all associated materials (including but not limited to workbooks, handouts, CD-ROMs, etc.) are copyrighted by CFMA and may not be altered, adapted, reproduced, or redistributed in any manner without express written permission from CFMA s Vice President of Content Management and Education and/or Chief Operations Officer. Unauthorized use of any CFMA copyrighted materials is expressly forbidden by law. Questions regarding usage and content should be directed to: CFMA, 100 Village Blvd., Suite 200, Princeton, NJ Phone: education@cfma.org Web: 2 Special Thanks to Gordon Marshall, Faith McDermott, Mary Davolt, Jill Stone and Tony Stagliano We are grateful for their time, talent, and diligence in the creating and updating of this course and materials. It is because of the dedication of our volunteer members that CFMA continues to be The Source & Resource for Construction Financial Excellence. Questions concerning content, etc. should be directed to education@cfma.org. 3 1

2 Acknowledgement CFMA would like to acknowledge as the official sponsor of The Basics of Construction Accounting course and all of CFMA s WebLive Programs 4 Program Schedule Day 1: Thursday, Nov. 14, :00-5:00 PM EST Day 2: Monday, Nov. 25, :00-5:00 PM EST Day 3: Thursday, Dec. 5, :00-5:00 PM EST Day 4: Thursday, Dec. 12, :00-5:00 PM EST 5 Session Presenters Anthony R. Stagliano, CPA, CCIFP National Director of Construction Industry Services CBIZ & Mayer Hoffman McCann P.C. Phone: tstagliano@cbiz.com Website: Kevin Foley, CCIFP Chief Financial Officer E. Allen Reeves, Inc. Phone: Ext. #123 kevinfoley@eareeves.com Website: 6 2

3 Today s Agenda: Day 4 Section 9 - Financial Statement Analysis Section 10 - What s Expected of YOU Section 11 - Industry Benchmarks 7 The Basics Section Nine: Financial Statement Analysis 8 Financial Statement Analysis The Three Cs Assess Management Capacity Assess Leadership Charactert Evaluate Capital Structure

4 Financial Statement Analysis Look at CFMA Basic Construction Co. - March 31, 2013 Working Capital: Current Assets Current Liabilities $5,000,000 - $4,000,000 = $1,000,000 Current Ratio: 1.25 to 1 Debt to Net Worth: Total Debt $4,500,000 Total Net Worth $1,500,000 Ratio = 3 to Using Key Ratios Liquidity Ratios Profitability Ratios Leverage Ratios Efficiency Ratios The Basics Section Ten: What s Expected of YOU? 12 4

5 What a Company Expects from the Construction Financial Manager An Effective Member of the Management Team What a Company Expects from the Construction Financial Manager An Effective Member of the Management Team A Motivational Administrator of the Finance Department What a Company Expects from the Construction Financial Manager An Effective Member of the Management Team A Motivational Administrator of the Finance Dept. A Responsible Representative of Employer & a Liaison to Creditors

6 What a Company Expects from the Construction Financial Manager An Effective Member of the Management Team A Motivational Administrator of the Finance Dept. A Responsible Representative of Employer a Liaison to Creditors An Administrator Responsible for Insurance, Income Tax, Legal, HR, Safety & IT What a Company Expects from the Construction Financial Manager An Effective Member of the Management Team A Motivational Administrator of the Finance Dept. A Responsible Representative of Employer & a Liaison to Creditors An Administrator Responsible for Insurance, Income Tax, Legal, HR, Safety & IT A Model of Integrity with High Ethical Standards Policies & Practices Unique to the Construction Industry Every contract has unique terms. Customers may require specific information & format for billing that impacts your system, policies and procedures. Estimating is an integral part of job procurement & revenue recognition. No two projects are the same. They are impacted by so many variables such as design, location, employees/subs, scope of work, weather, time of year. The one industry where Change Orders are the Norm

7 Policies & Practices Unique to the Construction Industry Certified Payroll Reports Prevailing Wage Lien Waivers with Every Payment State Sales and Use Tax Requirements Certified Payroll Reports Employee names Addresses SSNs Straight-time & OT by day Hourly wage rate Deductions taken Net pay received Fringes paid Signed Statement of Compliance Polling Question #1: Has your company or construction clients performed prevailing wage work? a) YES b) NO

