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Alternative Lenders Step Forward-Bradenton Herald

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Manatee builders taking advantage of low land, material costs

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Development Financing & Construction Accounting, Inc.
11523 Palm Brush Trail
Suite 357
Lakewood Ranch, FL 34202


May 10, 2011

To: Attention Clients

Tax Planning Opportunity-
Capital Gain Exclusion on Small Business Stock

The Small Business Job Act of 2010 created an opportunity for new corporations or existing corporations to bring in New Investors and have the Capital Gain on The Sale of Qualified Small Business Stock (QSBS) excluded from gross income up to $10M. The stock must be acquired between September 27, 2010 and before January 1, 2012 and the holding period is more than 5 years.

 Clearly, the provision was designed to encourage the formation of small businesses prior to year end with the goal of creating jobs.

This is limited to C-Corporations, however, founders that had originally chosen The Limited Liability Company or Partnership form of business may be able to take advantage of this tax planning opportunity on the issuance of any new stock, if they convert to a C-Corporation.

For additional information on this Tax Planning Opportunity or to discuss financing your project, contact Michael J Otis, CPA 508-250-2363.

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Home > December 2009 > CPAs Can Help Builders Increase Profits, Cash Flow

CPAs Can Help Builders Increase Profits, Cash Flow


By Michael J. Otis, CPA

December 2009


At a time when the construction industry is faced with unprecedented economic conditions, companies must do everything possible to remain profitable and maintain positive cash flows. Consider the following tips to help your clients in this industry:


  Take every available tax credit. These include, for example, various Enterprise Zone tax incentives, credits and deductions for placing in service energy-efficient properties, and taking advantage of cost segregation. This technique allows taxpayers to depreciate certain components of a building faster than the 39 years generally required for real property. By classifying certain building components (for example, non-load-bearing walls or lighting systems) as five-, seven-, or 15-year personal property, taxpayers can take higher depreciation deductions. However, taking full advantage of cost segregation generally requires a componentization study, the cost of which should be weighed against the potential tax benefits.


  Save on workers’ compensation insurance with safety programs. Make sure your client’s insurance agent files for the appropriate credits on your client’s workers’ compensation policy, such as the Drug Free Workplace Credit, Safety Credit and the Contractors Premium Rate Credit. Also, double-check the accuracy of the National Council on Compensation Insurance (NCCI) Mod Factor Rating.


  Update overhead percentages. Occasionally, builders complete several projects with no cash at the end. This could indicate that the contractor is applying overhead rates that could have become obsolete from the aggregate effect of many small increases to overhead costs.


  Hold a weekly collection meeting. Have a collection meeting to review overdue receivables. Keep a close eye on retainage (final payment held by the owner). Promptly prepare written requests when contractual requirements have been completed to receive retainage as quickly as possible.


  Manage subcontractors and material suppliers to the project schedule. If someone falls behind schedule, issue 24-hour, 48-hour and 72-hour notices after which your client can exercise the right of self-performance to keep the project on schedule.


  Partner with subcontractors and suppliers to win bids. Occasionally, to become low bidder, all trades may have to join together and accept less of a markup in order for the general contractor to obtain the contract.


  Set up a rolling cash flow projection. Outline cash flow 12 months in advance and update it weekly. Also set up a sweep account applying the extra cash on hand against lines of credit, reducing interest expense.


  Close out pending change orders and backcharges weekly. Typically, change orders increase the contract amount and the contractor’s profit and cash flow. All too often change orders are not processed until month-end or even longer.


  Take advantage of the U.S. Small Business Administration’s new American Recovery Capital (ARC) Loan Program. ARC loans provide an immediate cash infusion to small businesses to assist with making payments of principal and interest on existing debt. These loans allow borrowers to redirect cash flow from making loan payments to investing in their businesses. The maximum loan amount is $35,000, and the first payment is deferred for 12 months and is interest-free over a five-year term.


