128. Getting More From Your Accountant With Josh Hallam & Sam Falanga

Yeah. So what you're saying is to get a strategic accountant in your corner before the problems arise so that you don't get the problems?

Yeah, 100%.

Welcome to Professional Builder Secrets, the podcast for building company owners wanting to grow safely and securely. I'm your host, Will Blunt and today I'm joined by Josh Hallam and Sam Falanger from Falanger and Co Accountants in Sydney, Australia. Welcome to the show, guys.

Good morning. Good morning.

Thanks Will. Good to be here.

Yeah, fantastic to have you on. Before we dive into the nitty gritty of the world of construction accounting, which is a fun topic no doubt. Sam, do you want to give a bit of a background on Flanger and Company, the company and where you came from?

Yeah, so I did my graduateship in Crow Hallworth and I just found that there was a bit of a link between the big, you know, the good advice that everyone was getting paying really top dollar and the small businesses were missing out on that advice. That sort of gave me the passion to help small businesses out. Then I took over another firm back in 2010 at which point that was predominantly heavily construction based being the area that we're in. And I found that I was thrown in the deep end, so to speak, in regards to getting on the tools and helping clients one on one and more than just the compliance side of things. From there we've built a reputable business recently getting on board a general manager which is fantastic for us and currently we're in Rhodes, New South Wales.

Yeah, very cool. Josh, do you want to give a bit of a background on the role you play at Flanger and Company?

Yeah, so my background will the last 15 years maybe a bit more, but I stick it at 15 years. I've been working with small businesses right across the country and growing small businesses and so I've always been that right hand person to CEO, founder, managing director, director. And what that experience has given me is the ability to understand the common challenges of an owner operator, you know, five to ten million dollar a year business. And doesn't matter what industry you're in, there are some real transferable challenges that those business owners overcome. And so I've got where my role at Flanger and Co is. I'm not from accounting background, I'm from that, you know, scaling small business background. And so I play, not only do I run the operations of our firm but work closely with the clients to help them run their operations and sometimes even help cut through some of the, the accounting language and how, how you can maximize the value from us at Falanga and Co, not from just an accounting and tax perspective, but from utilise the service as a real value driver. So I really enjoy working with our 300 plus small and medium businesses, a lot of them in building and construction.

Yeah, very good. That must be a unique differentiator for your accounting firm to have that business side of things covered as well.

Yeah, absolutely. We see it is fairly unique. It's a question that we always get. Sam and I were out and about yesterday and it's a question that we always get around how a firm like us, or why a firm like us has someone in my position. And it comes back down to if we put ourselves in the client's shoes, what's the best value we can provide and also what are the key challenges that they're facing and how can we help overcome that? Because that's really what the expectation of any business owner should be of their accounting partner.

Yeah. You mentioned some key challenges or pain points. I mean, I imagine a lot of accounting and financial problems are as old as business. But what are the most prominent ones we're seeing in the market at the moment?

I think there's a fair target from the ato, obviously, coming out of COVID and the stimulus, where they've spent billions of dollars. We're seeing a clear focus on some audits at the moment, getting money back to the government. Obviously, there's clear focus on things like fringe benefits tax at the moment from the ATO trusts as well. So all the structures that were set up from many, many years ago, they're now changing the legislation, unfortunately. And the rules regarding some of those things in specific to building and construction, the fringe benefits, because obviously everyone's got multiple cars under their company, is one of the key targets of the ato. And unfortunately, given the wrong advice at the time of purchase or something like that, the clients put that motor vehicle, it might be, say, their sales car, and they've put that under the company. And then unfortunately, the ATO may target that.

Yeah, right. So it's just about being aware of those changes and the way that the government looking at the tax implications.

Correct. Yeah. So if, you know, some of the services we offer outside are audit insurance, it's like insuring your car at the end of the day. Because when the ATO goes into detail, you basically have to revisit what you might have done two, three years ago. So, yeah, becoming aware of some of the legislative changes are most important for our clients and just the targets, like what's the ato actually targeting on that might mean that that car might need to be transferred out immediately because there's no logbook. There never was, unfortun.

