Financial Overview
WHEN IT COMES TO FINANCIAL REPORTING IT PAYS (CONTRACTORS, BANKS AND SURETIES) TO BE GOOD By: William J. Ruckert, Provident Bank Between detailed paperwork, receipts, bank and credit card statements and the reconciliation of income and expense transactions, careful bookkeeping can be an overwhelming process. But the importance of high quality, timely financial reporting for contracting businesses cannot be overstated. Financial statements provide a record of a business’s financial transactions and an analysis of its financial position. Because of the information they provide to banks, investors, creditors and suppliers, they are critical to your company’s health. The Three T’s Good financial statements should be the three T’s: transparent (honest and accessible), timely (relevant to the company, its supporting entities and the reporting period, e.g. quarterly or annually), and typical (follows prescribed reporting models and generally accepted accounting principles (GAAP)). You may prepare financial statements in-house — sophisticated accounting systems, such as QuickBooks, American Contractor, Timerline and Peachtree, can help manage and generate reports of your organization’s finances. Although economical, they limit your single job and aggregate capabilities. Conversely, financial statements that are reviewed or audited by a CPA familiar with the construction industry hold more weight with sureties, especially for projects larger than $250,000. The Benefits The benefits of superior financial statements are numerous, not only for your business, but for your bank and surety. This, it seems, is a win-win-win situation. 70
Contractors Maintaining good current financial records is imperative for a contracting business. With these reports in place, you’re gifted with the intelligent control and big-picture insight required to better run the day-to-day operations of the company. They provide you with the data to make informed decisions, helping you to plan, budget, make adjustments and forecast with more accuracy. Banks Banks use your financial statements to assess your company’s ability to repay loans; in fact, those reports may determine whether a bank will lend to you at all. If your statements engender the bank’s confidence, you may receive better interest rates, payment terms and, in the incidence of default, more flexibility. But banks, too, have a stake in good financial statements. They enhance open lines of communication, providing the bank with a more holistic, refined understanding of your company’s current and projected financial position. They also justify the existing — or an expanded— borrowing relationship. In addition, the process of renewing your existing credit facilities or providing new ones is simplified. If you don’t provide quality financial statements in a timely fashion, the bank considers it a red flag, which may impact your company’s borrowing capacity. Sureties As surety underwriting grows increasingly restrictive and the number of projects that require bonding continues to rise, superior financial statements are more and more crucial to securing bonds. The bonding process relies largely on your relationships with the Utility and Transportation Contractor, APRIL 2014