—By Michael J. Otis, CPA, president of Construction Accounting & Development Financing Inc. He is a licensed builder in Florida, Massachusetts and Rhode Island. His e-mail address is


Hotel Rates on the Rise & Record July 2010:

Do you have the guts to raise your rates? Well, top industry leaders here at The Lodging Conference do.
Wednesday, September 22, 2010

Glenn Haussman

For the first time in three years, industry insiders are downright bullish on the future state of the lodging business. It’s looking more and more likely with each passing day that industry fundamentals have aligned and the big boost in profits is on the horizon.

In general, people here at The Lodging Conference are feeling ready to start reaping the rewards which have been elusive since the market peaked in 2007.

So what’s behind the good news? First, the recession is over and room demand is soaring. Combine that with an eviscerated new hotel construction pipeline, and suddenly hoteliers are finding themselves in a pricing power position. After years of ceding rate control to guests, hoteliers should now start feeling empowered to raise those rates. 

But there is a rub. In essence, hoteliers have become their own worst enemy. This now-ending downturn was deepened by panicky hoteliers that utilized a discounting strategy to artificially drive down rates. And as we have learned, discounting typically leads to more discounting - which trains both transient and business travel consumers to look for cheap rates.

The problem of course has been exacerbated by an overabundance of hotels putting inventory on travel intermediary sites, which further erodes profits through their commission structure. Now it’s critical for hoteliers to dig deep into their psyche and find the nerve to push rates.

Consider this: According to STR’s Vail Brown, more rooms were sold in July than in any previous month ever. The tally was 102,307,169 rooms sold, to be exact. Further, the lodging industry is on target to break the “one billion rooms sold in a year” barrier for the first time in history. Granted, some of the demand is being generated from extremely low room rates, but the huge increase in demand will be the main driving force for the recovery.

“Demand is back, but the true magnitude of the recovery is getting those rates back up which will positively affect our profits,” said Brown.

Bruce Ford, SVP business development with Lodging Econometrics, a firm which closely follows the new hotel construction pipeline, said new openings declined precipitously. “We did not overbuild in the lodging industry, which is going to be excellent news going forward,” said Ford.

Conference Co-Founder and President of The Conference Bureau Harry Javer remarked that things are getting better. “For the first time in a few years we have some good news to celebrate. Profits are going to go up,” he said.

Tomorrow we’ll get more into slicing and dicing those critical numbers, but for now let’s survey how the industry leaders are seeing things.

Wayne Goldberg, President & CEO, LQ Management (which owns, operates and franchises the La Quinta brand), said it’s time to take advantage of the demand surge.

“We inflicted some pain on ourselves as an industry. The reality is we have failed as an industry to recognize demand and take appropriate actions regarding rate. We don’t think the internet caused this. It is the decisions we make in our business. The demand is absolutely strong and will get stronger based on supply chart. There are significant opportunities ahead for continued improvement. We had a very strong summer,” said Goldberg.

David Kong, President & CEO, Best Western International, said rates will continue to be a challenge until the industry addresses the problem. “Growth in demand is increasing, while supply growth is declining. We have the leverage to increase rates; it’s just a matter of confidence. And until we take away uncertainly it will continue to be a problem. For our business to be viable we need to increase rates during the next few years. But I think we are in for a very good cycle,” said Kong.

Finally, R. Mark Woodworth Colliers said the lodging industry is clearly at the point where occupancy has begun to recover. “Room rates and profits will experience year—over-year growth and accelerate into 2011. A very strong argument could be made to be focused on the lodging industry and make some investments. We think we are at the tail end of the foreclosure depression stage of the industry and at the point of maximum financial opportunity. 2011 and 2012 will absolutely be a wonderful time to be owning a hotel,” he said.

New England Patriots Install Solar Power System generating 30% of the Solar Power for Patriots Placee


In a ceremony overlooking Gillette Stadium and The Hall at Patriot Place presented by Raytheon, Constellation Energy (NYSE: CEG), Evergreen Solar, Inc. (Nasdaq: ESLR) and Patriot Place announced the completion of a photovoltaic power system that will generate approximately 525 kilowatts of clean, renewable solar power at Patriot Place, The Kraft Group’s shopping, dining and entertainment destination adjacent to Gillette Stadium in Foxborough, Massachusetts.

