Labor Shortages and the Construction Industry: Why Specialized Accounting Matters

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Have you ever had trouble finding good help? Can’t find good qualified people? It’s been tough in the construction market, but there are ways to find good help at a reasonable cost. Let’s break them down this week on the podcast.

Topics we cover in this episode include:

  • The current state of the labor shortage in construction and accounting
  • Why companies are struggling to find and retain good labor
  • What happens when a construction owner tries to take on too many roles
  • Outsourcing as a solution to the labor shortage
  • If you do outsource work, make sure it’s to a professional who knows your industry
  • Support and nurture relationships with the people you count on most
  • How to address higher salary expectations post COVID and the recession

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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com

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TRANSCRIPT

[00:00:00] Wade Carpenter: Have you ever had trouble finding good help? Can’t find good qualified people? It’s been tough in the construction market. Come on in, let’s talk about it.

This is the Contractor Success Forum. I’m Wade Carpenter with Carpenter Company CPAs. With me, as always, my co host Stephen Brown with McDaniel Whitley Bonding and Insurance. Stephen, are you seeing contractors having issues finding help?

[00:00:19] Stephen Brown: Yeah, always. Always looking for good people and the best qualified people seem to be able to make a really good living right now.

The current state of the labor shortage in construction and accounting

[00:00:28] Wade Carpenter: Yeah, that’s true. When we started talking about this, I started doing some research on it, and I’ve also found that a lot of people have trouble, just like even in my industry, in construction accounting. As I say all the time, it’s not taught in schools and there’s a lot of people that got out of construction accounting after the 2008 Great Recession.

But we did some research on it and found that the construction trade is going to need 501, 000 additional help to balance supply and demand. About 5% of construction positions are unfilled in 2023.

And so that’s actually the second highest ever recorded. Any thoughts on that?

[00:01:06] Stephen Brown: I knew it was bad and an issue. I didn’t realize it was that bad.

[00:01:10] Wade Carpenter: There’s a lot of things that are contributing to that.

I found that actually one out of every five construction workers are age 55 or older. There’s a lot more people retiring than are coming into the industry. And I know you’ve probably seen some of those statistics from AGC and some of that as well.

[00:01:27] Stephen Brown: Oh, sure. And physically, face it, you know, 55 year old bodies had a lot of wear and tear. So it’s a tough business. It’s a demanding business.

[00:01:38] Wade Carpenter: Again, same thing with construction accounting. I started doing some research that as well and just across the board, accountants in general. There’s a shortage of 340, 000 accountants across all industries. And 42 percent of accounting firms are turning away work due to staffing shortage.

 24 percent of those people are nearing burnout.

Why companies are struggling to find and retain good labor

[00:02:00] Stephen Brown: My son is an accountant and, it is demanding and you want to do something that’s rewarding and exciting and keeps you intellectually stimulated, especially if you’re an accountant. And I can’t imagine anything more challenging than being a construction accountant.

As we’ve said many times in the past, it’s just not something you learn in school. You gotta learn it by being part of a construction accounting firm that really knows what they’re doing and you can learn from them. At least that’s my take on it.

There’s one problem getting an accountant or a CPA to do your books and your year end statement. And it’s another thing, getting a construction expert to do that. And we’ve seen it. It is demanding. Contractors are demanding on accountants, very demanding. But I think it could be outrageously rewarding and lead to a lot of things.

One of our CPA buddies has just become CFO of one of our construction companies. And , like you said, he, young fella, burnout, spending insane amount of money staring at his computer. And now he’s out on job sites learning the construction industry from the inside out and loving it, and doing more than just crunching numbers. I guess you can empathize with that more than me.

[00:03:20] Wade Carpenter: I think it’s across the board. The accounting industry too, it’s just the exact same thing that’s happening to construction workers and younger kids today don’t want to come up into this industry. Same thing with accounting.

We’ve got an aging workforce, a huge number of accountants are nearing retirement age. And the people coming in, there’s actually been a 33 percent decrease in the first time people applying for the CPA exam between 2016 and 2021. Last five years. The whole point of this is, how are we supposed to get things done if we can’t find the people, whether we’re outsourcing or whatever. What are the options?

And today I was just talking more about, some of the things that are causing that and maybe some things we could do about it.

