The Contractor's Accounting Report to His Banker
BY JULIUS W. PHOENIX, JR. PRINCIPAL, CHARLOTTE OFFICE
Presented before the Robert Morris Associates, Charlotte — October, 1955
It amazes me how little has been written concerning the accounting
problems and reports of the construction industry, particularly in light of the many special problems that the contractor has in operating his business and determining income. Being a risk industry, one would expect the contractor to start his contract with a margin of profit suf-ficient to allow him to sustain a certain amount of unforeseen losses and still come out with a reasonable profit. Such is not the case. The industry is highly competitive and if a contractor puts too much padding in his bid, he finds someone else is awarded the contract.
Different contracts require different skills and experience, not all of which may be possessed by a contractor when he enters his bid; nevertheless, he must give a firm price at which he will perform the work. Normally, his work must be completed within a specified time. Regardless of weather conditions, excavation delays, labor troubles or other conditions that might arise to delay the work, the time schedule must be met, or the contractor pays. Indeed, it seems rather remark-able that a contractor can make a bid low enough to be awarded a contract
and still make any profit unless lady luck is one of his major stockholders.
With all of these problems, most contractors have the additional problem of financing the construction. Payments from his customer, in almost every case, come only after a portion of the work has been completed
and even then a percentage is normally withheld until the final completion of the project. Because of the large amounts of money involved,
most contractors are faced with the problem of financing the construction until such time as payment can be received from the customer.
The primary source of these funds is, of course, the commercial bank and the contractor ends up across the desk from one of you. We see, then, that in doing business with a contractor, the banker is faced with many problems beyond those faced in the normal credit situation. Fortunately, I need be concerned with only one of those problems, the