April 2015

Jones, Henle & Schunck
e-Newsletter

In This Issue

Boost Your Chances of Getting Financing

To Bid or Not To Bid

Quick Links

Online Resources

Newsletter Archive

Quick Announcements

Locations

135 Town & Country Dr

Danville, CA 94526

1914 W. Orangewood Ave

Suite 102

Orange, CA 92868

We at JHS are looking forward to a respite after the April 15 income tax filing deadline and hope that our clients and friends have filed their individual returns or at least requested an extension and paid the estimated amount due. One opportunity often overlooked by taxpayers this time of year is to adjust withholding for the remainder of 2015. With 2014 earnings and a tax amounts fresh in mind now is a good time to project the numbers for 2015 and request your employer to adjust income tax withholding or modify your quarterly estimate payments such that any refund or balance due in April of 2016 is minimized.

Boost Your Chances of Getting Financing

Financing growth through cash flow alone is difficult for even the best run contracting firms. When it's time to purchase an expensive piece of equipment, hire additional workers, or expand operations in neighboring communities, contractors often look to borrow from outside sources. And that means contractors should be prepared for bankers and other lenders to scrutinize the firm's finances and operations.

The following tips may be helpful to your contracting firm if it is seeking a loan.

Start with Existing Relationships

Lenders are more likely to work with contractors they already have a relationship with. If you have a business checking account or a mortgage with a particular lender, start your search with that lender. Typically, your past performance handling business Loans -- and even personal loans -- is used to assess your potential for a new loan.

Be Prepared to Provide Your Financials

The lender will want to review your company's current financial statements. The lender will use them to analyze your business's ability to repay the loan you plan to take on. The lender may compare various ratios derived from your financial statements with local and regional benchmarks to help gauge your business's performance.

In particular, lenders will want to scrutinize your contracts and your cash flow projections. They want evidence that as you perform work, you will be able to generate enough cash flow from your operations to repay existing creditors as well as new debt.

Think About Collateral

Collateral assures lenders you have a stake in the success of your business and confidence in your ability to repay the loan. Lenders typically prefer borrowers to pledge assets, such as billings for work in progress or machinery, as collateral. Don't be surprised if the lender asks you to pledge personal assets, such as your home, as collateral for the loan.

Call Us

We can work with you to ensure that any financial statements you present to a lender as part of a loan application are complete and accurate. Please call.

To Bid or Not To Bid

Every contractor faces the sometimes difficult decision of which jobs to bid on. You may hold off bidding on certain jobs that you feel are outside your area of expertise or that you believe may contain too many hidden financial risks. The only way you can be certain that a job is worth bidding on is to perform a risk analysis that allows you to carefully identify -- and weigh -- the risks up front. Before you take on a project, ask yourself the following questions.

Is the Project Aligned with My Company's Goals?

It's important to examine a potential project to see if it fits into your firm's overall growth plans. You don't want to run the risk that your firm could suffer severe financial consequences by taking on too large or too complex a project. Performance issues -- typically related to a contractor's inexperience in handling large or difficult projects -- are the second most common reason contractors fail, according to a study by the Surety & Fidelity Association of America. Even a potentially lucrative project isn't worth bidding on if it will place an undue strain on your existing resources.

Is My Bonding Capacity Adequate?

Always contact your surety firm ahead of time to ensure you can obtain bond approval if you intend to bid on a project that requires bonding. They'll let you know if you are in danger of stretching your resources. Sureties generally look at the total volume of the contracts you are working on (bonded and non-bonded), the length of the potential project, and whether you have (or can easily obtain) the equipment and other resources necessary to perform the work before they'll approve additional bonding.

Do I Have a Sufficient Pool of Qualified Labor?

The profitability of a project is generally dependent on the experience of the project manager and the availability of qualified workers. An experienced project manager can keep a project on track, on time, and on budget. And an experienced, qualified crew is usually a highly productive one. Before you consider bidding on a job, ensure you'll have the right project manager available and enough experienced workers to complete the project.

How Healthy Is My Cash Flow?

Good cash flow is essential to the prosperity and growth of your firm. That's why it's important to review a potential project's payment terms very carefully. Some jobs might require greater cash flow capacity than your firm can handle and limit your ability to take on other jobs.

Where Is the Project Located?

Consider whether a proposed project's location could create unforeseen and expensive problems related to oversight and control. It may be necessary to walk away from a potential project if it's too far from your home base to keep adequate tabs on its progress.

Preparing and submitting a formal bid is an expensive and time-consuming undertaking. A careful risk analysis can help you avoid bidding on projects that could end up draining funds from your business. We can review bid documents with you to help you determine which projects are worth bidding on -- and which are not.

Very truly yours,

Jones, Henle & Schunck