The QBCC financial requirements for licencing placed on builders are onerous and often difficult to understand, which is why it is important to have a good Accountant that specialises in this area, so that you can understand your financial requirements and protect your licence.
Working with a lot of builders we see some of the key areas where they often find themselves in trouble with the QBCC.
Mistake 1 – Going over your ‘Allowable Revenue’ threshold
The QBCC has increased their review activity in the last 12 months and we are seeing more builders come to us after receiving notification that they are in breach of their turnover or ‘maximum revenue’ threshold. The QBCC are assessing the value of jobs submitted for insurance purposes against your existing allowable turnover, in cases where the value of jobs exceeds allowable turnover they are conducting reviews of licensees.
It is a requirement that you monitor your financials regularly to ensure you will not exceed your allowable turnover by more than 10%. If you need to report a turnover increase you must ensure you have sufficient assets to allow this and work with your Accountant on the correct reporting.
Mistake 2 – Having your lending structured incorrectly
The QBCC sets strict financial ratios that licensees must meet to obtain and maintain a licence. One area that we often see builders come into difficulty is if their business borrowings aren’t structured correctly. One issue is if a builder is working off a substantial overdraft that is always fully drawn that should instead be structured as long-term borrowings – changing the bank lending may be the difference between passing and failing the QBCC financial requirements. The other issue we often come across is having borrowing in the incorrect entity. If borrowings are in the licenced building entity but relate to assets acquired by another entity (home built for long term investment), then this can negatively impact the licensee.
It is important that you are working with an Accountant who understands the QBCC requirements and that they have a close relationship with your bank or mortgage broker to ensure your lending is structured in the most appropriate manner, to ensure you don’t breach your licensing requirements.
Mistake 3 – Purchasing a business and not getting the right advice
Purchasing ‘Goodwill’ in a business that is required to hold a QBCC licence carries a number of challenges from the outset, to meet the QBCC financial licencing provisions. Business Goodwill does not count as an asset for QBCC financial requirements, which means the licensee must have other assets to support the required turnover threshold. Additionally, if the licensee has borrowed from the bank to purchase the goodwill, they in fact end up with negative assets, an issue that needs to be overcome to obtain a licence.
If you are looking to purchase a business in the building and construction industry it is important that you obtain advice from the outset to ensure you will pass the financial requirements for licensing. We have seen cases where owners have been caught out by not understanding or completing the correct Due Diligence before purchasing and cannot operate the business without a licence.