And Construction Accounting - Owners of small construction companies working at level 1,2 and 3 enjoy more freedom, peace of mind, make more money and have fewer upset stomachs on average than officers of large construction firms in level 4.
Construction Company Lifecycle - Has four levels. It begins with a construction worker deciding to go into business for him or herself through enterprise level construction firm doing over $100,000,000 a year. Each level has opportunities for rewards and risks.
This Wonderful Soul - Has a heart as big as the outdoors and likes working alone. They are easy to get to know. They usually have either a pick-up truck or a van with a dog sitting in the passenger seat hanging his head out window watching and occasionally barking hello to folks and other dogs while feeling the breeze as the contractor zooms down the road.
They Do Not Think About - Retirement and when asked about it the reply I get most often is something like “Retire, nope, I don’t need new tires yet”.
These Contractors - Enjoy being their own boss, doing what they want when they want, how they want and works hard. They typically do not feel the need or desire to grow the business or hire employees since they would only get in the way.
They Generally Earn - $20K to $40K a year after all expenses
Back Office Support - Is minimal with a friend or relative doing the bookkeeping and outsourcing the tax preparation to someone else.
Business Structure - Is typically Sole Proprietor which means they pay more income tax than they should and everything they own is at risk. Generally work on small projects and develop relationships with their customers so the overall risk of being sued is low and contractor liability insurance will cover most issues.
This Wonderful Soul - Also has a big heart; just not quite as big as all outdoors. They like having employees because they do not want to work alone. As their business grows they like to take time off and enjoy travel and vacations.
These Contractors - Have one, two or three employees because when the employees get out of line the contractor can hold two of them by the throat; one in each hand and eyeball the third one! This is called “Construction Management”
They Generally Earn - $40K to $60K a year after all expenses
Back Office Support - Is more involved due to payroll and taxes and generally the same friend or relative doing the bookkeeping and there is more work and skill required which adds strain to the relationship. Tax preparation is still outsourced to someone else and the owner begins to think the bookkeeper could do that as well and save money.
Business Structure - Is typically Sole Proprietor and at this point their income tax bill becomes painful and they seek council at the Contractor's Round Table or a Construction Accountant in an effort to lower the tax burden. The contractor's round table always gives free advice and as we know free advice comes with a high price in terms of lost opportunities, fines and penalties. If they seek guidance from accountants like us who specialize in construction we will generally advise them to form a corporation for the tax advantages and additional protection of personal assets.
This Wonderful Soul - Also has a big heart; they just tend to keep it under cover. This group tends to have more employees and have a structured approach to their construction business treating more like a firm. They appear to be the ones who enjoy the most freedom, financial stability and have the most fun of all three levels. We encourage our clients to achieve this level and stop growing larger and to go deep with their systems and processes because that is where the big money is found. Niche marketing into specific high
These Contractors - Tend to have 4 - 20 employees with formal organizational charts, processes and systems in there contracting businesses including a formal documented business plan which is updated and reviewed regularly with a board of advisors as outlined in my article on the subject.
They Invest Heavily In Marketing - And are very concerned with acquiring High Profit Repeat Construction Clients for their businesses. They understand their target market, they use The 80/20 Rule to understand the demographics and psychographics of their prime customer, the ones who generate 80% of the cash and income. And they seek to acquire more of them and will do whatever is economically feasible to turn those customers into lifetime repeat business.
This Group Usually - Engages the services of a competent construction bookkeeping service, financial planner, banker and accountant to work together in helping plan and develop a financial estate that can take care of them in their senior years and provide be passed on to future generations.
They Generally Earn - $100,000+ a year after all expenses
Back Office Support - Is complex due to Work-In-Process, Pay Applications, payroll and taxes and if the same friend or is still doing the bookkeeping the business is likely to fail miserably. The same people that got you to level two do not have the Construction Accounting Skills to take you to this level. The concept of Leveling means your company will shrink back to the level of the bookkeeper's incompetence or they will systematically destroy it for you.
Business Structure - Is typically Operate as a C-Corporation, LLC or Sub-S or Partnership.
These Construction Firms - Have 100+ employees and generate enormous revenues. Most of the owners and managers earn about the same as a well-run professional contractor only with a lot of heartburn and stress because they are so heavily regulated and watched by everyone from the laborer in the trench to the board of directors and shareholders.
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