It’s safe to say that the past year has massively affected many industries’ ability to do business. Within the construction sector, our 2020 Construction Survey Report identified that many operators had started to price low to secure work during the lockdown periods, lowering their profit margins and risking overall company profitability. Now that the country is stabilising in the new normal, however, the industry is on its way to recovery, and it is an opportune time for operators to revisit strategies and work towards pre-COVID benchmarks.
What does this involve? Here at BDO, we’ve had years of experience working with operators, both at the head and sub-contractor levels, to identify the danger signs of a fragile business, as well as the factors that build strong, robust businesses. While every entity has different needs, we’ve identified areas within our range of specialised services that have made a real difference, which we’ve listed below. Businesses can use these as examples for finding opportunities for growth. If you would like to identify opportunities that are tailored to your business, please get in touch with our construction team.
Benchmarking is an essential step in determining how a company is performing against other comparable entities. Here, we identify some of the factors or reasons why an operator may differ from top-performing companies and help operators understand what it will take to improve their business operations and profit margins.
Some of the things we look at are:
- cashflow management,
- balance sheet structure and resilience,
- project management, etc.
Work in Progress and Income Recognition
Getting this step correct requires an in-depth understanding of the industry, as well as the client, their systems, and projects. This may involve technological innovation or setting up or improving accounting and reporting systems.
Construction projects are complex, so examining and optimising a client’s existing project management system bears great benefits, including:
- direct impact on cashflow,
- improved cost and margin management,
- confidence of management,
- confidence of bankers, financiers, and bond providers,
- identifying issues early,
- optimising tax position and tax payments, and more.
When it comes to income tax, tax adjustments for construction companies are vastly different to other sectors. Many non-specialist tax accountants or advisors don’t know the tax savings or deferrals that can be achieved, so there may be opportunities here to be identified.
There are also a few tax traps to manage if operators own investment properties or wish to get into property development.
Training Internal Accountants
Often, we find that internal accountants who lack construction industry experience require support and training so they can provide improved and more accurate reporting to management and identify ways to improve the business. Processes within the construction sector are very different compared to other industries, so there are likely to be opportunities here to train your internal accountant, get them up to speed, and making an improved contribution to the business.
International Financial Reporting Standards (IFRS) accounts are required in the 3rd year that turnover is over $30m. This requirement can add significant cost and complexity to your annual accounts.
At BDO, we have developed construction-specific templates that provide significant efficiency when creating these reports, with a construction-specific checklist for IFRS 15 (revenue recognition), as this standard can have a significant impact on profit. Furthermore, we utilise our own templates and construction sector data that makes compliance with other standards easier.
This is otherwise an expensive undertaking for any construction operator, so it must be managed efficiently and accurately with specialist understanding of the sector.
The construction industry is highly specialised, and your board of directors and management team may need support and advice to be able to make strategic and operational decisions, run effectively, and achieve its goals. In fact, a significant portion of our construction advisers’ time is devoted to this.
It may also be the time to revisit your aspirations and determine how they will be achieved.
Exit or Succession Planning
Proper exit or succession planning ensures that a business can continue to operate efficiently and remain profitable as leadership roles are passed on to other individuals. If your construction business is seeing a change in leadership soon, we advise creating a robust succession plan sooner rather than later to help manage this change.
At BDO, our team have done close to 20 different succession plans within the sector with 100% success rate. If you require tailored, proactive advice from succession planning experts, get in touch with our team today.
Get expert advice and support from BDO
Whether you’re looking at strengthening your operations or require business recovery advice, the BDO team can help you through these challenging times and offer guidance and insight to get your business back on track. Speak to our team to see how we can help you achieve your goals.