The regulator is sick and tired of hearing about the corporate collapses that occur within the industry. The collapses leave millions of dollars owing to subbies and other mum and dad businesses. Many of these collapses are caused by rogue construction companies who fail to manage cash flow effectively. Poor cash flow management often leads to cost overruns and shonky workmanship.
To hold a Queensland contractor’s licence with the Queensland Building and Construction Commission (QBCC), you must adhere to Minimum Financial Requirements. These requirements include:
- Net Tangible Assets – The businesses total saleable assets must exceed its liabilities. Assets such as loans to related parties, and costs associated with the purchase and setup of the business are typically excluded assets.
- Current Ratio – The business must have more current assets (e.g. debtors and work in progress) than current liabilities (e.g. creditors, superannuation, ATO debts and loan repayments due within 1 year).
- Maximum Revenue – The regulator requires businesses to hold enough assets to support their projected revenue. Essentially the higher your revenue, the higher your required net tangible assets.
- Payment of Debts – All debts of the business must be paid when they are due.
- Financial Monitoring – Maintain quarterly internal management accounts.
- Professional Indemnity Insurance – Businesses must have cover in accordance with the QBCC guidelines.
Further to ongoing adherence to the above requirements, the regulator monitors court proceedings to identify a licensee who may be suffering financial difficulty. Things like non-payment of suppliers and a creditors judgement being obtained will most likely trigger the attention of the QBCC. Even a complaint by a disgruntled supplier can trigger an investigation.
As you can see failure to meet any of the above financial requirements could result in licensing issues including suspension or loss of licence. Any downtime due to licencing issues can bring significant delays in completion of the projects and tarnish the business’s reputation.
To ensure your license doesn’t become at risk, we recommend licensees work closely with their advisers to enhance and maintain financial viability of their business. One way we do that is through implementation of cloud-based accounting and building industry specific applications. These applications allow business owners to proactively and efficiently manage their business and licensing requirement, either on site or in the office. If you would like to know more about these systems and how we can help to improve your business’ financial sustainability, please contact us.