Solutions You Need With Care You Deserve
Building Capital -
Published: 12-3-09
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In this Issue:
A new federal loan program may provide some measure of relief for small businesses whose cash flow has been impaired as a result of the economic downturn. Americas Recovery Capital (ARC) loan program was created by the U.S. Small Business Administration (SBA) to offer no-interest, deferred-payment loans of up to $35,000 to qualified small businesses.
The loans are intended to help small businesses experiencing immediate financial hardship. Eligible contractors that have been making loan payments but are presently struggling can use SBA ARC loans to make payments of principal and interest on existing loans, lines of credit, business credit cards, capital leases, and notes payable to suppliers. By using ARC loans to pay down debt, companies can use their cash flow to invest in and strengthen their businesses.
Loan Details ARC loans are offered by some commercial lenders who are SBA participants and, if approved, the loans are interest free to the borrower. The loans have a $35,000 maximum limit, and loan proceeds are disbursed to recipients over a six-month period.
Businesses that participate in this program are able to defer repaying the ARC loan principal for 12 months after they receive the last disbursement of the proceeds. Repayment can extend up to five years.
Who Is Eligible
Your business may qualify for an ARC loan if it:
The SBA says that businesses that have severely delinquent loans or whose past performance or future cash flow indicate a slim chance of survival are unlikely to be approved for ARC loans. If you think your business might benefit from applying for this SBA program, you should contact an SBA-approved commercial lender. The program will operate until September 30, 2010, or until the funds appropriated to the program run out, whichever comes first. Tax accounting for long-term construction contracts can be complex. Regulations proposed by the IRS could help certain home construction contractors by expanding the types of contracts that can qualify for the home construction contract exemption from the percentage-of-completion method of accounting. Background Under federal tax law, taxpayers generally must use the percentage-of-completion method to account for taxable income from a long-term contract. However, home construction contracts are exempted from this requirement. Instead, the tax code permits the use of other methods, such as the completed-contract method. Generally, with the completed-contract method, all contract income and contract related expenses are deferred until the taxable year the contract is completed, even though payments are received in years before completion.
Defining a Home Construction Contract
Under the tax code, a home construction contract is a construction contract in which 80% or more of the estimated total contract costs (as of the close of the tax year in which the contract was entered into) are reasonably expected to be attributable to the building, construction, reconstruction, or rehabilitation of:
Townhouses, Row Houses, and Condos
Currently, each townhouse or row house in a complex is treated as a separate building (irrespective of the number of townhouses or row houses physically attached to each other) for purposes of the home construction contract definition. The IRSs proposed regulations would also treat each individual condominium unit as a separate building. As a result, contractors working on larger condominium projects could qualify for the home construction contract exemption.
Common Improvements
The IRS has previously taken the position that land sale contracts are not home construction contracts eligible for the completed contract method where the land developer isnt performing the construction contract activities related to the dwelling units. As a result, land developers that subdivide, improve, and then sell lots have not been eligible.
The proposed regulations would expand the scope of the home construction contract exemption. Under the proposed regulations, a contract for the construction of common improvements would be considered a contract for the construction of improvements to real property directly related to and located on the site of the dwelling units, even if the contract is not for the construction of any dwelling unit.
Examples of common improvements include:
In general, a common improvement does not benefit only one particular dwelling unit or lot. However, under the proposed regulations, land clearing and grading would be considered common improvements even when performed on a particular lot.
The proposed rules mean that a land developer selling individual lots, as well as the land developers contractors and subcontractors, might have long-term construction contracts that qualify for the home construction contract exemption.
The proposed regulations may change by the time they reach their final form. We will keep you apprised of the progress of these proposals and alert you when they are finalized.
Small Construction Contracts
The tax law provides an additional exemption from the required use of the percentage-of-completion method for small construction contracts. Contracts can qualify if:
Ultimately, the best system is one that a company can use effectively to produce the critical information necessary for making smart, timely business decisions. We would be happy to help you analyze your companys specific needs. Cost overruns are a perennial drain on profits. The culprits can range from design changes to weather-related delays, from do-over work to unanticipated increases in the cost of raw materials. Regardless of the source, the end result is less money for the contractor. While there are no guaranteed methods of preventing cost overruns, contractors can reduce the chances that unanticipated extra costs will adversely affect their bottom line by making good use of cost tracking tools.
