STRIKING OUT ON YOUR OWN PLANNING IS PARAMOUNT

STRIKING OUT ON YOUR OWN: PLANNING IS PARAMOUNT

BY ADRIENNE STRACCIONE, CPA, PARTNER AND NEIL DIEROLF, CPA, CCIFP, MANAGER | WOUCH, MALONEY & CO., LLP

All AEC professionals understand the necessity of dedicating the time and effort to appropriately plan for a new project. Obtaining permits and approvals, understanding regulations, and assembling a team of available and trusted laborers and subcontractors are all crucial parts of the pre-building process. The same level of planning is required when starting a new AEC business.

Although the process may seem overwhelming, working with qualified professionals and advisors, such as accountants, lawyers, bankers, insurance and bonding companies, employment firms, and payroll providers who have experience working with union-based construction companies will give your new AEC business the strong foundation it needs to succeed.

Building Your Team

When union trades are hired for projects, the hiring party has an expectation that the company has specific expertise, training, and skills for the project for which they were hired. Those in the AEC industry should have the same expectation when hiring professional service providers for their business.

Assembling a team of advisors who have worked with union contractors is important as you can benefit from the insights they have gained working in the industry and apply them to your situation. An AEC business has significantly different needs than a retail store or restaurant. Referrals or a search of trusted trade organization lists, such as the General Building Contractors Association’s (GBCA) Membership Directory, are great ways to find service providers with industry expertise.

The added value of hiring a service provider with industry knowledge can be seen in the relationship between your accountant and your bonding company. Depending upon your business, you may need surety bonds. Most sureties will require AEC businesses to provide them with financial statements (balance sheet, profit and loss, etc.). In addition, Work-in-Process (WIP) or Construction-in-Process (CIP) schedules are often required to accompany the financial statements. Some AEC businesses do not have the means to produce these schedules internally and will rely on their CPA firm to assist them. Working with a qualified CPA who understands how to prepare construction-specific financial statements for bonding companies will reduce or eliminate unnecessary delays or additional costs.

Creating a Business Plan

Planning is paramount when starting a new business. Here are some items that you should consider:

• Business name

• Territory for work and licensing requirements

◊ City of Philadelphia, specific counties, state(s)

• Capital requirements - How much will you need? Where will it be sourced from?

◊ E.g. Loans, Small Business Administration (SBA), investors, family, friends

• Entity selection

◊ Choosing the right entity is critical for asset protection, income taxes, and succession planning.

Your accountant and attorney should work together with you to ensure that your personal and professional goals and objectives are met when choosing an entity and creating a business plan. Once these key decisions have been made, it’s crucial that they be formalized in an operating agreement, drafted with the input of your trusted advisors. Your agreement should outline how the company will operate and document certain rights and obligations of the owner(s). Oftentimes this document is overlooked, and without this document, key decisions could be impacted due to disagreements among owners.

Decisions made during the planning process will have a major impact on the success of your business.

Tax Considerations

As Ben Franklin wrote, “Nothing is certain except death and taxes.” Understanding the impact of taxes on your business is imperative. Most owners understand that there will be an individual income tax but may overlook the myriad of state and local business taxes that may be assessed based upon the location of the business or the job. For example, many municipalities have business privilege taxes based upon gross receipts payable, whether or not the job is profitable. When putting a bid together, estimators should always think of the possible taxes applicable to the specific job (business privilege taxes, sales tax, payroll taxes, etc.). Overlooking tax implications during the bidding process can result in unexpected costs and lost profits.

Day-to-Day Operations

Once you create the business plan and select the entity type, it’s time to start running your business. When it comes to your business operations, remember to do the following:

• Invest in reliable accounting systems (software) that can handle construction projects.

• Consider bidding and estimating software that integrates with your accounting system.

• Open a business bank account. Do not mix personal funds with business funds.

• Create business processes and manuals. Keep in mind the importance of segregation of duties.

• Create job costing procedures (direct costs vs. indirect costs, allocate overhead, etc.). • Evaluate security needs – cyber, on the jobsite and at the business. • Interview and hire reputable vendors.

• Obtain proper insurance coverages.

• Select a reliable payroll provider.

• Speak with a human resources professional to ensure you have all the necessary paperwork for new hires.

• Consider hiring a controller to maintain accurate and up-todate books and records.

GBCA Learning Management System

Running your own business requires skills in various areas. No one is expected to remember or learn everything on their own. Earlier this year, GBCA launched its Online Learning page to help members learn new skills. In the Learning Management System (LMS), take online classes in Core Construction or Construction Business for more information that will help you start your new construction business.

Visit gbca.com/onlinelearning to explore the class offerings.