There are many tax reasons why a small construction business organized as a limited liability company (LLC) chooses to operate as a flow-through partnership or disregarded entity taxed as a Schedule C filer on Form 1040. What happens, however, if you have successfully operated your construction business as an LLC, but have reached a point in your personal life that you want to achieve maximum liquidity and are willing to share continued success and the potential upside with your employees? Your exit strategy options may be very limited because you are a small construction business with a limited pool of viable potential buyers, if any. This is a common scenario among successful, small construction contractors that primarily depend on new contract awards, making them an unattractive target candidate to larger organizations.
When you peel back the layers of the onion, so to speak, what generally makes an organization an attractive target? Who knows your business best (i.e., real insider information)? Who is the best candidate to acquire your construction business? In today’s tight credit market, you will not be able to secure 100% third party financing and will need to partially self-finance the sale transaction and take the junior lien position to third party lenders.
In consideration of all of these important questions, an owner should strongly consider the possibility of Continue reading »
The September score for the American Institute of Architects (AIA) Architecture Billings Index (ABI) was positive for the fifth month in row according to the AIA’s press release on October 23, 2013 with a score of 54.3. The new projects inquiry index was down from the previous month with a score of 58.6.
As mentioned in our blog last month on this topic we were slightly skeptical about the continued positive scores relative to the type and profitability of the construction work available to bid on. This month it appears that there is skepticism Continue reading »
The Financial Accounting Standards Board and International Accounting Standards Board issued a revised Exposure Draft on May 16, 2013, recommending significant changes to lease accounting. The stated goal of the proposal is to better meet the needs of financial statement users by improving the transparency of lease accounting and increasing comparability between organizations.
The Exposure Draft proposes a dual approach to the recognition, measurement, and presentation of expenses and cash flows from leases. The distinction between capital and operating leases will be eliminated, and replaced with an asset/liabilities approach in which the right to use a specified asset is obtained in exchange for the obligation to pay rent.
Leases of assets that are deemed to consume more than an insignificant portion of the asset (e.g., equipment) will be classified as Type A leases. Lessees will generally recognize the lease as a nonfinancial asset at cost, and Continue reading »
For direct federal construction contracts, the bulk of ongoing and already awarded contracts will not be impacted by the government shutdown. The majority of construction contracts are awarded on a fixed-price basis and will be unaffected since the funding was likely appropriated at the time of the award. However, most cost-type contracts and time and materials contracts are incrementally funded and, therefore, will be affected once the prior year’s funding is fully expended. Pending solicitations and awards will likely be delayed until the shutdown is over. Even in situations where a contract does not require new funding, performance may still be affected due to a lack of access to federal facilities or the furlough of federal personnel. Ultimately, the total impact will be determined on a contract-by-contract basis. For further illustration of the possible impacts of a government shutdown the Associated General Contractors of America created a very useful informational matrix on the topic. Additionally, Aronson’s whitepaper “A Contractors Guide to Surviving the Government Shutdown” also provides useful information on this topic.
The August score for the American Institute of Architects (AIA) Architecture Billings Index (ABI) was 53.8, which was released on September 18, 2013 by the AIA. This was the fourth consecutive score above 50 and the highest score since February of 2013. The new projects inquiry index was 63.0, which decreased from the previous month. The AIA’s press release is available here.
Given the last four months, the prospects for the construction industry look positive, and it currently appears that a full recovery is underway, as indicated by the AIA’s Chief Economist, Kermit Baker. As mentioned last month, the positive economic news inherent in the ABI does not mean it is translating to your construction company. Also, this index does not measure the profitability of the work that may be in process or available to bid on. In other words, there may be more projects to bid on, but not at the margins the industry grew accustom to before the recession. Another item of particular concern is the prospect that there may be increases in interest rates. This could have an adverse affect on the construction industry’s recovery. That being said, take this positive news in stride and continue employing the business practices developed during the recession until a more sustained and comprehensive recovery is felt by the industry.
