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Are You an Effective Presenter? Connect with Your Audience, Not with Your PowerPoint

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By TOM WOODCOCK

Tom Woodcock

Many contractors look for the opportunity to present to potential customers. They strive to get lunch and learns, happy hour presentations or morning coffees. When they finally attain the meeting, panic sets in as they realize they have to have a presentation that fits the customer type they’re approaching. The usual response is to focus on a PowerPoint and how much information they can drive into the customer’s head in the short amount of time allotted. The issue is that the focus shifts to the presentation. In reality, there are many other factors that will determine whether the core message is received or rejected.

The point many people miss when they are determining what they’re going to present is that connecting with the presenter is just as important as delivering the information. Trust is the number-one buying motive, and we tend to trust people before we receive the information they’re disseminating. The person doing the presenting needs to establish a level of trust right out of the gate. Putting as much time into accomplishing this as well as your PowerPoint presentation is crucial. As a matter of fact, your PowerPoint should be minimal and image-heavy. No one wants to “read” a live presentation. You may be wondering how this connection and trust is established when many times you’re only given a brief segment of the meeting to present. Here is some insight.

First, prepare by managing the environment. If it is a meeting such as a lunch and learn, elements such as food, furniture and audio/visual can affect the mood of the event. If you’re supplying food or refreshments, go top drawer. Cutting corners to save $50 to $100 immediately tells the attendees you don’t value their time. I cannot stand the cheap box lunch mentality. It’s just lazy. Also, forgetting an assortment of drinks, utensils and napkins is borderline inconsiderate. Gaining the “wow” factor right away with the food selection begins to move the clients to your side.

Second, greet everyone upon arrival as opposed to standing off to the side waiting to begin. Get names and roles while thanking them for taking time out of their busy schedules for you. This is the beginning of establishing personal trust. Also, recognize the individual who set the meeting up for you and restate your appreciation.

Next up, be there early enough to make sure there are no A/V issues. There’s nothing worse than starting a presentation and your remote doesn’t work or the projector isn’t reading your laptop. This can delay the presentation and cause unneeded stress for both you and the attendees.

Now we’re moving into the actual presentation. Before you dive into your meaty presentation, tell the audience a little about yourself – how you came into this career, your family’s support and why you chose the company you’re about to present. This will personalize you and make it more enticing to hear what you have to say. Then let them know you have knowledge of their business and market approach. People love to hear about themselves. Let them know you educated yourself on who they are and what they do.

Now the meat. Tailor the message as closely to their business as possible. If it’s a new innovation or service they haven’t used before, be sure to outline the benefit in their usage of that product or service. Make sure your points are clear and concise. Stories and metaphors need to be used to reinforce the message. People love a good story, especially if they can relate to it. So many people focus too much on pounding their information through. A reason for this is the fact that public speaking is now the number-one fear in the USA, more than death.

You’ll always be nervous regardless of your presentation experience level. But as you accomplish more and more presentations, you’ll learn how to calm those nerves. Close the meeting by thanking the audience again for taking so much time out of their day. Offer to answer any questions then close the presentation with a next course of action. Be sure to walk the room and let people ask questions in a non-group setting. Thank the individual who booked you once again and offer to send a recap. You’ll leave as a trusted expert and potentially a viable option.

Tom Woodcock, president of seal the deal, is a speaker and trainer for the construction industry nationwide. He can be reached via  www.tomwoodcocksealthedeal.com or (314) 775-9217.

Understanding the New Missouri Pass Through Entity (PTE) Tax

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By RICH WAIGAND

Richard Waigand

In August of 2022, Missouri joined 29 other states in passing a law that helps businesses and their owners pay less in combined income taxes. The new law known as the “Missouri SALT Parity Act,” is effective beginning with tax years ending on or after December 31, 2022. It allows S corporations or partnerships (pass-through entities) to annually elect to become an affected business entity required to pay the pass-through entity tax.  Qualifying owners of an electing pass-through entity are eligible for a credit equal to the member’s pro rata share of the pass-through entity tax paid. 

Why Was This Law Passed?

In 2018, the Tax Cuts and Job Act significantly increased the standard deduction for all individual taxpayers and at the same time capped the amount of state and local tax (SALT) taxpayers can deduct on their individual tax return at $10,000. Prior to the passage of the SALT Parity Act, Missouri law provided that in lieu of a corporate income tax, shareholders and partners of pass-through entities pay income tax on their pro rata share of the entity’s income attributable to Missouri. 

As a result, many owners of passthrough entities were no longer able to deduct the full amount of state and local taxes paid on their federal tax return. For example, a shareholder of an S corporation that has $1,000,000 of flow-through income from their business would typically pay approximately $45,000 in Missouri income tax. Assuming the shareholder already had real and personal property taxes of close to $10,000, most – if not all – of the state income taxes paid were not deductible on the owner’s personal tax return. At a 37 percent federal tax rate, this would cost the business owner approximately $17,000 in additional federal income tax. By having the entity make the election to pay the MO-PTE, the owners can once again receive a federal tax benefit on state income taxes paid. Since many S corporations and partnerships qualify for another TCJA tax deduction known as the Qualified Business Income deduction of up to 20 percent of their pass-through income, these taxpayers will see an incremental federal tax savings of approximately $13,000 per $1 million of flow-through income.

