What are bonding and bankers looking for?

Transcription

1 Monday, October 17 8:30am - 10:00am Parlor A 10/5/16 Preparing Year End Financials for Bonding, Banking, and CPA s Presented by: Kathy Lewis KLC Vision kathy@klcvision.com What are bonding and bankers looking for? A company that: Has adequate working capital and cash flow Is not burdened with debt Does not have more work than they can handle Collects their receivables on time Pays their payables on time How do they do this? By analyzing the financial statements and the following financial indicators: Working Capital & Current Ratio Debt to Equity Revenue to Working Capital Days in Accounts Receivable Accounts Receivable to Accounts Payable 1

2 10/5/16 Financial Statement Analysis The May Construction Activity Accounting 101 The two accounting rules to live by: 1) Assets = Liabilities + Equity 2) Net Income on the Balance Sheet = Net Income on the Income Statement Financial Statement Analysis Managed Rite Construction Activity 2

3 10/5/16 Bonding 101 Bonding companies want to see the bonding report often called the Over/Under Billings Report. This tells them: Work backlog Job profitability and trending Is the company ahead or behind in billing Financial confidence. Does it reconcile back to the balance sheet? Working Capital Current Assets Current Liabilities Sureties often determine bonding capacity by multiplying working capital by a factor of between 10 and 20, most often 10. Working Capital The May Construction Current Assets = 2,842,451 Less Current Liabilities = 1,841,830 Working Capital 1,000,621 Managed Rite Construction Current Assets = Less Current Liabilities = Working Capital 479, ,139 (187,370) 3

4 10/5/16 Current Ratio Current Assets /Current Liabilities Safety Zone: Greater than 1.3 times The May Construction Current Ratio Managed Rite Construction Current Assets = 2,842,451 /Current Liabilities = 1,841,830 Current Ratio 1.54 Current Assets = 479,769 /Current Liabilities = 667,139 Current Ratio.71 Debt to Equity Total Liabilities/ Total Equity Safety Zone: Less than 3 4

5 10/5/16 The May Construction Debt to Equity Managed Rite Construction Total Liabilities = 1,841,830 / Total Equity = 2,049,342 Debt to Equity.898 Total Liabilities = 729,986 / Total Equity = (116,487) Debt to Equity Negative Revenue to Working Capital Annual Revenue/ Working Capital Safety Zone: Less than 30 Revenue to Working Capital The May Construction Managed Rite Construction Annual Revenue = 4,000,000 / Working Capital= 1,000,621 Revenue to Working Capital 3.99 Annual Revenue = 3,700,000 / Working Capital= (187,370) Revenue to Working Capital neg 5

6 10/5/16 Days in Accounts Receivable Accounts Receivable/ (Annual Revenue/365) Safety Zone: Less than 60 days Days in Accounts Receivable The May Construction Managed Rite Construction Accounts Receivable = 1,239,743 /(Annual Revenue/365)=4,000,000/365 10,958 Days in Accounts Receivable = 113 Days Accounts Receivable = 394,248 /(Annual Revenue/365)=3,700,000/365 10,137 Days in Accounts Receivable = 38 Days Accounts Receivable to Accounts Payable Accounts Receivable/ Accounts Payable Safety Zone: 1 to 1 the more AR to AP the better 6

7 10/5/16 Accounts Receivable to Accounts Payable The May Construction Accounts Receivable = /Accounts Payable = AR to AP 1,239, , Managed Rite Construction Accounts Receivable = /Accounts Payable = AR to AP 394, , What are CPA s looking for at year end? Detailed report support for each Balance Sheet Account: Cash Bank Reconciliation Receivables Detailed Aging Report Under Billings (Receivable)/Over Billings (Payable) Bonding report which also may contain columns to reconcile to YTD revenue and YTD costs. Does the contract amount for each job equal the contract documents plus approved change orders? Have estimates been updated for estimated cost to complete the job? WIP detailed report showing each job total and further detail if requested by job What are CPA s looking for at year end? Detailed report support for each Balance Sheet Account: Assets & Accumulated Depreciation Depreciation Schedule List of any additions/disposals for the year Payables Detailed aging schedules Payroll tax payables detailed reports from payroll Sales tax payable detailed report for filing sales tax Accrued Payables detail for each balance Owners Equity and Retained earnings generally only changes once at year end. Have these changed during the year? If so, why. 7

8 Balance Sheet Managed Rite Construction Balance Sheet Period = 6, At June 2011 Assets Current Assets General Checking Payroll Checking Field Checking Check Clearing Visa/MC Clearing Acct Voucher Clearing Petty Cash Savings Bank Transfer Clearing Contract Receivables AR - Startup (Service) Bad Debt Allowance Underbillings (Inventory) Inventory Startup Payroll Advances Prepaid Health Ins Plan Deposits Refundable Deposits $78, , , , (15,00) 9, , ,90 Total Current Assets: $479, WIP Assets (Spec-Payroll) Total WIP Assets: Long Term Assets (Heavy Equipment) Vehicles Shop Equipment & Tools Office Equipment Software Furniture & Fixtures Report Supervisor 74, , , , , , Page 1 12:24 PM