Yeah.

Which could, could end up in a hefty. Hefty tax bill.

Yeah. Interesting. Josh, throw to you for a moment. That's probably a great example of something that maybe builders don't know is a challenge at the moment. Maybe a bit of a hidden tax implication there. Is there anything that's a little bit more forward facing that, you know, a builder might be going. This is actually a pressing issue right now. I want to talk to an accountant about it.

I think what the, what your builders should really be looking for is that proactive advice from their accounting partner and so not get into that situation down the track and then having to put things in place after the fact. So a real pain point we see particularly for home builders and other trades and construction is they're constantly, they're operating in a certain way that they've, they're operating on advice in a certain way. And then they get to the point whether it's ATO driven or whether it's just a tax bill driven, where they say we refer to it as tax shock, you know, a large bill at a particular time that they're not prepared for or don't understand. So I think cutting through that and having someone who really can help you not just know the numbers of your business, but to understand the numbers behind it and utilize them for key business decision making as well as, you know, specifically working with someone who can not only retrospectively do the compliance side of things, but also proactively impact what happens next, next month, next quarter, next year, and provide the advice in those lenses. So, you know, I really recommend your members to be looking in that approach and looking for that from your accounting partner.

Yeah. So what you're saying is to get a strategic accountant in your corner before the problems arise so that you don't get the problems.

Yeah, 100%. 100%. And you know, often you get to a point where you're, you're a great technician in your space. You know, you might be a great builder and then you go out on your own and you start a business and then all of a sudden you're busy operating, you're busy in the day to day, you're busy growing the business and you're busy on the tools as well. And so two years goes by and you're operating the way that you were from day one. And it might not be set up Perfectly from that point. And so it's important to then work with that strategic partner and learn those best practices as early as possible so that as you grow as a business that you don't have a step backwards, if you will, in terms of then getting the right advice.

Cash flow is a hot topic at the moment in the construction industry. What advice do you give to building clients in terms of just better managing their cash flow and getting on top of that?

Yeah, so I think obviously like we've just sort of spoken about to be proactive and not reactive. The, the traditional accountant I think has been and gone of where you send them all the information which is always a quarter behind or even six months behind and then the accountant puts it all together and sends you a bas. Obviously that doesn't help cash flow issues. So in terms of, you know, you can always do cashflow forecasts. You could flip to monthly basses as well. You could flip to monthly payg. These would basically bring the liability forward and make the payment so that you know, whatever's left in that bank account at the end of the day is effectively your, your capital to trade with. Too many times we see too much tax shock unfortunately, whereby you send them the bass and they're saying, well that's three months worth of pay plus the super in the GST and now the ATO wants me to pay a tax installment as well. I didn't allow for something like that. So as long as you understand your own numbers and obviously everything's, you know, with tech today you've got real time data. We're not processing bank statements anymore. As long as you've got accurate information. Our job as the advisor is to make sure that you know how to obtain that information because as a business owner you're going to be there at 2:00 in the morning, midnight, whatever that time might be and you can easily just jump on. As long as everything's transacted, you'll be able to see what that liability amount is just to, just to get rid of that tax shock. So that cash flow forecasting or actually knowing your numbers is most important for us in building, construct, in building and construction specifically. Unfortunately, over Christmas they do not allow enough, you know, kitty in the bank to allow for the four weeks of annual leave. No money's coming in which we can understand and appreciate and they just don't think about it. And then they're coming into January which ultimately no one in that industry kicks off until after Australia Day and then the money starts coming in In February. So that gap is most important to plan for as well.

Yeah, that's a great point.