Entity-Level Tax Election

Entities may make the election to pay the pass-through entity tax on form MO-PTE.  They must make a separate election each tax year. The election must be signed by each member of the entity or by any officer, manager, or member of the entity who is authorized to make the election and who attests to having authorization under penalty of perjury.

Note: An electing entity must designate a representative for the tax year who will act on behalf of the entity on certain matters.

Entity-Level Tax

Tax is equal to the sum of each member’s income and loss items, reported on schedule K of form 1120-S or 1065 as described in federal law (not including guaranteed payments), reduced by the deduction allowed for qualified business income, as described in federal law, multiplied by the highest rate of tax in effect for the state personal income tax, which is 5.3 percent for tax year 2022.

Tax Credit

As noted above, qualifying owners of an electing pass-through entity are eligible for a credit equal to a taxpayer’s pro rata share of the Missouri tax paid by the electing entity. The credit is nonrefundable and may be carried forward to subsequent tax years.

In some instances, a resident or part-year resident individual taxpayer may be entitled to a credit for the taxpayer’s pro rata share of a similar tax paid by an electing entity to another state. This credit is nonrefundable and may not be carried forward to subsequent tax years.

Nonresident Owners of the Entity

A nonresident individual owner of an electing entity does not have to file a Missouri income tax return for a tax year if, for the tax year:

the individual’s only income derived from Missouri sources is from one or more electing entities; and

the electing entities file and pay the tax due

What if My Company Does Business in Multiple States?

Missouri has created Form MO-MS PTE, which is the Pass-Through Entity Allocation and Apportionment of Income Schedule, which will be used by your company’s tax preparer to allocate the income and tax appropriately to each state in which you do business.

How Do I Record the PTE Payment on My Company’s Books?

There has been a lot of debate in the accounting profession about how companies should record PTE payments on their books. The two most widely discussed accounting treatments for these payments are:

report the payment as a distribution (equity transaction) or

report the payment as income tax expense (on the income statement)

While there is no specific guidance published by the accounting standards board addressing these new state level tax elections, it will likely come down to a state-by-state level determined by who is legally responsible to pay the tax (the company or the owner).

Rich Waigand, CPA, is a partner at SFW Partners, LLC, CPAs and Management Consultants. He specializes in helping construction companies get better and more timely information from their accounting systems and provide guidance on proper financial reporting that is relevant to management, lenders and bonding companies. Waigand can be reached at rwaigand@sfw.cpa or (314) 569-3333.

Surviving the Perfect Storm: Five Ways to Handle Contractual Disagreements over Instructions to Proceed

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By QUINN MURPHY

Quinn Murphy

Few events strike fear into captains and sailors like a perfect storm.  In sailing parlance, the perfect storm happens on rare occasions when warm air approaches from one direction, cool dry air approaches from another and both combine with an existing tropical hurricane. While typical hurricane winds can average 50+ mph, the combination of these three elements can result in winds exceeding 150+ mph. A captain attempting to navigate a perfect storm has few options. Death and destruction are virtual certainties.

One such event took place in 1991 off the cost of Massachusetts that was detailed in Sebastian Junger’s hit novel The Perfect Storm. For several weeks, storm trackers and hurricane enthusiasts had been tracking an approaching hurricane, but they did not anticipate the simultaneous combination of conditions that resulted in a catastrophic hurricane for the record books. Once combined, this super-hurricane yielded winds over 75 mph and 100-foot waves, destroying ships and everything else in its path. The event eventually gave birth to what is now called the perfect storm.

Construction projects are rife with their own storms. Experienced contractors know that the ability to adjust to changing project conditions separates average contractors from those that can consistently deliver for owners. Competing objectives and project conditions often change in real time with little warning. Navigating weather storms is no task for the faint of heart. Neither is project management. And yet, some of the most common storms that contractors encounter have their genesis in very common contract provisions agreed to long before ground is ever broken. Proficiently navigating project conditions that trigger these two contractual provisions can ultimately determine both project and business viability. 

The Contract Provisions

Most construction contracts contain provisions that require contractors to expeditiously prosecute changes in the work as instructed by the upstream contractor. These same contracts also contain provisions requiring changes in the work to be memorialized by change order and, where there is disagreement about price or deadline extension, through a dispute resolution process. 