[00:04:07] Stephen Brown: Okay. I know we are constantly looking for new people. It takes a good chunk of everybody’s time to look for and recruit and train and get young folks interested in the insurance and bonding industry.

[00:04:21] Wade Carpenter: I think also some of the economic influences and with COVID and what they call the Great Resignation. A lot of people are r e evaluating their career choice and, can I work from home and make the same thing? Accountants too. Especially in public accounting. They work long hours and they burn people out.

But, some other things like the specifics of the construction accounting industry. There’s specialized knowledge. And if you don’t have people that will stay in the industry, , they’re not passing down this knowledge.

 The revenue recognition rules have changed, retainage, job costing is always something that you don’t learn in school. There are several things that the industry kind of challenges with.

[00:05:05] Stephen Brown: Oh, it does, Wade. And, everything that I read young people are looking for, challenges, they’re looking to work at a place where they’re going to grow. And they’re going to be challenged and they’re going to enjoy themselves. A lot of contractors will have great young employees that’ll leave because they’re doing the same old thing over and over again.

Your benefits, what you offer the best and the brightest to come to your firm, they’re everything now. Especially to the millennials. They should be to anyone, but it’s more vital than ever that you offer more to get the best and the brightest. That’s what you want.

[00:05:45] Wade Carpenter: If you’re looking for somebody, and you’re not willing to do what it takes to get the job done. Same thing in accounting, the education gaps that we see, a lot of times people see a limited growth potential and they’re just thinking I can go do something else, and see, ideas on YouTube and they quit.

Some other industries around technology and in particular construction, some construction people are slow to adopt technology. I still see these manual processes, all this stuff done in paper, especially the accounting payroll, . Do you see that in your–

[00:06:19] Stephen Brown: I do, and it’s frustrating to the younger employees. It’s frustrating because they know there’s a better, faster way to do it. And that’s my take on it.

What happens when a construction owner tries to take on too many roles

[00:06:28] Wade Carpenter: So just thinking about all that , how does this impact the construction industry? Obviously if you can’t find the workers, you can’t get the jobs done. If the owner is being the accountant, the project manager, the estimator, and actually going out and managing the job and doing the job, you can’t grow.

[00:06:45] Stephen Brown: That’s exactly right. And, another thing that you need to think about is the key people that you depend on, make sure you’re giving them everything they need, even if they’re not your employees. Especially the key professionals. Make sure you’re taking their advice and paying them on time and nurturing that relationship.

And also have some idea of a backup plan if you need it.

[00:07:10] Wade Carpenter: That’s where I see a lot of owners just, they try to do everything. They think, well, I can do the estimating. I can do the accounting. And they never really get a good handle on their profit margin. And they’re just running from one project to another.

And it’s just a hamster wheel they never seem to get off of. And also, they don’t know where they are on the job. That leads to overruns or, sometimes project delays because they can’t get things done properly and there are just too many things to do during the day.

Ultimately it leads to increased costs.

Outsourcing as a solution to the labor shortage

[00:07:45] Stephen Brown: Sure. What are your ideas of what you can do about it? I know outsourcing is a good idea. Outsourcing work to professionals that you use. I know you do that for people. And the only reason you can do it was because you know the industry so well, all of the trades.

So there’s not a big learning curve for you. Other folks that don’t understand the construction industry, the way you do, they have to be brought up and nurtured. You have to find those people, right?

If you do outsource work, make sure it’s to a professional who knows your industry

[00:08:12] Wade Carpenter: A lot of these back office things can be outsourced. The estimating, especially if they know your industry. Or I’ve had people in Mexico and South America doing project management, hiring a little cheaper down there.

 This is my take from the accounting. Is the typical model, if you find anybody that, they say they do construction accounting, but they also do retail and service businesses and everything under the sun. And at best they have a monthly financial statement, they reconcile it once a month, and don’t necessarily know the, the industry well.

And they’ve got one person on the job. So if that accountant is sick or leaves, then you’re starting all over with a new accountant that’s got to come back in. And, again, they really don’t have a commitment to, to really servicing you. And in construction, I really feel like you need to stay on top of things like cashflow, constantly.

[00:09:06] Stephen Brown: You’re exactly right. You’ve got to stay on top of it and you’ve got to have someone good and you’ve got to be willing to pay for that person.