The American Institute of Architects (AIA) released its July Architecture Billings Index (ABI) on August 21, 2013, which reflected the third straight month a positive score was recorded, and the eleventh time in the last twelve months a positive score was posted. The July score was 52.7 and the new projects inquiry index also increased from the previous month to 66.7. The AIA’s press release is available here.
As an owner or an employee of a construction company you are well aware of how difficult the market place can be. Just because the ABI appears to reflect the possibility of future growth does not necessarily mean that there will be significant sustained growth for the construction industry, or if your company will even be fortunate enough to bid on and be awarded new projects. The ABI does, however, provide the information needed to plan for what could be a busier and more robust future. The ABI has posted positive scores for almost an entire year which makes the outlook for an increase in construction spending more probable, and leaves the construction industry in a better spot than it was a year ago.
There appears to be some more consistency in commercial construction market given the most recent Architecture Billings Index (ABI) score of 51.6. Despite the decrease from the previous month’s score of 52.9 and the negative score in April, the consistency is seen in the period before in which there were 8 consecutive months of positive scores from August 2012 through March 2013. This streak then coupled with 2 positive scores following the negative score in April reinforces the appearance of a stabilizing market. What is even more encouraging from the American Institute of Architects’s (AIA) June ABI press release is that the new projects inquiry increased from the previous month to 62.6. This reading presents the prospect for more construction work in the future. The report did not however that there have been decreases in billings related to institutional construction.
The AIA also released it’s Consensus Construction Forecast this month, which reflected slower than expected activity for the 2013, but increases in projected activity in 2014. When reading this report it is important to remember what the ABI represents, which is a 9 – 12 month lead indicator for construction spending. The 8 months of consecutive positive scores above, and the positive scores for the last 2 months means there could be more spending in the last quarter of 2013 and first 2 quarters of 2014. Any revisions in current spending and projections could have been identified last year when ABI produced negative scores below 50 for the period from March 2012 – July 2012.
What the stabilizing market means for your construction company is that it will be easier to plan for the year ahead. It may be easier to project project volume and labor requirements, determine what insurance policies are best suited for the Company, determine what the company’s bonding capacity will be, and determine any financing requirements.
The American Institute of Architects (AIA) released its May Architecture Billings Index (ABI) which came as good news to those in the construction industry because the May score was 52.9. This positive score could be viewed as more significant than other positive scores this index has produced because it is a positive score following a negative score in the month of April. For those who follow the ABI there will be a sigh of relief because the previously reported negative score may have just been an anomaly, and that there will continue to be increases in construction spending in the coming months. The new projects inquiry index also increased to 59.1 during the month of May.
To learn more about the most recent ABI score please read the AIA’s press release.
The April slow down in architecture billings was significant enough to result in a negative score for the Architecture Billings Index (ABI), released by The American Institute of Architects (AIA) on May 22, 2013. The April score of 48.6 was the lowest in almost a year. The new projects inquiry index score was 58.5.
The negative April reading should cause contractors to pause and evaluate backlog, especially since the decrease in the ABI score may possibly be a result of financing concerns, as noted by Kermit Baker, AIA Chief Economist. The next couple month’s scores will provide a better barometer for which way construction spending may go, and will provide your company the information it needs for short and longer term business planning.
To learn more about the most recent ABI score please read the AIA’s May 22nd press release.
The March Architecture Billings Index (ABI) score released by the American Institute of Architects (AIA) on April 23, 2013 reflected another month of increases in design activity with a score of 51.9, however the rate of growth has decelerated. The new projects inquiry index score was 60.1, which also reflected a decrease from the previous month.
Despite the decrease in March, the fact that the score remains positive should be encouraging news to construction contractors, as this may indicate more work to bid on in the future.
To learn more about the most recent ABI score please read the AIA’s April 23rd press release.
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