Is Your CPA a Historian or a Trusted Advisor?

  • Date05 March, 2024
  • Author Bob Teska
  • Location USA

One adage that I hold true is that the direction of one’s life can be determined by the relationships that one keeps. My grandmother said it a little more plainly: “Show me your friends and I will tell you your future.” Having held roles as a CPA and a surety professional, I can attest that this principle holds true for a construction company owner as well. Very often the success or failure of a company can be determined by the professional relationships a contractor keeps. These relationships generally include a banker, insurance broker/agent, surety underwriter, investment advisor, construction attorney, and a CPA. This article is going to focus on a contractor’s relationship with his or her CPA, through the lens of a surety prospective.

The relationship between a contractor and his or her CPA is unique. They are generally long-term relationships, and often the CPA will be privy to corporate and personal financial information, family matters, and estate issues and have knowledge of where the “skeletons” are buried. At times, CPAs may even know information that is not shared with the surety underwriter. This makes the quality and type of CPA that a contractor works with an incredibly important relationship. I think it goes without saying that a contractor should be working with a CPA who has construction expertise, and for this article, we will assume that the two types of CPAs described are both experts in construction. Based on my observations from my many years in the profession, I’ve determined that there are two main types of CPAs that a contractor can hire: a Historian or a Trusted Advisor. Below I will provide a description of each and some reasons why a surety may want to encourage a contractor to trade in a Historian for a Trusted Advisor.

A Contractor May Have Hired a Historian If:  

  • The contractor only hears from the CPA when the CPA picks up the year-end information and when he or she drops it back off.
  • The contractor reaches out to the CPA via email or phone and doesn’t hear back for weeks.
  • Tax planning, if done at all, is completed the last week of December when the contractor doesn’t have time to take actions that can affect the outcome of the planning.
  • The CPA can tell the contractor what the contractor has done, how much revenue the contractor has earned, what net income was but does not provide any forward-looking counsel or advice.
  • The CPA is as surprised as the contractor to learn about new tax legislation, accounting pronouncements, or changes to economic policies.
  • The CPA can be described as reactive at best and perhaps even passive.
  • The contractor and the surety dread conversations with the CPA.

A Contractor May Have Hired a Trusted Advisor If:

  • The CPA can be described as proactive.
  • The CPA reaches out to the contractor on a regular basis to “check in,” share information about new tax legislation and accounting pronouncements or changes in economic policies that will affect the construction company.
  • Tax planning is something that occurs on a year-round basis, not at a single point in time.
  • The CPA calls the contractor with creative ideas and suggestions on how to save money.
  • When the contractor has a tough decision to make, one of the first advisors that the contractor reaches out to is the CPA.

I think the main difference between a Historian and a Trusted Advisor can be boiled down by asking if the CPA is reactive or proactive. A Historian will sit in the bed of a proverbial pickup truck and tell the contractor everywhere the contractor has been, how much money the contractor has made, what deductions were taken, and how much was paid in taxes. All these items can be seen from the perch on the tailgate. However, the Historian is incapable of helping a contractor navigate current events.

On the other hand, a Trusted Advisor will sit in the cab of the same proverbial pickup truck and help the contractor navigate through the challenges of owning a construction company. The Trusted Advisor’s knowledge of the industry and the client’s business enables him or her to offer strategies and guidance that will make the company more successful. This can only be accomplished by looking through the windshield.

I can think of no better real-life example of Trusted Advisors in action than what transpired during the time period surrounding the COVID-19 pandemic. At that time, I was a partner at a public accounting firm where my client base was mostly contractors. The uncertainty during that time was unprecedented between work stoppages, required personal protective equipment, the shortages of materials, and wondering if things would ever return to normal. Many CPAs I knew buried their heads in the sand, and that only added to the uncertainty for their clients – you guessed it, these guys were the Historians. However, CPAs that were proactive, the Trusted Advisors, saw these events as an opportunity to be of service to their clients. These CPAs stayed up late reviewing the latest regulations on the SBA Paycheck Protection Program loan program, found state and local grants that could help their clients, learned about force majeure clauses, and conferenced with bankers and sureties about changes to the credit markets. Then they took this information and relayed it to clients through phone calls and late-night emails. In a situation that looked bleak, the CPA Trusted Advisors became a beacon of information and hope to the construction company owner. I am not suggesting that the Trusted Advisors wore capes and were able to leap tall buildings with a single bound or were nearly as important as the front-line medical professionals. However, when a contractor had poured his or her entire life into a business and the vast majority of his or her net worth hung in the balance of the company’s success and you were able to answers questions and provide advice that helped the company move forward, that felt a little heroic.

Returning to the adage I presented at the beginning of the article, the direction of one’s life (or business) can be determined by the relationships that one keeps. Or, as Grandma said, show me your friends (or advisors) and I will tell you your future. I submit to you that the professionals a contractor surrounds him/ herself with will have a large impact on the success of a construction company. I may be biased, but I feel a very important advisor on the team of advisors that a contractor keeps is the CPA. As a surety, if you have taken stock of the CPA that your contractor is working with and have determined that the CPA is a Historian, suggesting that the contractor upgrade to a Trusted Advisor is your responsibility. Tact will have to be taken; as mentioned above, often the relationship with a CPA runs deep. I would suggest relaying the benefits of upgrading a CPA. Answer the questions: how will it benefit the company, the contractor personally, and the bonding program. It would be helpful if the surety has relationships with some CPA Trusted Advisors with whom the contractor can meet. Of course, this needs to be mediated with the bond agent with whom the contractor is working. In the end, the ultimate decision will be that of the contractor. If the contractor chooses to stick with the Historian, the surety can enjoy something else Grandma used to say: “You can lead a horse to water but you can’t make it drink.”

By Bob Teska. Originally published in the Jan / Feb 2024 NASBP Pipeline Newsletter. 

The statements or comments contained within this article are based on the author’s own knowledge and experience and do not necessarily represent those of the firm, other partners, our clients, or other business partners.