I see a lot more construction consultants that do everything. Specific project management duties, estimating duties. Folks that know you and your company can go down to a project and help you get it back on track, or do that for you because you don’t have time.

Support and nurture relationships with the people you count on most

[00:09:30] Stephen Brown: And you have to respect them, take their advice, pay them and be a meaningful customer to them. And there are a lot of them out there. And when you find them, again, like I say, you always have to nurture those relationships with the people you count on the most. I shouldn’t have to say that, but it’s a great reminder to our listeners. You get busy, right? And things happen.

But just like someone getting hurt on the job site, and you’ve lost that employee or laborer’s productivity. If you’re not planning ahead for your professionals, and support, I think you’re right, Wade. You’re selling yourself short and it’s only going to get worse.

[00:10:07] Wade Carpenter: Whether you outsource into the traditional model or the challenges of hiring somebody in house. Obviously if there’s limited supply, and a lot of people are retiring or they’ve got a lot of experience, they’re demanding heavier salaries. The ones that are in it that are younger, they will jump to a different place in a heartbeat for a dollar difference per hour. It’s tough.

How to address higher salary expectations post COVID and the recession

[00:10:30] Wade Carpenter: After the recession and COVID and those kind of things, some of these salaries have just gone to the roof. And what do we do about that? You got any thoughts on that?

[00:10:39] Stephen Brown: You’ve got to be prepared to let people go if you can’t afford them anymore, or they’re not doing the specific tasks that you need them to do. It’s a tough call, but your ability, we talked about this in our economics podcast. Your ability to change when you need to change is key. And also being a meaningful source of your best advisor’s source of income. It’s a huge plus.

[00:11:06] Wade Carpenter: I know, there are some things you can do with just recruiting and training and putting a lot of time and effort into hiring. Our model, that’s where we have changed a little bit. We’re a team based approach. And all we do is construction, specialized, in the accounting industry.

And they all know the industry, so if somebody’s out sick, we’re cross trained on different aspects of construction like payroll side, some things like certified payrolls or the job costing, some of the nuances of things like accounts payable. Even down to coding accounts and getting it in the right place so that it gives you the best tax effect.

The way we’ve done that, whether you’re looking for somebody to outsource accounting or estimating or whatever it is, we specialize in this. We had to build our own tools to get efficiency. And as I was saying before, a lot of contractors are still paper based and they can’t get past, like, how am I going to do, how can you possibly do this remotely? When everything is so tied to paper.

It’s gotten so that we can do a pretty good job of taking that entire back office accounting function from contractors and usually give them a better outcome because we know all parts of it.

[00:12:21] Stephen Brown: You have to have the best talking technology available to do your job for them. You’re just a step ahead of someone building something from scratch.

[00:12:31] Wade Carpenter: I hope we’re at more than just one step, because I think we can usually put these systems in place where a lot of contractors don’t have these systems to begin with. And so we can consistently create performance.

We see all the time people are having trouble, you know, they hire in house and they can never get that job cost report, or it’s always way late after they’ve asked for it and they don’t trust the numbers.

And again, our model more is hey, we’ve got a bundled approach where we know what’s going on with it and we can advise you on the taxes and it’s all just bundled in.

[00:13:04] Stephen Brown: That’s great advice, Wade. I see a lot of my customers and contractors in general getting stuck in the same routine. And we always talk about how to best mix things up to accomplish that.

I was reading an article this morning about A. J. Causey. He’s a young pitcher for the University of Tennessee is just outstanding.

And one of his keys to success is his mental approach is if you’re pitching to a batter, to keep them from hitting the ball, then you’re pitching from a negative headspace. But if you’re a strategic pitcher and you know that you can hit those corners over and over again, you’re not worried about the batter. There’s no fear involved.

And, that’s the same thing that we see over and over again. Folks that think out of the box, folks that realize there’s an issue that’s going on right now, and it’s going to continue to be worse, like labor, for our entire industry, you got to think out of the box sometime.

And I think outsourcing is one. And I think making and building an environment that attracts the best and the brightest and giving them the incentive and motivation to stay at your company is the key to long term success and profits.

And then if your mentality on top of that is to help the young folks that want to become owners of your company someday, then that’s just a huge added bonus.