The Perfect Storm

When a change in the work is instructed, the contractor has no choice but to proceed expeditiously as it has contractually agreed to do. But often the upstream contractor does not agree on price or extension, and there simply is no time to resolve their disagreement and keep the project on track. This problem is only exacerbated if payments are already late and contractors find themselves in the crosshairs of an instruction to proceed notwithstanding no written agreement as to the resulting time and cost. In these instances, the contractor faces a catch 22 in which it must decide whether to prosecute the work and risk non-payment or refuse to prosecute the work and risk a claim for delay. For the unfortunate contractor, this is the perfect storm.

Navigating the Perfect Storm

If there were a simple answer to the perfect project storm, it wouldn’t be perfect. But a contractor seeking to minimize its risk and preserve its legal entitlement to full payment should employ the following five strategies:

Preemptively revise the contract. Require expedited approvals for changes taking place after mobilization and require such approvals to “not be unreasonably withheld” to secure legal footing to claim an increase in the contract sum or extension of the completion deadline.

Communicate early and often. Request an immediate meeting with your upstream contractor and ask for all decision makers to be present for efficiency. Document your meeting requests, and draft meeting notes and circulate to all persons in attendance. If an agreement is not reached, the documentation you created will support your good faith and strengthen your claim in litigation.

Document your non-delay. Through email, letter, project notes or otherwise, create documentation of your non-delay. Consistently confirm readiness to proceed with work and your commitment to timely project completion. Understand that documentation created at the time of a disagreement is often valued more by juries than testimony at trial.

Maintain your mechanics lien rights. No matter what, maintain your lien rights. If you have to file your lien before the project (or your work) is complete, do it. Your lien rights are your most powerful form of security for payment. Do not allow your lien rights to expire based on “promises to pay” that may not come to fruition. You can always negotiate a lien release as part of an acceptable payment resolution.

Document Prior Breach. If you are going to refuse to proceed with the instruction without an agreement, simultaneously document prior breaches by the upstream contractor as well. In most states, a previously breaching party is prohibited from strictly enforcing the provisions of a contract it has already breached, so a properly documented prior breach (untimely payment for example) can potentially justify your refusal to proceed.

There are no simple solutions to addressing the contractual risk associated with instructions to proceed without full agreement. But by utilizing these five strategic methodologies, experienced contractors may safely navigate deep waters and survive the perfect storm.

Quinn Murphy heads both the construction and receivable recovery industry teams at Sandberg Phoenix & von Gontard P.C. He represents contractors in non-payment claims in all 50 states and in helping contractors create internal collections policies that maximize net recovery. Murphy can be reached at qmurphy@sandbergphoenix.com.

Smarter IT Disaster Recovery Plan Includes Intact, Accessible, Actionable Backup Data

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By MARTY HOOPER

Marty Hooper

I think it’s safe to say that most of us understand the value of solid, consistent backups to preserve and protect our data. But as important as backups are, they are only one piece of an overall disaster recovery strategy. A comprehensive disaster recovery plan is essential to any business – no matter the size.

Let’s review backups and the part a good backup system plays in your overall recovery strategy. Some elements of a backup system are generally overlooked. First, it’s important to understand and implement a backup plan that fits your system and your workforce. One of the most important tools in a backup system is a full image backup platform. A full image backup takes a snapshot of your entire data storage – including operating system files – and creates a restorable set of data that can be reinstalled in case of a total system meltdown. Many systems just employ incremental file-level backups that don’t take a full snapshot. In many instances, running programs and other services may prevent file-level backups from concluding, and critical files can be skipped. Backups should run throughout the day so that in the case of a data loss, a full day’s work won’t be lost. Not only should they run throughout the day, but a full snapshot should also be taken periodically.

There are a few other considerations where backups are concerned. The most important is to test your backups. You should fully restore a snapshot from a previous date and run all the programs that contain data in the backup set to make sure the data is intact, accessible and actionable. I have seen many companies attempt to restore data after a corruption only to discover that their backups were not done properly. Those companies spend thousands of dollars on data reconstruction and lost productivity trying to recover from that type of situation.

It’s also important that you understand where your backups are being stored. Are they being transmitted safely offsite? Is the date encrypted in transit to offsite storage, and is it encrypted at rest? Those are all important questions to ask your backup team.

Once the backup system is in place, operational and tested, it’s time to develop a more comprehensive disaster recovery plan. The backup platform is certainly one of the most important pieces of the recovery plan, but there are several other parts that need to be addressed.

Business-impacting situations don’t just come in the form of data corruption. There are lots of other potential disasters that can bring a company to a standstill.

The physical nature of servers makes them vulnerable to hardware, software and power failures. One of the most important and often overlooked aspect of a disaster recovery plan is how to deal with a down server. If your server stops working, do you have a contingency plan? Servers can also be stolen or vandalized, so access to the server room should be restricted.

Another potential threat is a weather, climate or natural-disaster-related incident that may render your place of business inaccessible. Floods, hurricanes, tornadoes, fires and other disasters are threats for which a business must make a contingency plan. What would happen if you couldn’t access the data from your server if your building is uninhabitable or unreachable? Do you have a way to access your data?