8 Prevailing Wage Publically funded projects Davis-Bacon ACT State t or Federal State Sales and Use Taxes Each state has different requirements Some down to local tax rate differences Some organizations have exemptions available Care to be taken not to pay tax more than once in a transaction Lien Waivers What is a lien? Who has lien rights? The Lien Process Lien waivers Remedies for parties with liens Resources

9 3 rd Party Relationships Banker, bonding, insurance Suppliers & vendors CCIFP Credential The difference between an occupation & a profession is certification. Herb Brownett, CFMA National President (2003) The ONLY standard for construction financial professionals. The ONLY credential that recognizes the unique challenges & specialized knowledge demanded of construction financial professionals. Exam Information: Study Resources: The Basics Section Eleven: Industry Benchmarks 27 9

10 Workbook TAB FINANCIAL SURVEY EXECUTIVE SUMMARY.pdf 28 Results from CFMA s 2012 Annual Financial Survey Balance Sheet Statement of Earnings Key Trends & Challenges What Best in Class Firms Know Source: CFMA s 2012 Annual Financial Survey Trends in Execution of Work Use of Building Information Modeling (BIM) Growth in Lean Construction Use of mobile technologies Integrated Project Delivery (IPS) Modular Construction Public Private Partnerships (PPP)

11 Industry Trends The private sector continues to generate the majority of revenues; Primary source of competition is existing contractors pursuing new growth; Bank credit availability has steadily improved over the past three years; Over 50% of companies are relying on external data like financial surveys, benchmarking & peer groups to prepare their P&L budgets Source: CFMA s 2012 Annual Financial Survey Top 5 Industry Challenges Financial condition of federal, state, or local government 66% Sources of Future Work 87% Shortage of Trained Field Help 68% Healthcare Insurance Costs 73% Banking & Lending regulations 32% Source: CFMA s 2012 Annual Financial Survey #1 Challenge Sources of Future Work 45% Shortage of Trained Field Help 15% Financial condition of federal, state, or local government 13% Healthcare Insurance Costs 9% Banking & lending regulations 4% Source: CFMA s 2012 Annual Financial Survey

12 Best In Class Firms: Build relationships, alliances, networks. Focus on retaining key employees. Know that volume kills, profit thrills. Identify & effectively manage risk Use Do what we do better strategy Place a high priority on safety Source: CFMA s 2012 Annual Financial Survey Best In Class Firms: Use performance-based management systems. Invest in training their employees. Institute & use disciplined marketing programs. Place a high priority on safety. Source: CFMA s 2012 Annual Financial Survey Now that you ve completed The Basics, do you think you can: Explain the core points of revenue recognition? Discuss the importance of a job cost system? Calculate earned revenue? Identify what a construction company expects from its financial manager?

13 End of Section Eleven and Day 4 Final Wrap-Up / Q&A Anthony R. Stagliano, CPA, CCIFP National Director of Construction Industry Services CBIZ & Mayer Hoffman McCann P.C. Phone: tstagliano@cbiz.comcom Website: Kevin Foley, CCIFP Chief Financial Officer E. Allen Reeves, Inc. Phone: Ext. #123 kevinfoley@eareeves.com Website: Review Question #1 In financial statement analysis, what about a contractor can be readily assessed? A. Adequate field staffing levels. B. Contractor s adherence to project schedule. C. Contractor s levels of liquidity. D. Types of projects which are becoming available to bid. 38 Review Question #2 Which of these is not unique to the construction industry? A. Lien waivers with payments. B. Prevailing wage projects. C. Every sale involving a contract with unique terms. D. Use of subcontractors on most projects

14 Review Question #3 What is a key attribute of a CFM (Construction Financial Manager)? A. Trusted representative of the firm for bankers and sureties. B. Membership in Professional Societies (CFMA,AICPA). C. Strong technological skills. D. Good relationships with architects and engineers. 40 Thank you for your participation! Join us for our next CFMA WebLive Program SAVE THE DATE for CFMA s next WebLive educational seminar Contracts 101 to be presented on January 9 & 16, 2014 For registration details visit FOR MORE INFORMATION CONTACT: Ariel Sanchirico, Associate Director of Education CFMA, 100 Village Blvd., Suite 200, Princeton, NJ asanchirico@cfma.org Phone: