By Kathe Barrington
Owner at Kathe Barrington, CPA
Construction accounting, just like the job itself, is complex. Many contractors have benefited greatly by retaining a construction Certified Public Accountant (CPA) to help manage the financial complexities of their businesses, but choosing the right one can be challenging. The unique accounting requirements of construction means not all CPAs can provide the same level of support. Evaluating multiple CPAs can seem overwhelming especially if you’re not an expert on the subject matter. How do you start looking for a construction CPA? What qualifying questions should you ask? Which CPA referrals can you trust? With over 20 years of experience as a construction-focused CPA and longtime partner to Deltek + ComputerEase, here are suggestions on how to effectively choose the right CPA for your business:
Start with Referrals from Trusted Sources First
Trusting someone with the health of your accounting is a major decision and ultimately will affect the trajectory of your business. In the beginning stages of evaluating construction CPAs, start with trusted referrals first. Ask professionals you work with or a banker you use if they have recommendations for CPAs that specialize in construction accounting. These referrals will come from trusted sources that know the accounting side of business and will provide qualified options to begin your evaluation. Often, contractors find a CPA partner through less qualified sources such as a neighbor, friend of a friend, or family member that isn’t truly experienced in construction accounting making it a bad fit for both parties. Start your CPA evaluation with referrals from trusted sources and expand your search from there if needed.
Focus on CPAs Who Know Technology
The wrong tool for a growing contractor is a generic accounting system. If a CPA recommends continuing to utilize basic accounting software or spreadsheets, they aren’t focusing on the future financial state of your business. A CPA that can provide real value will provide consultation on process improvement and best ways to evolve your business software to maximize job profitability. Tracking change orders, AIA billing, revising estimates, and most importantly the ability to monitor, update and report job costing are all nearly impossible to achieve with basic accounting software. Being able to proactively manage these aspects of construction accounting is what will move the needle and bring efficiency to business processes.
Find a Specialist and Build a Team
Similar to how a successful job requires specialists for HVAC, electrical and plumbing, contractors should look for a CPA that has a unique skillset for effective construction accounting. Once a contractor finds the right construction-focused CPA, they can also benefit by using this approach to build a team of other trusted business advisors to manage things like taxes or audits and reviews. To find the right CPA, it often comes down to asking the right questions. Four questions to ask when evaluating a CPA to ensure they’re truly knowledgeable in the nuances of construction accounting are:
1. How many contractors do you currently work with and for how long?
This might seem obvious, but it’s a great question to lead with when evaluating CPAs. If the answer is zero or one, it’s probable they lack the construction-specific knowledge to be a valuable member of your advisor team. Look for a CPA that has an established history of working closely with contractors from various industries within construction.
2. Can you explain the difference between a long-term contract and short-term contract?
A long-term contract starts in one calendar year and ends in the next. If you started a job on December 1, 2019 and completed the job on January 1, 2020, technically that is a long-term contract even though the duration was only one month.
A short-term contract is a contract that completes within a calendar year. If you start a job on January 1, 2020 and it ends on December 31, 2020, that is still considered a short-term contract even though the duration was 12 months. This is an easy qualifying question to ask and a construction-focused CPA should know the answer.
3. How would you support accounting for jobs that are completed in phases?
The CPA needs to have intimate knowledge of your specific industry. Whether that’s Mechanical, Electrical or Plumbing, they should understand that these industries typically execute jobs in phases. What goes into the rough phase? What should go into the finished phase? An experienced construction CPA should immediately understand these questions and have appropriate feedback to provide.
4. Can you give me your thoughts on Code Section 460 (or other construction specific tax codes)?
Code Section 460 is the tax code that governs all contractor-specific taxing. A construction CPA should be able to clearly communicate how this can affect a business and the details of the tax code. Asking additional questions on other construction-specific tax codes is an easy way to measure their level of expertise.
Building the right team of trusted advisors to help manage specific aspects of a business can be critical to realize meaningful growth and choosing the right construction CPA is an important step towards optimizing job profitability. Having a plan for evaluating CPAs will bring clarity to which one is the best fit to truly address construction-specific accounting needs.
This blog series from construction-focused CPAs covers the unique accounting complexities contractors face.
About the Author
Kathe Barrington has worked in a variety of industries that include software, hardware, real estate, retail and construction in Sacramento. Over the last 15 years, Kathe discovered that her true passion was construction accounting. The focus on one industry has allowed her to become very well versed in those particular accounting practices along with the various software packages that are specifically designed for construction companies. She holds her B.S. in Finance from Santa Clara University. Kathe is a member of the CFMA Sacramento Chapter and CalCPA.