An open dialogue between a surety, contractor, and certified public accountant is crucial to guide emerging contractors finding themselves in new territory when entering the surety market, says David V. Jean, a CPA and a principal of Albin, Randall & Bennett.
“It's pivotal for emerging contractors going to the next level to have strong financial-management practices in place,” says Jean, who serves on NASBP's CPA Advisory Council, a NASBP resource team of CPAs with expertise in areas including financial issues concerning contract and commercial surety.
The importance of an open dialogue comes with the need for continuous involvement by the CPA in order to help make well-educated decisions as the contractor strives to provide sound financial, work-on-hand and contract-status reporting, Jean says.
A more established contractor looking to expand business also needs a CPA's ongoing involvement to make sure the contractor's financial-management practices are strong enough to support the desired growth, he says.
Jean emphasizes the importance of bank financing and leveraging the balance sheet. “What we're prone to do at the end of the day is convert work to cash — that's the end game,” he says.
Therefore, cash management and conservatism are crucial to ensure that a contractor doesn't “overextend [itself] from a capacity standpoint,” Jean says. A growing contractor needs to make sure it has the capabilities, resources, and management depth needed to support the desired growth, he says.
Meetings between a contractor and a CPA generally should occur more frequently when the contractor is going through a period of growth, Jean says. The necessary frequency, however, varies based on a particular contractor's sophistication. That could mean quarterly meetings for the contractors needing the most help, but less often–perhaps annually–for more seasoned contractors, he says.
Important factors in determining the frequency of meetings include management depth, the chief financial officer's level of expertise, and the strength of the company's board, he says. “If you’ve got a very experienced, confident team, then the CPA might not need to be as actively involved,” he says.