The first (and probably most fundamental) question that any business owner ought to be able to answer is: How is my business performing?

The provisions of the Queensland Building and Construction Commission's Minimum Financial Requirements Policy (Policy) require licensees to ask that question in a deliberate way.

In this E-Alert, we will discuss the financial monitoring requirements of the Policy, the practical benefits of compliance with those requirements and the legal and practical difficulties of non-compliance.

Put simply, the Policy requires a licensee to prepare and maintain 'internal management accounts' on a quarterly basis. The Policy defines these as:

  • A statement of financial performance (also known as a trading and profit and loss statement);
  • A statement of financial position (also known as a balance sheet);
  • An aged listings of trade debtors and creditors; and
  • A statement of cash flows.

These are minimum requirements. Sound management practice suggests these should usually be completed monthly. This regularity will strengthen your opportunity to respond to changing circumstances and ensure there is little impact on your financial monitoring requirements.

There are a number of benefits (apart from compliance with the Policy) that flow from having your 'internal management accounts' reviewed by your accountant on a quarterly basis. Most importantly (from a practical viewpoint), you have a clear understanding of the financial position of your business. With the benefit of cloud based tools this process does not need to be a time consuming and costly exercise provided you have appropriate systems and tools in place. Such systems and tools are available to all scale enterprises from small sole traders through to the large scale construction contractors.

From a legal standpoint, having a clear picture of the financial position of your business means that you are less likely to:

  • Breach your Maximum Revenue (which can result in suspension and cancellation of your licence);
  • Breach the requirements of the Policy with respect to your Net Tangible Asset position (remember that you have to report a 30% reduction in Net Tangible Assets) which, again, can result in suspension and cancellation of your licence; and
  • Have your business go into administration or liquidation (with the automatic loss of licence which now follows) as you will be able to take proactive action in the event that your business suffers financial difficulties.

You are also more likely to be able to comply with a snap audit by the Commission.

Those who are unable to respond promptly to an audit, may (in addition to facing a penalty and/or disciplinary action), set off further alarm bells at the Commission. This could result in the Commission taking a more active interest in your business than you may wish them to take. Naturally, the ability to respond promptly will depend on the state of your record keeping. Responding with unreconciled or incomplete records will create a perception of poor financial management.

Maintaining accurate and up to date records will provide great benefits to you, not just for the benefit of the Commission.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.