Yeah. Some of the other things in terms of, you know, cash flow challenges is it's only small, but too many builders don't charge for their quotes, unfortunately. They spend a lot of time quoting up, you know, a substantial job and it could be hours upon hours putting together the tender or something like that. I think their time is valuable as. As anyone's is in business and they should be charging for their quotes, even if it's, you know, that can come off. They can come off the, the price of the. If they win the project hypothetically. But that assists with day to day cash flow as well. And sometimes, you know, live live by the line of when you pay, you pay attention. So the customer might appreciate that. The free quotes thing, I think has been and gone for us on a smaller job maybe, but not on these large jobs where investing time and estimators time and. And multiple skills and services to put that together.

Yeah, that's exactly right. I mean, the paying for quotes thing, like it also positions you as the expert specialist that you are in the industry, Right?

Yeah.

Because there is time in it and people don't appreciate how long it would take to put that together. They just want to get two or three quotes. And sometimes, to be honest, what we've seen as well is the cheapest quote doesn't get the job anymore. Now with all the publicity going around about builders closing, some people are willing to pay a little bit more to know that they've got a reputable builder that's been around.

That's a great point, actually. I mean, you get the cheapest price and it makes you question it. How. How is it possible? Yeah, exactly. You're going to cut corners or something like that. Yeah, yeah.

I think if they develop their sales process, it's. Business is business. It doesn't matter what industry. But as long as they build their sales process or their templates, it can be very, you know, unified in the approach of. But again, that takes time. To build a process in any business takes a lot of time. And stepping out and getting that exactly correct on how you want to present it takes time, I can appreciate, but it's worth its weight in gold at the end of the day.

All right, so while I've got you two on this podcast, I want to go behind the scenes of working with an accountant because I know there's a lot of misconceptions out there. Probably would be the best way to explain it. About working with accountants. What are some of those misconceptions, Josh, that builders might have about what they should be getting their accountants to help them with?

It's a scary place to go behind the curtain of an accounting firm. I think I bring it down to one point and I mentioned it at the top, and it's, it's utilizing your accounting partner as a real value driver in your business. They for the nature of what we do as an accounting firm, we get under the bonnet of the business and often we get under the bonnet of the family as well because of the nature of the directors and their own, you know, entity structure. And so you, you know, builders, any clients, they should be really utilizing the maximum value that that accounting partner can provide both through, yes, there's the tax and compliance side of things, but also the how we can be proactive and how we can be strategic in looking as much forwards for your business as looking backwards. Some of the common misconceptions, and I think perhaps they're not misconceptions, I think there's a lot of accurate perceptions of accounting firms there. And I take no pride in saying that because too often will. I'm talking to new clients from all different industries or potential new clients who have come from a place where they've been given poor advice. They've come from a place where they only hear from their accountant once a year. They come from a place where they receive a business activity statement or GST bill two days before it's due. These are real world stories that we're hearing every single day. And it's about how we can educate them. And we're often, we're on the back foot straight away because we're painted with the same brush. Accountants are expensive, they're unresponsive. And whenever I need something from them, I've got to pay more for that. And so we really take that client centric approach in how we do things. And any accountant should put yourself in the shoes of the, the business owner, the home builder, and understand where they're coming from, what are their key challenges now and what's around the corner for them. And then tailor the advice or the approach or the strategy to manage that. And for that to happen, my recommendation is always have your accountant on your favorites list in your phone because they're the ones that can make a big impact on your business performance and your own personal wealth performance, your family's wealth performance over the long run. And so, you know, if you don't have that relationship with the accountant, maybe it's time to have a question about that.

So, Sam, I might throw to you here. If you're not just contacting me two days before Ambassador's due or at the end of the financial year, what other touch points do you have with your clients to kind of add that strategic intent?