Another point of failure that can impact a business is the local network and route to the Internet. What if your router/modem goes down? Do you have a backup router or fail-over Internet connection? If your local network fails, you won’t be able to access data on the server even though it’s in the building. A backup router is an inexpensive insurance policy against local network failures.

A lot of companies overlook the importance of a redundant Internet connection. When your staff cannot access the Internet, and clients can’t get to your website or send you email, that can have a major impact on your ability to conduct business as usual. That’s where a backup router and failover Internet connection should be a part of your disaster recovery plan.

When faced with all the potential failures in a local network, many companies have made the switch to cloud computing. Moving to the cloud can alleviate the need for a local server, remote access to that server and reliance on locally stored data. If your business headquarters is uninhabitable, your staff can access your data without coming into the office. While the cloud is a very attractive alternative to a local server, it’s also important to apply the same disaster scenarios to your cloud service provider and make sure it fits in your total disaster recover schema.

It’s critical to assess and evaluate all potential disaster scenarios – no matter how unlikely they may seem at the time – and develop a comprehensive disaster recovery plan that addresses all potential hazards. It’s just as important to communicate that plan to all staff and reassess at least every six months to make sure your plan keeps up with your company’s changing needs.

Marty Hooper is a senior sales representative for Deltek ComputerEase. He has been helping clients in the construction industry with their software and technology needs throughout the Midwest for the past nine years. Hooper can be reached at (703) 885-9418 or martinhooper@deltek.com.

Top 5 Marketing Trends for 2023 & How to Incorporate Them into Your Marketing Strategy

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By STEPHANIE WOODCOCK

Stephanie Woodcock

At the beginning of a new year or venture, I like to look at the big picture first. What trends should we consider? What is new, old, tried and true in marketing? What are the “marketing experts” saying?

Then, we can develop a crawl/walk/run plan? How do we spend our marketing dollars and which trends are going to benefit our companies the most?

The only constant in marketing is change. Here’s what is changing in 2023.

  1. Digital First Marketing Strategy

There’s no such thing as “digital marketing” anymore. It’s now “marketing in a digital world.”

By 2023, 75 percent of the U.S. workforce will be digital natives, and by 2035 many companies will be run by “born digital” leadership teams.

No matter what generation you hail from, certain truths never stop being true. Strategy drives execution. We have to look at the big picture to get the strategy. Knowing that businesses are becoming more digital is an important first step to our strategy in 2023. 

As part of the Xennial generation myself (on the cusp of Gen X and Millennials), we have the antiquated pleasure of knowing what it was like before cell phones existed. We carried pagers proudly, still talked on “land lines” and boasted about our accomplishments on the Oregon Trail video game. If we wanted to play with our friends, we walked to their houses, knocked on the door and asked their mothers if our pals were a) home and b) up for company. That was our normal mode of communication. Walking. To the front door. And knocking.

I appreciate the traditional forms of communication. Face to face is humanizing and inspiring. It’s not getting replaced. It is, however, getting supplemented. With digital. Digital can support and enhance the traditional. Traditional marketing activities such as trade shows, collateral or proposals should be planned and executed with the thought in mind: “How do we support this effort with digital?”

For instance, posting about an event on LinkedIn is a great way to support traditional marketing efforts with digital. Having a presence on social media grows your company’s audience in a way that adds value to clients.

  • Purpose-Driven Brand Strategy

What makes your company worth doing business with? It takes strong marketing to get that message across. Simple, succinct, consistent messaging creates context to show the culture of a company. A purpose-driven brand strategy is not accomplished from a well-worded “About Us” website page. It’s about telling the story of how a company’s leadership and employees embody the values they represent through everyday actions.

Hire a marketing consultant to help infuse your already present passion and purpose into your messaging, marketing and events. The return on investment is twofold. Your clients better understand your culture and company, and your employees are reminded of why they like to work for your company. 

  • Content Marketing Continues and Evolves

Content marketing. It is the practice of creating, publishing and sharing content with the goal of building the reputation and visibility of your brand. It is typically accomplished in a digital format (but can also be print) and can come in the form of blogs, whitepapers, social media posts, video, press releases, etc.

In 2023 the tone of content marketing is shifting and is being used for the strategic positioning of a company as a thought leader and authority in its industry.

  • Employee Recruitment

Employee retention is the new recruitment and a top trend for 2023 because of the current climate of talent wars. This has long been a struggle in the construction industry. Finding and retaining the right people. Enter the need for marketing. Engaged employees are more productive and less likely to leave their company. How do we get them engaged? Better communication. Internal marketing is important to the culture and relevancy of a company. Culture and onboarding videos, internal newsletters and employer brand messaging are all ways to increase buy-in with your company’s best assets – its people.

