QBCC Financial Requirements

[ 2 key financial tests for licence renewal with QBCC ]
by Michael Garrone Published

Have you considered if you are meeting the financial requirements of the Queensland Building and Constructions Commission (QBCC) right now?

If you are a builder or contractor, you may be experience a slow business period following the Christmas and New Year break. Cashflow is often tight and you may have even made a loss through over the break. Now is a great time to consider if you will meet the two key financial tests in time for your licence renewal at 30 June 2014:

  1. Net Assets test
  2. Current ratio

These tests are both relatively simple to calculate, yet our experience shows that few builders or contractors consider these tests unless their licence renewal is due. Considering many licence renewals use a financial testing date of 30 June, that reporting date is fast approaching.  If you aren’t meeting these tests currently, now is the time to consider your options and take action. This might mean restructuring operations or implementing new business improvement strategies to improve cashflow or profit [profit and cashflow will almost always improve your ability to meet both tests].

What is involved with both of these financial tests?

[ NET ASSETS TEST ]

The net asset test is a relatively straight forward test that requires you as a licensee to have an amount of assets to support your business turnover. 
For example if you require $3 million of revenue then you require $156,000 of net assets (total assets less total liabilities).  If you require $10 million of turnover then you would require net assets of $408,000.
This sounds straightforward, but there are a few considerations. For example, do you have the assets in the first place to support the turnover you require and do all of your assets count for QBCC purposes?  Some common problems that occur with assets are:

  • Assets such as intangibles like goodwill are not counted as assets but any liability relating to them would certainly be taken into account.
  • Assets such as a loan to a related party can only be included if you can prove that the loan is collectable.  This can be easier said than done if the related party such as you personally don’t hold any assets in your own name.
  • Issues can arise with debtors or retentions that are proving difficult to collect.  If it’s doubtful these debts will be collected, they will not count as an asset.

[ CURRENT RATIO ]

The second and lesser understood ratio is the ‘current ratio’.  Simply put,  this ratio looks at the assets you’re likely to obtain in the next 12 months, as well as the liabilities that you need to pay in the next 12 months. You will pass this test if the assets are greater than the liabilities. This test ultimately looks at the ability of the business to meet short term commitments.
The most common current assets and liabilities are:

  • Current Assets; cash, debtors, stock and work in progress
  • Current Liabilities; trade creditors, tax office liabilities [such as income tax and PAYG withholding] and employee entitlements [such as annual leave]

Have you considered if you are meeting the financial requirements of the Queensland Building and Constructions Commission (QBCC) right now?

If you are a builder or contractor, you may be experience a slow business period following the Christmas and New Year break. Cashflow is often tight and you may have even made a loss through over the break.

Now is a great time to consider if you will meet the two key financial tests in time for your licence renewal at 30 June 2014:

  1. Net Assets test
  2. Current ratio

These tests are both relatively simple to calculate, yet our experience shows that few builders or contractors consider these tests unless their licence renewal is due. Considering many licence renewals use a financial testing date of 30 June, that reporting date is fast approaching.  If you aren’t meeting these tests currently, now is the time to consider your options and take action. This might mean restructuring operations or implementing new business improvement strategies to improve cashflow or profit [profit and cashflow will almost always improve your ability to meet both tests].

What is involved with both of these financial tests?While both of these ratios seem straightforward, they can be extremely difficult to meet where losses or problem jobs occur.  Unless you have a stable asset base and cash on hand you may no longer be meeting either of these tests.  Unfortunately you need to meet both tests to maintain a licence, so it’s prudent to treat these tests extremely seriously.  From our point of view, planning to meet these tests is more important than tax planning that can be done year to year.
Some questions that you can ask yourself as the holder of a QBCC license to provide you with some early warning signs are:

  • Did you just scrape through when meeting the financial tests last year?
  • Have you made a loss in the current financial year?
  • Do you have any jobs where debtors or work in progress may be hard to collect?
  • Did you make a loss in the Christmas shut down?
  • Are you behind with payments to the tax office?

These are all warning signs that may mean that you will have trouble renewing your licence or need to consider some careful planning.

Should you have any queries or would like to discuss these issues further please contact Michael Garrone or Josh Smith or your regular contact partners of businessDEPOT.

Michael Garrone m.garrone@businessdepot.com.au
John Knight   j.knight@businessdepot.com.au
Bradley Conn       b.conn@businessdepot.com.au
Joe Scuderi     j.scuderi@businessdepot.com.au

Josh Smith     j.smith@businessdepot.com.au

Michael Garrone
read more by Michael Garrone

Michael is our Tax Specialist Director as well as the head of our business advisory niches of Building and Construction and Property.

With Michael's extensive experience and a real interest in these niche areas, he is able to provide practical business and tax advice that is unique to the Building and Construction and Property industries. His tailored advice helps guide these businesses through the start-up phase to succession and sale. Michael has many years’ experience in solving complex problems involving corporate tax, restructures, international taxation, Capital Gains Tax and GST. 

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