Delving into the Details Project accounting and project control software can help contractors keep projects on budget. Instead of waiting until a job has been completed to find out if it was profitable, contractors can access real-time data showing project costs. Tracking detailed information broken down by cost codes helps contractors identify where and how cost overruns are occurring. By quickly taking steps to correct developing problems, contractors are better able to get a project back on track and stay within the budgets guidelines.
Tracking Change Orders
Too often, contractors are not fully paid for all of their employees labor or for the use of equipment, tools, and material needed to complete change orders. Using software to identify and document change orders, assign appropriate charges to the required changes, and record when payment is received can help eliminate uncertainty and ensure that the contractor is paid on time. This is particularly relevant since many contracts have notice clauses that require the contractor to notify the owner of the impact and cost of additional work within a specific time frame. Promptly billing for change orders can help minimize cost overruns and protect profit margin over the life of a project.
Preparing More Accurate Bids Having verifiable job cost data allows contractors to more easily determine whether their bids on past projects resulted in the projected profit margin. With detailed information, contractors can identify which parts of a project conformed to bid projections and which went off budget. Future bids on similar projects can be refined to minimize the possibility of overrun problems.
Job Cost Reporting
Job costing systems vary in their capabilities and complexity. Basic features to evaluate when comparing systems include:
Ultimately, the best system is one that a company can use effectively to produce the critical information necessary for making smart, timely business decisions. We would be happy to help you analyze your companys specific needs. Construction Accident and Fatality Rates Fall Americas construction sites are much safer than they were a decade ago, according to the Associated General Contractors of America (AGC). The organization announced the results of a new analysis that found a 38% drop in construction safety incidents and a 47% decline in the construction fatality rate since 1998. The AGC attributed the decline in accident and fatality rates to the federal governments adoption of a safety oversight approach known as collaborative safety.
Combating Illegal Employment
U.S. Immigration and Customs Enforcement launched a new audit initiative on July 1, 2009, that attempts to identify employers that dont comply with employment eligibility verification laws by auditing selected companies I-9 forms.
The High Cost of Employee Absenteeism
Just how costly are unauthorized employee absences A survey from consulting firm Mercer, The Total Financial Impact of Employee Absences, found that the average total costs of incidental unplanned absences amount to 6% of payroll. The survey also found that incidental unplanned absences result in the highest net loss of productivity per day -- a decline of 21% compared to 15% for planned absences and 17% for extended absences.
In competing for jobs, many contractors tend to underestimate and undersell their firms strengths. Its not difficult to understand why: Selling doesnt come naturally to most contractors. Sales skills tend to be regarded as soft skills and viewed as much less important than craft or estimating skills. The reality, however, is that contractors need to develop a range of sales-oriented skills and techniques if they want to be successful. Here are some steps recommended by sales professionals that can help improve your sales skills and boost your firms chances of winning contracts.
Do Your Homework
Research potential jobs carefully before you bid on them. Make sure the job is within the range of your expertise and your experience. Your bid should cover contingencies and leave room for an acceptable profit. If the job seems like a good fit, qualify potential customers by using publicly available resources to identify any past problems they might have had paying contractors and suppliers.
Focus on the Personal
Bringing a bid or a quote to a prospect in person can sometimes be more effective than e-mailing it. Why A face-to-face encounter introduces you to the prospect and personalizes the process. It also gives you a chance to answer any queries and to clarify and elaborate on certain aspects of your bid that you consider important. You may even be able to use the opportunity to close on the job with the customer on site.
Differentiate Yourself from the Competition
Use every available opportunity to define and highlight to prospects what it is that separates your company from other contractors. In promotional material, ads, and bid documents, emphasize your employees years of experience, your firms special skills, any awards you have won, and any guarantees or warranties you offer on your work. Give prospects a reason to seriously consider your company for their next project.
Follow Up
Always follow up on sales calls and quotes in a timely way. Follow-up calls give you a chance to counter possible objections raised by the prospect. Above all else, they demonstrate your professionalism and your enthusiasm about working on the project.
Can We Serve You Our firm provides a broad range of accounting, auditing, tax, employee benefit, and management consulting services to contractors.
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Disclaimer
The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties. |