  • Customer Retention and Engagement

It costs six times more to attract a new customer than it does to keep an existing one. This is why greater engagement of current customers AFTER the sale is so important. Traditional customer appreciation events and entertainment is a start. Customization is on the rise. Customers want added layers of support throughout the sale. They want various billing options, more detailed proposals and easier communication during the project. Educational content is a great way to add value and make your clients feel appreciated. Lunch ‘n’ Learns, customer-only seminars, webinars and training are all good strategies to keep your customer engaged and deepen the relationship. 

After seeing the big picture of top trends, I notice a commonality. Each trend is about adding value through our messaging. It’s answering the why behind the what. Marketing so many times focuses just on the “what.” What do we do? What do we make? What is the process? Now it’s the “why.” Why should people do business with us? Why should they care about our company’s culture or process?

We should take our time to answer this question and provide value with our answers. It’s like walking down the street and knocking on a friend’s door to play. We want the why behind the what. Can they play? If not, why? We walked here. We deserve a full answer. 

Stephanie Woodcock is president of Too Creative, a St. Louis-based marketing and creative design firm for businesses in the building industry. Contact her at Stephanie@toocreativestl.com or (314) 753-1148.

Litigation Poker: Five Contract Provisions That Tilt Litigation Odds in Your Favor

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By QUINN MURPHY

Quinn Murphy

For years the debate has raged: Is poker a game of chance or a game of skill? In most countries poker is still legally regarded as a game of chance over the vehement objection of professionals, who argue it is a game of skill and should be respected as such. The professionals most prevalent “skill argument” is that it is a game of skill because the poker player’s opponents are the fellow players, not the house. Because human nature is understandable, predictable, and can be strategically manipulated, poker professionals believe that skill (not luck) determines outcomes. In the movie Rounders, Matt Damon’s character is quoted as saying that in poker, “If you can’t spot the sucker in your first half-hour at the table, then you are the sucker.” The implication is that players who don’t understand the controllable variables of the game should never sit down at a poker table.  

Successful construction litigation strategy is just as nuanced as poker. In certain instances, being the litigation aggressor appears to pay dividends while in other instances, it only increases costs. But the truth is, succeeding in construction litigation is about knowing your opponent better than he knows you. It is about understanding your opponent’s tendencies, predicting his or her reaction to certain actions and inactions and strategically manipulating those tendencies with factors you control before you ever see the inside of a courtroom. And few tendencies are more predictable than your litigation opponent’s desire to minimize risk/cost and maximize reward. And hedging against these tendencies can, and should, take place at the time of contracting by strategic inclusion of the following five provisions:

  1. Mediation Provision

Mandatory mediation provisions require the parties to participate in mediation before initiating arbitration or litigation. Mediation allows the parties to hear each other’s legal and factual position before incurring further costs and permits a mediator to attempt to negotiate an early voluntary resolution. Mandating contractual mediation adds an additional step that slows the timing of payment, and costs both parties’ attorneys’ fees and (normally) half the fees of a qualified mediator.

Advantage: Mediation favors parties holding funds as delay can exacerbate cash flow concerns among those demanding payment. Mediation will also benefit financially strong parties in that it allows an early evaluation of an opponent’s liquidity and financial desperation.  Information presented at mediation (e.g., payment plan duration, demands for large down payment) are “tells” that can allow more financially stable parties to secure more favorable settlement terms. Most mediators require an advance deposit, so the initial cash outlay can incentivize the claimant to compromise more heavily to avoid the initial out of pocket expense.

  • Arbitration Provision

Like mediation, requiring the parties to arbitrate can be time consuming and costly. While commonly considered to be less expensive than litigation, the process is rarely less time consuming and often equally burdensome. Filing fees for the American Arbitration Association can range from $2,000 to more than $10,000 depending on the amount of the claim, which can be a significant obstacle to pursuing dispute resolution through the AAA if required by contract. Importantly, any arbitrator’s award must be registered in Court for collection through initiation of a typically expedited form of litigation, which only adds to the overall cost of arbitration. 

Advantage: As with mediation, the timing and often significant up-front cost of initiating arbitration typically favor parties withholding funds creating negotiating leverage against claimants seeking payment. Specifying the location of arbitration in a party’s “home forum” can create inconvenience and further negotiating leverage.   

  • Forum Selection Clause.

Forum selection clauses require all litigation between the contracting parties to be brought in a particular state forum and court.

Advantage: For projects that require work across state lines, requiring an opponent to litigate outside its home state can create significant strategic advantage to the home state litigant. Out-of-state contractors will need to retain a local attorney, witnesses will need to travel for depositions and trial, the out-of-state contractor may be general unfamiliarity with local litigation and trial practice, and the time and administrative inconvenience can create negotiating leverage that significantly favors the local litigant.    

  • Prevailing Party Provision.

Prevailing party provisions require the losing party of a lawsuit or arbitration to pay the legal expenses of the prevailing party, including attorney’s fees.