And as a payoff, you’ll get more money for your company at retirement by having built someone that can purchase your company. But you’ll have happier employees, whether you do it or not, you’ll have happier employees.

[00:14:43] Wade Carpenter: I think one of the points today was you know, what are the options? And sometimes people think about these cost barriers. Here all the time with us, we’re a CPA firm, they assume it’s going to be so much more expensive. But if you compare the costs of hiring somebody in house, especially with adequate experience and actually getting help who knows what they’re doing and actually can give you a job cost report that’s accurate and on time.

[00:15:08] Stephen Brown: Right.

[00:15:09] Wade Carpenter: Usually we are so much cheaper than actually doing that and people don’t believe it. But again, I was specializing it. We’ve got tools and we’ve got people that know the industry and we can actually, I think I told that story a long time ago. I’m a carpenter in name only. But if I ever tried to build something, it’s going to be crooked and it’s going to be, it may fall down at some point. But a lot of my contractors, I call them and they’re going to make it look good and they can do it probably a third of the time and that’s where we feel like we excel.

[00:15:40] Stephen Brown: You would do it all of the time and you have to be the best to do what you do. It’s just like anyone who’s building something, our listeners that are contractors, they know when they started off, they weren’t that good until they learned. They had to learn, and they had to do it.

And think about something that, any construction labor, whether it’s from the labor on the project, all the way to the management, to the ownership. Each level comes to you the hard way, right? You have to learn the hard way. And anytime you can take some process and not have to reinvent the wheel, or grind through it, it’s just easier.

We know that everybody’s going to have to be training, folks from within. But I agree with you, Wade. Outsourcing the best folks you can find is a moneymaker for your company.

[00:16:32] Wade Carpenter: The point is compare it. And I have one that I worked with actually before the recession, the Great Recession, back, I think we started 2005 or 6. And this contractor had a controller that was a great accountant, a lot of years experience, but she was not certified. And I know she was costing them like 125, 000 a year or so.

They had an accounts payable person and they were costing them about 65 to 70 thousand a year. And, that company went away and essentially today he restarted another company and today we’re doing the same function, taking both those functions for about a little over $50,000 a year.

And he loves it because we give him better reports and faster service and he knows things are taken care of by a team. I’ve got several stories like that.

[00:17:26] Stephen Brown: You don’t have to worry about one of those two people being sick or not coming in and doing their job either.

[00:17:31] Wade Carpenter: If nothing else, just maybe think about these things. I know a lot of contractors don’t necessarily value the accounting function, and it’s a necessary evil, but I still say, having that good job cost and knowing where your cash flow is, having your cash up to date goes a long way to being able to be successful.

[00:17:51] Stephen Brown: I think if you’re listening to this podcast, you understand the importance of wanting to know what your numbers are. Wanting to know how you’re performing. But I can tell you, there’s an awful lot of contractors out there that have always considered it a necessary evil, and I can’t comprehend that.

Why don’t you want– they’re your numbers. They’re no one else’s. I got to do this for the bonding company. I got to do this for the bank. That’s not strategic pitching at all.

[00:18:18] Wade Carpenter: I like that analogy, by the way. I didn’t tell you.

[00:18:20] Stephen Brown: Don’t you love that? It changed him, his mindset. And his pitching repertoire. They were up against a team and they had his number and he went into a funk and he went back into that fear mode and they were hitting them like crazy. And his coaches that helped him with this new mindset, he immediately had regular meetings with them. So they discuss his mindset.

Wouldn’t it be great if you had someone like that? I think you’re someone like that for a lot of contractors, as a professional. And I think that as a owner of a construction company you’ve got to make sure all your employees have that same mindset.

They’re operating out of confidence in their abilities and not out of fear of losing their job, fear of not being able to provide for their families, fear for not having a future at the company where they’re working, and fear of not being able to retire or be a part of something bigger, a team.

[00:19:18] Wade Carpenter: If nothing else, whether it’s in house or some of the other back office functions or finding people in industry, if nothing else, maybe rethink what you’ve been doing and ask, is it the right thing to be doing?

If you’ve got any thoughts or feedback on what we discussed today, we’d always love to hear from you. Got questions or comments, just drop ’em in the comments below.

Thanks for listening to the Contractor Success Forum. Check out more information at the ContractorSuccessForum.com or the Carpenter CPAs YouTube channel.

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