Updates
The Overlooked Necessity of Continuity Plans in Construction Business
February 27, 2024
Unraveling the Importance of Business Continuity for Contractors and Sureties
In the dynamic and often unpredictable construction world, the often overlooked and underestimated continuity plans play a crucial role in the future success of contractors.
In its most straightforward sense, continuity is the uninterrupted or consistent existence of something. In business, sureties exhibit a keen interest in business continuity. Here we delve into the importance of business continuity and discover why it is an indispensable aspect of the construction business landscape.
Completion Guarantee
One of the fundamental reasons for the heightened focus on business continuity lies in the risks associated with completing construction projects. Sureties, the guardians of project completion, guarantee that contractors will successfully finish all bonded projects. The ramifications of a contractor failing to fulfill this commitment are severe, potentially leading to the surety seeking collection, a scenario no party wishes to entertain.
As construction companies evolve, so should their continuity plans, adapting to new circumstances and challenges. Eventually, the continuity plan becomes integral to the company's succession plan and the business owner's estate plan.
To address these concerns, a continuity plan may involve a Completion Agreement. Typically, a concise document, the Completion Agreement outlines who would assume responsibility for completing ongoing projects in the event of the owner's demise or disability.
Ownership Transfer Impact
Any shift in ownership within a construction business carries significant consequences. Changes in ownership can impact the equity and liquidity of a contractor's balance sheet, adding an extra layer of complexity to an already intricate industry. An unorganized transfer of ownership can even jeopardize an otherwise robust contractor, emphasizing the critical need for strategic continuity planning.
Continuity Planning: A Difficult Conversation
Continuity planning, extending to succession and estate planning, might be uncomfortable for business owners to discuss. Contractors may have a notable aversion to these topics, possibly due to their risk-taking nature. Regardless, a well-executed plan ensuring the company's sustained success and the welfare of the contractor's family requires time and careful consideration.
From the perspective of sureties, continuity is a paramount underwriting topic, deeply ingrained due to the potential consequences in a worst-case scenario. Engaging in conversations about continuity with clients can be challenging, but it is critical during annual reviews. Sureties cannot afford to overlook continuity, especially in scenarios where no plan is in place.
A Prudent Step for Sustained Success
Continuity planning requires meticulous attention and regular modification as life situations change. For contractors and sureties alike, addressing continuity concerns is not just a prudent step but a vital one for sustained success. As the construction industry continues to evolve, those who embrace the overlooked necessity of continuity plans will find themselves better positioned to navigate the challenges and uncertainties that lie ahead.
About Bowers CPAs & Advisors
Bowers aims to offer helpful information to our clients and friends. Learn more about how we can help should your construction business need consulting and financial services.
Bowers CPAs & Advisors has served private and closely held businesses with strategic financial advice for over 40 years. Whether traditional Tax and Audit, Business Valuation, Accounting/Bookkeeping, Forensic Accounting, or Financial Planning services, our approach is the same:
"Master an in-depth knowledge of our clients and their industry to provide proactive, innovative analysis and recommendations to build and maintain net worth."
At Bowers CPAs & Advisors, we set the tone by being readily available to our clients and maintaining close relationships built on integrity and trust. With 31 Partners and a staff of more than 130 professionals, Bowers CPAs & Advisors has offices in Syracuse, Rochester and Watertown, New York.
Disclaimer: To ensure compliance with requirements imposed by the Department of Treasury, we inform you any U.S. federal tax advice contained in this document or video is not intended for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.