Advantage: The risk of having to pay damages and your opponent’s attorney’s fees greatly increases both parties’ risk exposure. This increased risk creates a disincentive for pursuing smaller disputes and incentives both parties to compromise in negotiation.

  • Indemnity and Hold Harmless Provision.

Indemnity provisions require one contractor to reimburse another contractor for losses covered by the provision. Hold harmless provisions require that contractor to pay the attorney’s fees and costs of the contractor having to defend and seek indemnification.

Advantage: Requiring an indemnify and hold harmless provision creates significant risk exposure for contractors which, in turn, can discourage small claims and encourage compromise in lieu of litigation. While the impact of this provision is equal, financially stable litigants may be more able to risk paying its opponents damages/fees/costs than smaller, less stable contractors. This contractually increased risk exposure can be exploited to create leverage and drive settlement.     

As with poker, successful litigation strategy is as much about creating favorable odds as it is any particular strategic decision. Many of these odds are created at the time of contracting, long before any actual dispute arises. Strategically including these five provisions in your construction contracts will give you a meaningful litigation advantage that helps put your litigation adversaries on tilt.

Quinn Murphy heads both the construction and receivable recovery industry teams at Sandberg Phoenix & von Gontard P.C. He represents contractors in non-payment claims in all 50 states and in helping contractors create internal collections policies that maximize net recovery. Murphy can be reached at qmurphy@sandbergphoenix.com.

Understanding Construction Accounting

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By RICH WAIGAND, CPA

Richard Waigand

Construction accounting is a specialized area that involves managing and tracking financial transactions and budgets for construction projects. It is a vital part of the construction process, as it helps ensure that projects are completed on time and within budget. In this article, we will explore several the key concepts and considerations related to construction accounting, including job costing, budgeting and financial reporting.

Job Costing

One of the primary responsibilities of construction accounting is job costing, which involves tracking and allocating the costs associated with a specific construction project. This includes materials, labor, subcontractor and any other expenses incurred during the project. Job costing helps contractors and project managers to better understand the financial performance of a project, identify any potential cost overruns and make informed decisions about how to allocate resources.

Budgeting

To be able to effectively manage job costs, construction companies must have a clear understanding of their budget and the scope of work for each project. This involves creating a detailed budget that outlines all the expected costs for the project, including materials, labor, subcontract costs and – do not forget – overhead expenses. Budgeting is an ongoing process that requires constant monitoring and adjustment as the project progresses and actual costs are incurred.

While small a contractor may get by with using Excel spreadsheets to monitor their actual cost to budgets, larger contractors with multiple jobs running at the same time typically must rely upon a construction industry software that helps project managers create line-item budgets and monitors actual cost against those budgets. It is critical that real time data and budget comparisons are available to identify cost overruns which will provide the necessary information for management to successfully negotiate change orders when warranted. 

Financial Reporting

Another important aspect of construction accounting is financial reporting, which involves providing regular updates on the financial performance of a project. This includes tracking costs and profits in excess of billings, and billings in excess of cost and profits, which are major components of a contractor’s balance sheet and net working capital.

Owners, management, lending institutions and bonding companies all have a vested interested in ensuring that the company is reporting timely and accurate financial statements including the underlying contracts schedules that support those financial statements. A robust system of internal controls, good estimating skills and cost tracking is critical to ensuring that a construction company’s financial statements are dependable in making critical business decisions.

Overall, construction accounting is a complex and nuanced field that requires an elevated level of attention to detail and organization. By staying on top of job costs, budgets, financial reporting and other key considerations, construction companies can better manage their financial performance and ensure the success of their projects.

Rich Waigand, CPA, is a senior partner at SFW Partners, LLC. He specializes in helping construction companies gain better and more timely information from their accounting systems and provide guidance on proper financial reporting that is relevant to management, lenders and bonding companies. For more information, Waigand can be reached at rwaigand@sfw.cpa or (314) 569-3333.

Who’s Your IT Guy?

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By MARTY HOOPER

Marty Hooper

The construction industry is unique. A significant percentage of companies are started and run by the very craftsmen who worked in the industry. People excelling in their trade realized they could turn their skill of working for someone else into their own successful business. But, as their business grew, their craft knowledge would need to be bolstered with operational expertise, including smarts in maintaining inventory levels, paying employees, complying with OSHA regulations and more. The list is exhaustive.

Construction companies face the challenge of keeping pace with the incredibly fast growth of technology and computer systems. While firms want to adopt the latest technology to help their workflow, it’s a constant struggle to decide which technology to adopt and when. One of the forgotten aspects of technology is not the external apps that help locate workers, collect time and track assets, but rather the underlying technology present in every workplace. The local network is the backbone that supports all the functions of enterprise resource planning, accounting, estimating and bidding systems and the technology supporting them.

Not only do companies need constant IT support in the form of system monitoring, backups, intrusion protection, updates and virus protection, they also need a trusted adviser to guide them through the purchase, upgrade and support of their system.