Yeah. So there's the formal proposal, to be honest, Will, that, you know, ultimately that we could set parameters at the start, being a fixed engagement that they want to meet every month or every quarter, where it basically is a meeting and we go through in detail their numbers. So they're starting to be educated and actually learn their own numbers, which is most important for us. I probably am. And I'm hoping I'm in the favorites of a lot of our clients where I just want to be this. And I always say, if you're not sure, pick up the phone, you're going to hear a lot out there. I can claim my dog, my chicken, my cat, I can claim my next door neighbor's laundry, things like that. But if you want to use this as a sounding board, like I'm constantly on the phone and that's the, that's the luxury that I have. And, and we have here is that we've probably got that, or I know that we've got that communication piece with the client. It's even if they're going to purchase a vehicle, obviously when these, you know, clients go and want to purchase a vehicle, the first thing they do because they really want that vehicle is they go out the back and they sign a contract and they sign up for the finance. We sort of teach here, just press pause for half an hour. Let's ring two or three providers and see if we can get a cheaper rate or cheaper establishment fee because the dollar is a dollar in our eyes type of thing. So we just want to be that sounding board. We don't charge for emails and correspondence and things like that because we'd rather you make the right decision early on or prior to making that decision because it makes our job easier in the end. So, yeah, that's, that's sort of where I think we differentiate our service because we are so accessible, myself included and as well as the team to make sure that the client knows that if they're ever unsure, just pick up the phone, you know. Yes, we can have the formal meetings if you want, and run through your Xero or myob and your actually specific numbers and, and set forecasts and budgets with you, which, which need to be, you know, a formal sit down. But a telephone Call is just a much easier process. If unsure, that is on some type of question that they've got. Like Josh said before, they're great technicians at what they do. They wouldn't have a business unless they were great technicians. And they've built up that. Then they need to really turn into a business owner and operator.

Yeah, that's exactly right. Josh, can you think of any other examples of services that your accountant potentially should be providing you or advice your accountant should be providing you that maybe builders aren't making the most of?

It's going beyond the tax and compliance, it's going beyond the numbers and it's really utilizing that relationship for advice. And I know advisory is a phrase that accountants throw out a lot and there's 101 different definitions of what advisory services are. I bring it back to how does your accountant help you understand the numbers to make better business decisions? And so an example of that might be cash flow management, forecasting, budgeting and the ultimate there's, there's less control for a builder to manage the cash inflow and kind of flatten the cash inflow curve from, you know, the nature of the builders and the project milestones. What they do have a lot of control of and work with their accountants on is managing the curve of the cash outflows. So really utilizing your, your account and in that approach to adopt practices, adopt strategies internally so that your cash outflows are fairly consistent on a month to month basis across the 12 months. And they don't, you know, they don't have this peaks and troughs around, you know, quarterly tax time or, or other to. So that they can really manage that approach better and they're more looking forward and they've got a comfort and understanding of that cash outflow in their business and then overlay the inflows to be able to see, you know, scenario A. If we win this job and this job, where are we going to be in six months time? So a lot of that conversation, you know, if you're spending an hour with your accountant, it's services that make 40 minutes of that conversation forward looking, not 55 minutes talking about the compliance or the quarter that's just happened and then a quick five minutes as you walk out the door around what's next. And so, you know, really utilizing those specific to the industry, you know, the cash flow management services and the budgeting and forecasting as well as just that advisory piece. And we always like to work when even with existing clients. Every year it's identifying with and sitting down with them and identifying what are the one or two goals that you want to achieve this year and then being able to tailor our advice around that. And so if they're looking to invest in property, if they're looking to take six months off, if they're looking to, you know, go from working six days a week to four days a week, that information is critical, should be critical to an accounting partner to be able to then say, well, if that's the goal, we'll put that in our quarterly meeting every time and we'll, we'll adapt our advice towards that goal. Otherwise you go through a cycle of quarter to quarter, year to year, and you get three or four years down the track. And if your accountant, if your accounting partner doesn't know what you want to achieve in three years or five years, then they'll only give you the generic advice that they can provide.

Yeah, like that, that out of the box advice around, you know, tax reduction or, you know, just getting your books in order is pretty vanilla. Whereas if you're actually across what I want from my life and my family and my business over the next five years, it's going to be much better, much more tailored advice.

Yeah, absolutely.

All right, Sam, so you mentioned a bit earlier about some changes in legislation and things like that. What are you seeing coming up in 2024 and beyond that builders should be preparing for?