9 Balance Sheet Continued... Total Long Term Assets: 307, Accumulated Depreciation (Accum Dep'n Heavy Equipment) Accum Dep'n Vehicles Accum Dep'n Shop Eq/Tools Accum Dep'n Office Equipment Accum Dep'n Furniture & Fxt Total Accumulated Depreciation: (48,458.59) (70,606.54) (24,960.50) (30,324.50) (14,054.50) (188,404.63) Net Long Term Assets: 119, Other Assets Prepaid Taxes PPD Liability Insurance Work Comp Deposit Note Receivable - Shareholder (1,359.47) 5, ,00 Total Other Assets: 14, Total Assets: $613, Liabilities Current Liabilities Trade Accounts Payable AP - Startup Vendor Workers Comp Payable Overbillings Sales Tax Payable Fica/FIT Payable State Payroll Taxes Payable Workers' Compensation Payable Futa Payable Child Support Payable 401K Payable Union 20 Benefits Payable Union 20-Union Dues Accrued Payroll Line of Credit Payable Corporate Federal Tax Payable Corp State Income Tax Payable Current Portion Of L/T Debt Report Supervisor 424, , , , , ,00 Page 2 12:24 PM

10 Balance Sheet Continued... Total Current Liabilities: 667, Long Term Liabilities (Heavy Equipment Loan) Vehicle Loans Shareholder Payable L/T Debt Less Current Portion 18, , Total Long Term Liabilities: 62, Total Liabilities: 729, Equity Equity/Capital Capital Stock Additional Paid In Capital Other Paid In Capital Retained Earnings Startup Clearing Subtotal Equity/Capital: Current Profit (Loss): Report Supervisor 25,00 49, , (190,732.92) Total Equity/Capital: (116,487.76) Total Liabilities + Equity: $613, Page 3 of 3 12:24 PM

11 Bonding Report Managed Rite Construction Bonding Report Period = 6 Job# Current Contract Current Budget Estimate Profit Cost % to Date Budget Profit to Date Earned to Date Billed to Date Under Billing Cost to Complete Remain Contract Williams Post Office 553, , Trappen Motel 1,970, ,944, Wood Elementary School 2,796, ,381, Jimenez Burrito # , Jimenez Burrito # , , , , , , , , , , , , , , ,408, ,215, , , , , , , ,830, ,046, , , , , , , , , , , , , , , , , , , , , , , ,547, ,005,00 472, , Historical Job Costs * Lamb Shoes 42, Bike Path for Rte , , Big Redwood Tree Hotel 2,005,00 1,739, Main Street Post Office 553, , Walking Shoes Shop 55,30 44, ,144, ,630, , , , , ,807, , ,857, ,00 5,00 44, ,30 2,045, , ,823, ,099, * Total Costs exceed budget. Costs are used for report. Report Supervisor Page 1 of 1 10/08/ :14 PM

12 Income Statement Managed Rite Construction Income Statement Period 1 to 6, For 6 Months Ending June 2011 Operating Income Contract Income Service Income Resale Discounts Given Finance Charge Income Interest Income Over/underbillings Discounts Earned $2,050, ,50 25 (212.02) 1, (203,795.57) Total Operating Income: $1,849, Direct Expense Material Equipment Expense Subcontracted Other Job Expense Direct Labor D/L Payroll Taxes D/L Workers' Compensation D/L Benefits D/L Liability Insurance D/L Small Tool Exp Non-tax Per Diem Total Direct Expense: 726, ,86 821, , , , , , , , ,807, Equip/Shop Expense Equipment Labor Shop Payroll Taxes Shop Workers' Comp Shop Benefits Shop Liability Ins Shop Small Tool Expense Equipment Interest Expense Equipment Depreciation Expense (Equipment Repair) Equipment Fuel (Equipment Use Contra) Report Supervisor , , (4,73) Page 1 12:31 PM

13 Income Statement Continued... Total Equip/Shop Expense: 2, Total Direct & Equip/Shop Expense: 1,809, Gross Profit: 40, Overhead Expense Rent Office Supplies Utilities Telephone Cell Phone / Paging Bank Charges Postage & Freight Janitorial Advertising & Promotion Accounting Fees Legal Fees Consulting Fees Travel, Meals Entertainment Dues & Subscriptions Continuing Education Charity Donations Maintenance & Repair General Insurance Taxes & Licenses Interest Expense Bad Debt Expense Inventory Offset Account Plan Fees Bonding Fees Warranty Work Estimating Labor Overhead Labor O/H Payroll Taxes O/H Workers' Compensation O/H Benefits O/H Liability Insurance O/H Small Tool Exp O/H Per Diem Vehicle Expenses Vehicle Fuel Small Tools/Shop Supplies Other Shop Expense Depreciation Expense Suspense/clearing Report Supervisor 11,40 8, , , , , , , ,68 6, , , , ,20 1, , , , , , , , , , , , , Page 2 12:31 PM