There are realistically three ways to get the proper IT support:

  1. Hire a full-time IT person or staff. This is the most desirable option but is also the costliest. The advantage of a full-time IT staff is that your staff, whether it’s one person or several, is focused solely on your business. You don’t have to worry about their availability and whether they will be accessible during an emergency. They are also a great resource to guide the company through purchases, upgrades and managing growth. Just like your construction manager forecasts labor and material needs for jobs, a good IT manager can help forecast technology needs and plan a forward-looking roadmap for the future. Internal IT professionals helping your staff with issues that arise. They’re onsite when needed without advanced scheduling. Since internal IT support is tasked with setting up and maintaining your network, they will be the most familiar with your operation and its specific needs. There are a lot of upsides to having a full-time IT staff, but there also a few downsides. First, it can be cost prohibitive for smaller companies to hire a full-time IT person or staff. With competitive salary and benefits considered, the yearly cost can be more than $100,000 per employee. Second, it can be challenging to hire a qualified – or even to know what questions to ask during an interview. A single internal IT staffer may leave the company and take all the knowledge with him or her, leaving your firm without anyone who knows your system. That’s why it’s best to make sure everything is documented and accessible to upper-level management so that no one individual holds the keys to the kingdom.
  • Hire an outside staff that specializes in supporting construction companies. While not as advantageous as hiring internal staff, many managed service providers have experience supporting clients in the construction industry. One of the benefits of hiring an MSP is the cost savings. You can hire a competent and professional firm to manage your IT infrastructure for a much smaller price tag than hiring your own IT staff. A good MSP will be able to assist with day-to-day operations and help you plan for upgrades and growth. Since they generally have a good-sized staff, you should get a fairly quick response when any issues that arise. Make sure they have a good monitoring system that alerts them of any issues before you, the user, notice them. But there are also pitfalls with hiring an MSP. You may not know if the external IT contractor is facing staffing shortages; your calls to support may be delayed. With many clients to manage, the outside firm may become overwhelmed, and your issues may not be addressed in a timely fashion. Critical issues may be overlooked that can have major consequences – such as server failure or network outages – that can bring your company to a halt. It’s best to evaluate the potential IT contractor’s response time and request staffing information from them before retaining their services so you can feel comfortable.
  • Train someone on your existing staff who may have a different role but has the bandwidth to take on the role of IT coordinator. This is the least desirable option, but for smaller companies it may be the only option. In this case, it’s advisable to get that person as much training as possible. They will also need ongoing training as technology changes so they can stay up to date. Some outside consultants will assist in training your staff to take on the duties of an onsite IT staff. In this scenario, the safest course of action is to offload as much of the local network functions as possible. Moving as much as you can to the cloud will lessen the load on your IT person and help protect your valuable data.

Whichever option suits your company best, consult with companies that are the same size as yours to get ideas and methods that work for them. Make sure you’re comfortable with “your IT guy,” no matter what form through which you receive his or her expertise.

Marty Hooper is a senior sales representative for Deltek ComputerEase. He has been helping clients in the construction industry with their software and technology needs throughout the Midwest for the past eight years. He can be reached at  martinhooper@deltek.com.

Selling Thru a Challenging Economy

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By TOM WOODCOCK

I’ve been around the sales block a few times in my life. I’ve seen trends and varying market conditions. I’ve gotta be honest: I’ve never before seen what’s taking place in the economy right now.

Many contractors are still thriving with the backlog they’ve established. Some are even having record years.

Don’t be fooled. When interest rates go up, construction slows. Period! Combine that increase with the inflationary aspect of building, and eventually you price out construction consumers – regardless of the size of the customer or project. This, my friends, is about to happen. I’ve been sounding a clarion cry to my consulting clients, and from the stage at every event I speak at. I think if most contractors are honest with themselves, they see it coming.

So how do you counter a potential slowdown in construction?

There really is only one answer: Sell. No, not your business. Sell your services. By expanding your customer base, you can counteract any slowdown that takes place in the market. This means getting out there with your existing customer base, protecting the volume you have with these clients to make sure it continues, while also hitting targets that are opportunities.

Here’s the challenge: You have to manage your current projects. Some of you may be at your wit’s end timewise to even take care of what you have now. I completely get that. The first order of business is to evaluate your time management and determine where you can find some additional time to increase your sales work. We all waste time. If we’re being honest with ourselves, it’s just human nature. Finding three to four extra hours in the week can result in two sales calls. If that’s two more than you’re doing now, you’ve increased your sales effort.

The second course of action is to qualify the existing or target accounts you want to pursue. Which give you the most realistic bang for the buck in relation to your time spent? Next, determine the best way to connect with these individuals. Can you invite them out for lunch, meet them before an association meeting or catch them at a networking event? Any strategy that can help bring you face to face with these prospects is worth the time committed. That needs to be your goal, as most salespeople will rely on email or social media communication, which is lazy selling. The more personal contact you have with existing or potential clients, the more you’ll stand out from the pack. It’s a more time-consuming and expensive process, but well worth the investment of both.