Yeah, 2024 is interesting because we're coming off the back of, you know, liquidators coming back to work, so to speak, because Covid finished. So unfortunately, I think there still will be some catch up and liquidations and also some small business restructures that are going through. I think again, if they know their own numbers and they know which, which jobs they want to win, ultimately that individual builder is going to do well for themselves in 2024. Interest rates were on hold last month. Ultimately they're saying that by the end of the year that they might even come down. So hopefully that opens up.

That'd be nice for everyone, right?

Myself included. Yeah, yeah. So I think that was the government sort of saying that we need to put a pause on, you know, that constant increase in interest rates in the 12 hikes that they gave us over the past 12 months, hypothetically, and just sort of, you know, stagnate and go back to growth in Australia, which is good for everyone. I think the supply chain issues that we've had on the back end of COVID have sort of equaled out now. So the things like steel, Rio concrete are coming back to normality. In terms of their pricing, which obviously helps the net position of the builder. Yeah, I don't, I don't see any issues for many, many businesses out there in 2024. Like I said, as long as they adapt to using technology is going to be a massive play in 2024. And that's where we see clients just walk in, like Josh said, and say, what technology can I use to be more efficient in my business? Again, using us as the soundboard because we've got multiple clients using different apps. Because I think just in construction it could be, you know, 82 apps that you could use for project management or cashflow forecasting and it just becomes overwhelming for the client and then they, they basically want to see what actually works before they, they, they test even they test it themselves. And that's where we can be that sounding board and say, well, it's working for client y. Why don't you actually go and introduce yourself because you're not in competition and actually get the real life version of the app not from the sales rep of Procore or Aeroflow or SimPro or something like that. So yeah, I think technology, going back to your question, is going to be a massive implementation for many businesses and the use of AI. So we're seeing now marketing, even, you know, accounting, legal, there's going to be some rapid changes in the market. Builders are lucky, very fortunate people and very fortunate in regards to, you know, you still need people on site to build your house. As of yet, AI hasn't taken over that. But if that helps with their social media and their marketing aspect, well then they should, you know, dip their toe in the water and just try to get a feel for what are the changes made with the efficiencies and the cost because you don't have to record 100 videos anymore.

Yeah, that's interesting. Are you seeing any AI trends in an accounting and finance space that could be changing things?

Yeah. So obviously with, you know, automatic processing of transactions, sort of take away that bookkeeper aspect for us, which is fantastic because you're getting a more detailed, accurate report that you can, you know, speak with the client about. As long as the parameters are set and clear, I don't think the advice structure is ever going to go away in terms of how to be that business operator rather than the technician you sort of learn and they get mentoring along the way. Yeah. So I can't really see them changing that mentorship that accountants have the knowledge and understand the numbers and to transfer that information to the business operator.

I Think if I can add to that will, you know, it's coming back to that strategic advice and I wouldn't go into ChatGPT just yet and into your, your life goals and your family situation and get, and try and get.

Your bass and advice on it.

And base your actions on that. I wouldn't go down that path. But like Sam said, technology has added and will continue to add efficiencies in lots of different industries, including our own. And it's for the home builders to think about what are the, you know, what are the repetitive, mundane tasks that are happening in my business and potentially adopting a AI or technology solution to that, which may help. But yeah, that advice piece should still be driven from your accounting partner.

So initially I was going to ask what traits a builder should look for in an accounting partner, but I'm going to flip it on its head. What traits are you looking for in a building company owner to make them a great client to work with?

I think one of the. I'll go first. There's a couple of things that stand out straight away and it's personally, from our perspective, we want to work with building clients who growth ambitions, who are focused on taking their business and their own family and wealth on that journey to be able to grow and develop as a firm. Then they're open to, they're open to the advice that we provide and they're open to. And they'll get the maximum value out of our relationship. The flip side to that, if we've got a client who's looking to operate for the next three years and then exit, and the approach might be just to, you know, minimize costs and do the way that they've always done for the last 30, 40 years and then go off into the sunset, we would still service that client, but they're not going to get the maximum value because again, a lot of what I've said today is around being responsive, proactive and forward thinking. If their endpoint is only just at the end of the tunnel there and they're towards the end of that, then they're only going to get so much value out of our relationship. But for me it's that mindset of being very clear on they know where they are as a business and as an owner operator, but they're just as clear as where they want to be and they're motivated, driven and ambitious to be able to get to that point. That's where they're going to get the maximum value out of a relationship.

