Builder’s Guide: Financial Planning, Tax, and Credit Policies

Posted on Mar 14, 2025 in Business Administration and Innovation Management

Financial Planning for Builders: A Comprehensive Guide

1. Key Consultants for Establishing a Financial Plan

A professional builder may consult the following experts to establish a sound business financial plan:

  • Financial Advisors: Assist in resolving financial conflicts.
  • Accountants: Recommend financial actions and ensure compliance with legal requirements.
  • Bookkeepers: Document financial transactions accurately.
  • Experienced Builders: Provide advice on structuring a successful company.
  • Financial Backers: Offer loans or credit with agreed-upon terms, such as banks and credit providers.

2. Financial Information Provided by Consultants

Consultants provide various financial insights, including:

  • Software recommendations for accounting/bookkeeping (e.g., QuickBooks, Cash Flow Manager).
  • Advice tailored to the business entity: GST information, credit policy creation/selection, cash flow management, and financial reporting.
  • Types of contracts available: credit (loans) or services (e.g., cleaning, bookkeeping, employee contracts).
  • Performance indicator measurements:
    • Gross profit % to test earning capacity.
    • Stock turn rate.
    • Staff productivity.
    • Expense control.
    • Identification of indirect/overhead costs.
    • Determination of margins and markups.
  • Methods for legally minimizing tax.

3. Understanding Cash Flow Estimates

A cash flow estimate is a projection of expected cash inflows and outflows for a specific period.

Who to Consult for Cash Flow Assessment

The following individuals can help assess cash flow estimates:

  • Accountant: Most qualified to review financial records and track money flow.
  • Experienced Builder: Provides mentorship and practical insights.

4. Defining Business Capital

Business capital refers to the financial assets required for a business to produce goods and services.

  • Equity Capital: The net worth of the business.
  • Loan Capital: Assets loaned from a credit provider (e.g., a bank) for business use, such as vehicles and equipment.
  • Working Capital: Current assets in constant turnover to generate profit, including cash at bank/on hand, accounts receivable, and stock on hand.

5. Relationship with Financial Backers

Business operators typically have a formal relationship with financial backers, often involving contracts and perceived high risk. Operators are indebted to backers and must adhere to agreed-upon terms.

6. Tax Obligations for Building Companies

Building companies commonly face these tax obligations:

  • GST: Registering for GST and selecting an appropriate accounting method.
  • Income Tax for Workers: Accounted for in payroll records, including PAYG withholding, worker’s compensation, and superannuation.
  • Company Tax (if operating as a corporation): Capital gains tax and stamp duty.
  • Capital Gains Tax: Applicable when selling property.
  • Stamp Duty: Tax levied on property purchases.

7. What is BAS?

BAS stands for Business Activity Statement, used to report and account for GST in business operations.

8. Ensuring Funds for BAS Payments

One method is to use separate bank accounts to earmark funds specifically for upcoming BAS payments.

9. Client Credit Policy

Builders often use standard contracts for building work to establish payment schedules, providing clients with a set number of days to pay.

10. Potential Problems with Credit Arrangements

Two common issues include:

  • Client Failure to Pay on Time: Can cause cash flow problems. Builders should establish clear policies for non-payment and communicate them effectively.
  • Offering Excessive Discounts: Small discounts for timely payments can incentivize clients, but overly generous discounts can negatively impact cash flow and margin accounting.

11. Key Performance Indicators (KPIs)

Builders use KPIs to monitor financial performance:

  • Time: Completing contracts within the agreed timeframe.
  • Money: Staying within budget for materials and labor to achieve the average gross profit margin.

12. Communicating the Business Plan

Builders should communicate their business plan to:

  • Financial Backers: To influence credit policy rates, conditions, and length.
  • Accountants and Bookkeepers: To prepare for monitoring business finances.
  • Financial Advisors: To prepare Statements of Advice (SOA) and revise advice as needed.