Frequently when the economy tightens and construction slows, a common first reaction is to spend more on marketing. Though there may be a legitimate reason to increase that spend, if it’s not tied to a stronger sales effort it ends up wasted. Combine your sales and marketing strategies to have a significant impact on the marketplace. It’s more common to put money into a website than increase the amount of time a company puts into its sales effort. It’s the age-old mentality that your marketing sells for you. This is rare. Marketing can create interest, but it’s the sales work that lands the projects. Sales work isn’t always easy. There’s a lot of rejection, and often customers are hard to read. Understand that sales is a numbers game. The more people you’re in front of, the more you’ll succeed. It’s a basic sales formula that cannot be denied.

We are almost to pre-pandemic levels with respect to personal contact. People are meeting in person again and spending time together. Association attendance has increased significantly, and major events are back on. These contacts should be a part of your regular sales regimen. Begin to be creative in your approach. Learn your client’s tastes and preferences. Cater to those tastes in your sales work. Small things make a difference. Your customers will notice you took the time to understand them and their needs.

As the economy contracts, most forecasters are saying a recession is either upon us or imminent. Be prepared by setting your sales strategy. If you don’t know how that’s done, get help.

Tom Woodcock, president of seal the deal, is a speaker and trainer for the construction industry nationwide. He can be reached via his website,  www.tomwoodcocksealthedeal.com, or at 314.775.9217.

How Construction Companies Can Protect Their Reputation in Times of Crisis

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By TIM LEON

Tim Leon

In 2020, more than one in five workplace deaths occurred in the construction industry, according to the U.S. Bureau of Labor Statistics. While your company may have great safety protocols in place, the fact is that accidents can still happen, and how you communicate with the public and employees in the wake of a tragic event can make or break your reputation.

Is your company prepared to handle the media inquiries that will come your way if an employee is seriously injured or killed on the job? What about if violence erupts at the workplace, or if a facility you built is found to have a structural problem that has harmed or could harm occupants?

With that in mind, here are the top things to know about communicating during a crisis.

It’s important for companies in the construction industry – builders, architects, engineers, electricians and others – to have in place a crisis public relations plan to help preserve your reputation as you navigate requests for information from media and the public. 

A PR plan allows an organized response during a chaotic time

When a crisis event occurs, obviously your first objective is to mitigate further injury or damage, making sure people are safe. Handling media requests will need to be a priority as well. That’s where having a solid crisis communications plan comes in handy. You will already know who the spokesperson(s) will be, and you’ll have guidance on constructing talking points. You’ll also know how you will notify your company’s various audiences: employees/families, media, business partners/sub-contractors, neighboring businesses or residents and government officials, as appropriate.

Having a pre-determined crisis team and communication plan in place will reduce the anxiety that comes with handling a stressful event and instead give you a better sense of control over the situation. 

“No Comment” can backfire

These days, a “no comment” response appears to the public as trying to hide something. It’s always best to be forthright and to do it in a brief, measured way.

If you decide not to face the TV cameras and microphones right away, you can instead release a statement to the media. This allows you to control your message and also satisfies reporters and editors eager to get a response of some kind for their story.

Failing to provide information can result in media coverage that is one-sided or inaccurate, putting your company in a bad light.

What to say

With integrity and honesty as your guides, find ways to communicate only the relevant information, with no speculation or extraneous details that can muddle the message. Don’t release figures unless you’re certain about the accuracy.

Draft talking points, rehearse them and stick to them. A PR professional can help develop the points and provide media training to prepare the spokesperson to handle unexpected or “trick” questions.  No matter the question, it’s important to return to the talking points as much as possible when responding.

Show empathy

Don’t be afraid to express sorrow or sadness about the loss of life or property. It’s important to carefully word media statements and talking points for interviews to show your humanity while also factually stating what has occurred.

Monitor social media

Thanks to social media, negative news can spread rapidly, often before the media even picks up on it. It only takes one person on the scene to Tweet or post about the event and the word is out. That’s why it’s important to actively monitor your social accounts and respond appropriately and with empathy. Again, as with the media, stick to the facts and keep it brief.

Micro-site for updates

For an ongoing or extended crisis, it can be helpful to create a micro-website to post regular updates. Direct reporters and the public to the site so they feel connected to the latest news.

Finally, keep the messaging consistent across all channels – media statements, talking points for interviews, press releases, social posts and websites. Frequent updates will help quell rumors and allow your side of the story to be told.

Having a crisis PR plan can considerably reduce the chances of a negative incident harming your company’s reputation. Instead, you’ll be able to minimize the impact of the crisis and protect your standing in the community as a builder of integrity.

Tim Leon is president of Geile/Leon Marketing Communications. He can be reached at tim@geileon.com.

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