“When someone of [Robert Kraft’s] stature as a business leader and promoter of economic development shows you that the environmental movement can be not just a chore, but a source of economic strength and growth, I hope others pay attention,” said Congressman Frank during the program.

“This is good business and the greening of our environment is important for our children and grandchildren,” said Kraft.

“Through Governor Patrick's leadership, Massachusetts is on track for a 20-fold increase in solar power over a four-year period,” said Bowles. “This new 525-kilowatt array at Patriot Place is another chapter in the Commonwealth’s solar success story – which has added jobs and companies across the Massachusetts economy. I congratulate Patriot Place, Constellation Energy and Evergreen Solar for a project that will have a huge public profile throughout football season and beyond.”

Constellation Energy’s subsidiary, Constellation Energy’s Projects & Services Group, began installing the system in November 2009. It now supplies approximately 30 percent of Patriot Place’s power and spans seven building rooftops at the complex. Among them is The Hall at Patriot Place Presented by Raytheon, an award-winning sports and entertainment experience. Photovoltaic panels on the roof of The Hall will be visible to visitors from inside Gillette Stadium and from Patriot Place’s upper retail plaza, promoting commercial applications of solar power.

“We are pleased to announce the completion of this beautiful new solar facility at Patriot Place,” said Michael Smith, Constellation Energy Sr. Vice President of Green Initiatives. “We’re confident that this highly visible project will promote solar power and its viability in states like Massachusetts, and hope that it spurs similar solar projects throughout New England.”

The system’s 2,556 solar panels will generate more than 625,000 kilowatt hours of electricity annually. They were supplied by Massachusetts-based Evergreen Solar. “We’re thrilled that Patriot Place has chosen Evergreen Solar for this highly-visible solar installation,” said Scott Gish, Vice President of Sales & Marketing for Evergreen Solar. “As a company producing solar panels that deliver more electricity with less impact on the environment including the smallest carbon footprint, we feel we align perfectly with the environmental goals of Patriot Place while demonstrating the viability of solar power to the many patrons and fans traveling through this incredible complex.”

Constellation Energy’s Projects & Services Group estimates that the system will generate more than 12 million kilowatt hours of electricity over 20 years, and prevent the release of more than 8,800 metric tons of carbon dioxide into the atmosphere. That is the equivalent of removing more than 1,600 passenger vehicles from the road for a year. The system’s real time power output and performance can be monitored through a Web-based data acquisition system.

Under a 20-year power purchase agreement, Constellation Energy‘s Projects & Services Group will own the energy assets and sell the electricity it generates on site to Patriot Place.

“This project is a cornerstone of Patriot Place’s sustainability initiatives and we are proud that its visibility will help promote practical and cost-effective commercial applications of solar power,” said Jim Nolan, Sr. VP of Finance, Administration and Operations for Gillette Stadium/Patriot Place.

Patriot Place, which began opening in phases in 2008, was constructed utilizing sustainable design practices, including low-emitting construction materials and white roofs to facilitate heat island reduction. Patriot Place also employs an on-site wastewater re-use system that saves millions of gallons of water annually, and solar-powered trash receptacles throughout the complex reduce waste volume and energy consumption.

About Constellation Energy’s Projects & Services Group

Constellation Energy's Projects & Services Group (> is the energy services arm of Constellation Energy (NYSE: CEG), a leading supplier of energy products and services to wholesale and retail electric and natural gas customers. Serving business and institutional customers nationwide, Constellation Energy's Projects & Services Group specializes in financial and environmental solutions that can significantly reduce energy consumption and costs. Constellation Energy's Projects & Services Group delivers the technical expertise to develop large scale energy projects, such as solar, biomass and geothermal projects, and on- or off-site power generation systems. The company also designs and implements full energy system retrofits that save energy and reduce harmful emissions.

About Evergreen Solar, Inc.

Evergreen Solar, Inc. develops, manufactures and markets STRING RIBBON™ solar power products using its proprietary, low-cost wafer technology. The company's patented wafer manufacturing technology uses significantly less polysilicon than conventional processes. Evergreen Solar's products provide reliable and environmentally clean electric power for residential and commercial applications globally. For more information about the company, please visit >


Press Relaese:"25 Ways Contractors Can Increase Profits and Cashflow".

