QBCC Licensing and Growth in Building and Construction

[ Things you need to know leading up to the 2016 financial year ]
by Michael Garrone Published

We know that growth in building and construction is back in South-East Queensland. There is now a good pipeline of work with more to come over the next couple of years.

With this in mind now is a good time to look at whether or not your QBCC licence allows you to handle that growth.  If your licence only allows you to do $5 million of turnover and you need $10 million next year you will need to undertake some planning.

Your turnover can only go to $5.5 million (10% over) before you need to lodge a new financial report with the QBCC.  If you can’t or don’t lodge a new report then you can’t take on the new work.  Can you think of anything worse with a good pipeline in site?

In our building and construction update last year we talked a little about what the QBCC financial changes of 1 October 2014 meant to you [check it out here]

Today we’re going to talk about what you need to do if your business is growing and what to do on the lead up to the 2016 financial year:

1. HOW MUCH TURNOVER DO YOU NEED NEXT YEAR?
This will then determine the level of net assets you need to have in your business to upgrade your turnover.  Does your current balance sheet allow this to happen or are you coming up short?  If your balance sheet looks okay will it pass through all of the QBCC financial requirement tests to lodge the report?

[The link to the QBCC financial requirements calculator will help you work this out http://www.qbcc.qld.gov.au/mr-nta-calculator]

2. ARE YOU SURE YOU HAVE CALCULATED THE RIGHT TURNOVER THAT YOU NEED?
Turnover is always calculated over a rolling 12 month period.  Not the financial year.  For example, using this month as a guide you would look at your turnover from 1 May 2015 to 30 April 2016.

[Where growth in turnover is on the horizon you need to be planning 12 to 24 months in advance to ensure you can actually take on that work]

3. ARE YOU CALCULATING YOUR NET ASSETS CORRECTLY?
Some of the common problems we see are:

  • Not all assets are allowed – a loan to you or a related trust that isn’t collectible or customer invoices or retentions that won’t be paid
  • Not all liabilities are recorded – employee annual leave, income tax and work in progress.

[We’ve always taken the attitude that QBCC licence planning is one of the most important things you can keep track of each financial year – if you lose your QBCC licence then that will be it]

4. ARE YOU CALCULATING YOUR 1:1 CURRENT RATIO CORRECTLY?
If you are meeting the net asset requirements you still won’t get a licence upgrade without meeting the current ratio.  Very simply assets such as cash and debtors must be at least 100% of normal creditors payable over the next 12 months, eg, trade creditors, GST and annual leave.

[To ensure you pass the current ratio comfortably from year to year you will need to ensure cash is left behind in the business]

5. SOME OF THE COMMON PROBLEMS WE SEE WITH THE CURRENT RATIO FROM YEAR TO YEAR ARE:

  • Investing to much cash in long term assets – eg, cars and property without taking out longer term finance.  This will turn current cash assets into non-current assets
  • The QBCC rules only allow you to count 50% of customer invoices as current where they are over 180 days and 0% where over 365 days.  This of course assumes the invoices are collectible at all.

[How good is your collection of debtors and retentions? – you will often be relying on customer invoices to be current assets to have any chance of passing the current ratio]

6. WOULD YOU GET PQC QUALIFICATION AS PART OF THE GOVERNMENT TENDERING PROCESS?
We are again seeing businesses wanting to be approved to do government work.  One of the tests is that you meet the PQC financial requirements.  The basis of these requirements is similar to the QBCC but with some further stringent requirements.  For example, asset loans to you or other related entities are excluded from being net assets altogether.

[Similar to the QBCC rules, PQC qualification is far from impossible, it just means that your balance sheet needs to be in good order with some planning done in advance]

If you believe your QBCC licence isn’t ready to handle the growth now might be a good time to take some action.  There are a number of actions that can be taken now to get your house in order before it’s too late.

Of course if you would like to chat further on any tax planning questions or problems, just give myself [Michael Garrone] or Josh Smith a call on 07 3193 3000 and let’s have a chat!

Michael Garrone - m.garrone@businessdepot.com.au
Josh Smith - j.smith@businessdepot.com.au

If you want to know more about what is happening in the building and construction space, check out some of the below resources:

QBCC RULES

LONG TERM THINKING IN BUILDING & CONSTRUCTION

FEELING THE SQUEEZE - MAINTAIN YOUR MARGINS

MANAGING GROWTH IN BUILDING AND CONSTRUCTION

CASH IS KING

KNOW YOUR BREAKEVEN

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 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. 

Michael also has a strong background in self-managed superannuation and is an authorised representative of superannuationDEPOT. In this area Michael provides strategic advice on SMSF structures and in particular limited recourse borrowing arrangements. Through this diverse experience Michael has developed expertise within a wide range of industries including building and construction, property, professional services (legal, engineering & finance), technology and software and manufacturing.

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