I think just to add to that will Someone. Yeah, like Josh said, someone that takes the advice initially. We see people having the wrong structure early on in terms of entities and trusts and things like that. It's very hard for us to give the advice because we know that it's, you know, proof in the pudding, so to speak, in regards to it works and it's the best tax effective outcome. If they take that and they don't implement things that we've sort of asked, then it sort of goes on deaf ears and it's like they come in for a meeting and then they just, you know, they don't want to action or help themselves. So it's hard to help someone that doesn't want to help themselves and they want to go back to the way that they do it and not opening their eyes. We spend a lot of time in house on training and development and learning new, new and different things and we reiterate that to our clients as well. Like all of the things we learn about business in any way, shape or form, we give them the knowledge to maybe, you know, even set KPIs for your supervisor or your site manager. A lot of people don't even do that. But employees are driven and you need to make sure that there are certain KPIs for them. And as we go back to the brilliant technician learning to be an operator, they don't know these things. So it's sort of that they take these advice and they implement them and then we can see growth for them and they're happier people as well, they're happier clients. And then we build that trusted relationship that they can pick up the phone. That's what we want. We want that human being interaction because that's what we appreciate and we enjoy it.

Yeah, nice. So essentially the growth mindset is one of the key attributes there, not just from a business perspective, but also a personal perspective and just willing to actually make changes, implement things and lean on you guys as a strategic partner.

Absolutely, yeah. And they coincide.

Right.

When you're growing your business and it's doing well, your personal side's doing just as well. You've got bit more money for your holidays and your family. And like Josh said, some of the clients at the moment are trying to go back to that four day work week where they're working that fifth day, still working, but they're working, you know, with some of the bigger things for their own business as well because they know that the, the job site's running by itself, which is great to see.

Four days. Most builders out there, I Think might be working a couple more days extra than that.

Sometimes six and a half. It never turns off. Obviously, that's it. We understand business, but at least you've got that goal in mind. And you know, once your business becomes to a certain level, you can take that fifth day. I'm not saying take it off and go to the beach. I'm saying you can just work on your marketing or, you know, your processes in house and actually just take a think about your business as a whole rather than just what you've been doing for the past 10, 15 years.

But also to your point, like if four days is your goal, you know, in 10 years time or whatever it is, then you know, at least if you know that goal, you can work towards it strategically.

Absolutely, absolutely, yeah.

Perfect. Well, just before we wrap things up, if people want to find out a bit more about Phalangeri and Co, they can go to if APB members out there. You guys are one of our preferred partners on the directory. So we'll include that link in the show notes. Otherwise Falanga co.com I think. Sam. I got that right.

Yep, perfect.

Perfect. Any final advice for our listeners out there?

Enjoy the journey, I think. Open your mind, start reading books. I know it's hard because we're always busy, but just enjoy it and read about absolutely anything. You know, have a goal set for reading that you know, I'm trying to do personally as well. Of a book of Fortnight. If you can absorb 10 years of research in three hours of reading about anything regarding business, you'll improve your own mindset, I think.

Yeah. Great advice. Keep open that growth mindset and that learning mindset. Really important.

Absolutely.

Well, Josh, Sam, thanks so much for coming on the show today. I've had a lot of fun having a chat to you and I'm sure there's been a ton of value for our listeners out there. So really appreciate you coming on.

No, I appreciate having us. Thank you.

Thanks very much.

Also, a big thank you to our listeners wherever you are in the world. If you like the show today, please subscribe to Professional Builder Secrets on your platform of choice and if you're feeling generous, leave us a review. But until next time, have a great day.