In today’s Competitive Environment the Benefits of a having a Strong Financial Consultant on your Team include:

  1.  Having your financial advisor outline Extra Tax Credits that the Owner can take advantage of will elevate your firm above the competition.  For example, Enterprise Zone Tax Credits, Energy Efficient Tax Credits and taking advantage of the IRS Code Section on Cost Segregation.  This section of the IRS Code outlines the more non-load bearing walls incorporated into a project, the higher the Depreciation Tax Deduction, often saving the owner thousands of dollars in taxes.  Contact the author for additional information.

  2.  Make sure your insurance agent files for the appropriate credits on your workers comp policy, such as the Drug Free Workplace Credit-5%, Safety Credit 2% and the Contractors Premium Rate Credit.

  3. Double check the accuracy of your NCCI Mod Factor Rating.  On occasion, payroll totals are missing, thus increasing your Mod Factor.  Or incorrect Loss Claim Totals are factored in your mod rate, overstating your Modification.

  4. Maintain strong controls on project submittals, warranties and project closeout documents.

  5. Negotiate performance incentives for finishing a project ahead of schedule.

  6. Manage the General Conditions budget aggressively.  Challenge your staff on a daily basis to come up with cost effective money saving ideas.

  7. Calculate accurate overhead percentages.   Occasionally, Builders complete several projects with no cash at the end to show for their efforts.  This could be an indication that the contractor is applying incorrect overhead rates. 

  8. At least weekly, have a collection meeting to review overdue receivables.  Keep a close eye on Retainage held by the owner.  Request in writing that you have completed your contractual requirements enabling you to receive your retainage as quickly as possible. 

  9. Manage subcontractors and material suppliers to the project schedule.  If someone falls behind schedule issue 24 hour notice, 48 hour & 72 hour notices timely and exercise your Right of Self Performance keeping your project on schedule.

  10. Backcharge Contractors for not maintaining a clean work environment. 

  11. Have a written purchase order system, designating only selected employees to make purchases. 

  12. Have a solid working relationship with your subcontractors.  Occasionally, in order to become low bidder all trades may have to join together and accept less of a markup in order for the General Contractor to obtain the contract.

  13. Setup a real-time master cashflow projection outlining your cashflow 12 months in advance.  Update weekly and if you need assistance, contact a professional.

  14. Setup a sweep account applying the extra cash on hand against lines of credit reducing interest expense. 

  15. Manage your backlog and company personnel appropriately.

  16. Closeout Pending Change Orders and Backcharges on a weekly basis.

  17. In today’s competitive environment, the contractor’s that manage the project schedule aggressively will be rewarded by having increased profits.

  18. Review Insurance Policies and eliminate unnecessary coverages and adjust building and equipment values appropriately.

  19. Manage your cashflow and keep a close eye on the ever changing interest rates on credit cards.  Payoff lines of credit that carry the highest interest rates.  However, if you feel you are at risk of having your credit card company close your line of credit after paying off the balance, structure your financing plan appropriately.

  20. On a monthly basis analyze your financial statements comparing budgeted amounts to actual.  Investigate variances and take appropriate action.

  21. Take advantage of New SBA Loan Programs.  Contact a professional to tailor the correct program for your business.

  22. Have an employee manual with written job descriptions that define goals, tasks, responsibilities and organizational structure.

  23. Track equipment locations & utilization on a daily basis.

  24. All too often projects are put out to bid, however, the financing falls apart and the project is not built.  If you utilize a professional who can obtain the financing for the project, this will obviously elevate your firm above the competition.

  25. Do you have adequate credit from your bank that would support your company?

Article by:

Michael J Otis, President
Development Financing & Construction Accounting, Inc.
Member American Institute of Certified Public Accountants
Licensed Builder-FL,MA,RI
Office Located in Lakewood Ranch


About the Author:

Michael J Otis provides Controllership & CFO Services utilizing his vast Accounting & Construction Experiences. Michael prepared Business Plans yielding Financing for Construction Projects totaling $48M.