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AAFCPAs advises clients to use accurate useful lives, and record depreciation on a monthly basis to not give contractors a false sense of profit. •• Short-term Debt: Short-term debt encompasses maturities due within the next twelve months, typically on vehicles or equipment that might be financed. This impacts working capital calculations as well as debt covenant calculations. We recommend amortization schedules on all debt that reflects accurate short-term portions in the current liabilities. •• Accounts Payable (Current and Retainage): Your accounts payable represents all amounts due for work/services received, including those to subcontractors (including retainage), service providers, utilities and more. Ensure that your payables are current, and you do not stretch out payment terms resulting in interest charges. You may also take advantage of discounts provided by vendors/ suppliers if you pay early. Best practices in accounts payable can

be achieved with proper cash flow projections. •• Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts: Overbilling on projects may help with cash flow, but may result in job borrow. Additionally, overbillings may be perceived as, or an indication you are overly conservative in job estimates. Again, monthly cost meetings are crucial to provide finance with insight into where each job stands. •• Accrued Expenses: Accrued expenses encompass all other amounts owed outside payables or debt. These can include payroll earned but not yet paid, 401k matches, PTO liabilities, income taxes, payroll taxes, etc. It is important to have proper cutoff procedures to capture all expenditures in the correct period. •• Long Term Debt: Long term debt represents the balance of what you owe beyond twelve-month maturities. Monitor how leveraged the company is by looking at debt to equity ratios. A debt-to-

equity ration of 2:1 is generally the best practice. •• Equity:Preserving equity in the company should be a top priority, especially if you are growing and looking to increase bonding capacity. If distributions are necessary, e.g. to pay income taxes for owners, discuss the impact prior to taking equity out of the business. Consult with your AAFCPAs tax professional to plan accordingly in order to limit the need for tax distributions. AAFCPAs encourages contractor clients to benchmark their performance metrics against the industry norms. Valuable balance sheet performance indicators include: current ratio, quick ratio, working capital, debt service coverage, return on equity, return on assets, AR turn and days outstanding, AP turn and days outstanding, revenue to working capital, debt-to-equity, and current debtto-equity. Monitoring these indicators and reviewing your balance sheet on a monthly basis will ensure financial stability over the long term. s

The Professional Contractor

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The Professional Contractor - Spring 2018  

In this issue, get to know ASM’s 2018 president; Cannistraro moves into bigger digs; and ways to save money with your ASM membership.

The Professional Contractor - Spring 2018  

In this issue, get to know ASM’s 2018 president; Cannistraro moves into bigger digs; and ways to save money with your ASM membership.