14 Income Statement Continued... Total Overhead Expense: 184, Administrative Expense Admin Salaries Admin Payroll Taxes Admin Workers' Compensation Admin Benefits Admin Liability Insurance Admin Small Tool Exp Admin Per Diem Total Administrative Expense: 38, ,05 4, , Total Indirect Expense: 230, Income from Operations: (190,732.92) Other Income Gain On Sale Of Assets Investment Income Other Income Total Other Income: Net Income Before Tax: (190,732.92) After Tax Expense Federal Income Tax Expense State Income Tax Expense Tax Penalties Total After Tax Expense: Net Income: Report Supervisor $(190,732.92) Page 3 of 3 12:31 PM

15 Preparing for Year End Financials Worksheet The May Construction Managed Rite Construction Working Capital Current Assets Less Current Liabilities = Working Capital Bonding Capacity (factor 10) Current Ratio Current Assets /Current Liabilities = Current Ratio Debt to Equity Total Liabilities /Total Equity = Debt to Equity Revenue to Working Capital Annual Revenue 4,000,000 3,700,000 /Working Capital = Revenue to Working Capital Days in Accounts Receivable Accounts Receivable /(Annual Revenue/365) =Days in Accounts Receivable AR to AP Accounts Receivable /Accounts Payable =AR to AP

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22 The May Construction Balance Sheet May 31, 2011 Assets Current Assets 1001 Cash $ 1,047, Petty Cash Accounts Receivable 1,052, Draws Receivable 48, Retainage Receivable 139, Due From Other Timberline 1,104, WIP - Parts 1, WIP - Labor 1, WIP - Miscellaneous Cost in Excess of Billings 15, Parts Inventory (567,392) Total Current Assets $ 2,842,451 Long Term Assets 1701 Investments $ 872, Buildings 82, Furniture & Fixtures 100, Motor Vehicles 226, Construction Equipment 126, Accum Depreciation - Build (56,558) 1903 Accum Depreciation - Furni (80,309) 1904 Accum Depreciation - Vehic (108,383) 1905 Accum Depreciation - Equip (107,431) Total Long Term Assets $ 1,055,780 Total Assets $ 3,898,231 Confidential: For Internal Use Only

23 The May Construction Balance Sheet May 31, 2011 Liabilities and Equity Current Liabilities 2001 Accounts Payable $ 39, Notes Payable 25, Subcontracts Payable 360, Retainage Payable 9, Tax Payable 3, Due To Other Timberline Co 1,104, Credit Card Payable 7, PO Accrual Union Payable 88, Federal Income Tax Withhel 4, State Income Tax Withheld 1, FICA - Employee 2, FICA - Employer 2, Health Insurance 9, Workers' Comp Insurance 30, Unemployment Insurance Other Withholdings 129, Accrued Salaries/Wages 5, Accrued Vacation/Sick 3, Accrued Disability Insuran Accrued 401K 14,421 Total Current Liabilities $ 1,841,830 Long Term Liabilities Long Term Liabilities Total Liabilities $ 1,841,830 Equity 3001 Owners' Equity $ 1,647, Retained Earnings 466,532 Net Income (65,170) Total Equity $ 2,049,342 Total Liabilities & Equity $ 3,891,172 Confidential: For Internal Use Only

24 The May Construction Income Statement For the Period Ended May 31, 2011 Current Current Account Title Activity Balance Income 4001 Income $ 295,395 $ 1,640, Discount Income Other Income 1,950 1,950 Total Income $ 297,434 $ 1,642,244 Cost of Sales 5001 Cost of Sales - Labor $ 89,957 $ 354, Cost of Sales - Subcontract 49,805 97, Cost of Sales - Materials 91, , Cost of Sales - Equipment 56, , Cost of Sales - Other ,338 Total Cost of Sales $ 288,379 $ 1,570,912 Gross Margin $ 9,055 $ 71,332 Expenses 6001 Executive Compensation $ 6,658 $ 69, Admin Compensation 2,528 33, Field Wages 74 1, Other Compensation 1,115 12, Employee Benefits 783 8, Auto/Truck Expense (547) 1, Misc Expenses Office Supplies Postage Other Expenses Rent 7, Supplies/Tools Taxes Telephone 334 1,697 Total Expenses $ 11,655 $ 135,374 Other Income Total Other Income Net Income (Loss) $ (2,600) $ (64,042) Confidential: For Internal Use Only