CFM 445 Midterm Questions and Answers 100% Pass

CFM 445 Midterm Questions and Answers 100% Pass Most companies fail when they have to face ____ or more risks at the same time 2 _____ is the most common element among contractors who fail significant increase in the size of projects undertaken Events leading to contractor failure usually take place in _______ during profitable years prior to failure T/F Past success is a good indication of future success False T/F A board of directors should be made up of internal and external members True T/F Rapid growth is key to profitability as long as it is controlled False Name 3 things a company must do in order to be successful (3 functions of a construction company) 1. Get the work 2. Perform the work 3. Account for the work When is the best time to acquire credit? When you are doing well. Credit is harder to get when you really need it. T/F a company should downsize when the market is slowing True What should employee bonuses be tied to Profits T/F The risks of taking on much larger projects than before are, in some cases, outweighed False Is it better to take on one large project or many small projects? Many small projects T/F Part of taking on new projects is evaluating owners payment history True T/F A company that begins work in new areas should have a plan to withdraw True T/F A contractor should know their specialty and stick to it in most cases True Who is considered "key personnel" in smaller companies Owner Should growth be volume or market driven? Market (and profit) T/F Historical prices can be extrapolated for larger projects False T/F Distance creates cost True T/F Ability in one type of construction doesn't imply ability in another True Union shop to open shop Lack of skilled labor Open shop to union shop Choke on restrictive work rules What is the discriminating factor between successful companies and failures? Management skills T/F The construction industry suffers from the highest morality rate False, it is the 2nd highest The average construction company lasts ____ years 5 T/F Getting more work than planned for can be as problematic as not getting enough True T/F Continued growth is a mistake when management is constantly putting out fires True T/F The true test of delegation is when a person is allowed to make unsupervised decisions that may or may not be correct True The owner should understand ___ about accounting systems How data is collected How systems work Timelines of data entry T/F Accountants generally have a better feel for what is really happening in the company than the owner True A large distortion of year end results is most common in _____ A company that is experiencing fast growth The single most serious misunderstanding in the industry is _____ accounts payable Record everything immediately When should disputed invoice be recorded? Immediately, not waiting until resolution What should a manager do with bad debts? Write them off What is most distorted when payables are manipulated? Profits When percentage of completion is misjudged _____ Profits are skewed The one thing worse than losing money is ____ losing money and not knowing it T/F Break-even work is sometimes good if it helps maintain volume False Growth of over ____ % in a year is considered substantial 15% How can you increase overhead flexibility? Focus on one scope of work Use temporary employees at all levels T/F CONSTRUCTION COMPANIES SHOULD BE READY TO DO 25 PERCENT MORE IN VOLUME OR 25 PERCENT LESS IN VOLUME WITH NO INCREASE IN RISK EITHER WAY True T/F It is better to provide higher benefits with lower salaries False, employees don't always understand benefit programs T/F Credit management should be delegated to middle managers False T/F Companies should have a one year detailed plan and a three year soft plan Ture T/F Cash flow planning should be included in all decisions True Markup (100/1-profit margin)-100 Markup is a percentage of costs Margin Margin is a percentage of total bill T/F Margins are eroded as competition increases True Red Flags of Contractor Failure 1. Poor Estimating & Cost Reporting 2. Poor Project Management 3. No Comprehensive plan 4. Poor communications 5. Poor financial management 6. External Factors (no cash reserves & lack of subs) Banker's approve funding based on 1.WORST-CASE SCENARIOS (ABILITY TO REPAY FROM OPERATIONS) 2.FULL, UNCONDITIONAL GUARANTEES OF PRINCIPALS 3.KEY PERSON LIFE INSURANCE AND DISABILITY INSURANCE 4.BONDING BY REPUTABLE COMPANY 5.FREQUENT AND COMPLETE FINANCIAL REPORTING (AT LEAST QUARTERLY; MONTHLY PREFERRED) 6.INTEREST AND PRINCIPAL ON ALL LOANS UP TO DATE 10 Fatal Actions by contractor A. CONTRACTOR USES WITHHOLDING TAXES TO PAY BILLS B. CONTRACTOR JUMPS FROM ACCOUNTANT TO ACCOUNTANT - OR FIRES ACCOUNTANT TO SAVE MONEY! C. CONTRACTOR LIQUIDATES ASSETS D. DIVERSION OF MONEY FROM COMPANY TO UNSCHEDULED PERSONAL RAISES, PAYMENTS OF PERSONAL BILLS, LARGE BONUSES E. CHEATING ON COLLATERAL BORROWING BASE CERTIFICATE F. CONTRACTOR REFUSES ACCESS TO JOB SITES, COMPANY HEADQUARTERS G. CONTRACTOR'S ADDRESS MOVES FROM STREET ADDRESS TO P.O. BOX H. PAST-DUE CHECKS POSTED ON PAYMENT DUE DATES I. CONTRACTOR BORROWS FROM OTHER SOURCES WITHOUT AGREEMENT FROM FIRST LENDER J. CONTRACTOR'S BEHAVIOR TURNS NEGATIVE TOWARD LENDER SOLE PROPRIETORSHIP A. Informal creation and operation by one individual (the proprietor) B. No fictitious name required unless business operates under a name other than the proprietor's given name C. Contractor and municipal licensing requirements must be met D. Ownership cannot change E. Individual assets are at risk - proprietor can lose virtually everything GENERAL PARTNERSHIP A. Two or more individuals or business entities - each is a general partner B. Informal or formal creation C. Fictitious name usually required D. Contractor and municipal licensing requirements E. General partners 1. Can bind the partnership (all partners) 2. Fiduciary responsibility to other partners 3. Are individually liable for all partnership obligations (joint and several liability issue); personal assets at risk General partners decide 1. How ownership interests are divided - can be based on experience, expertise, financial investment in the company 2. How guaranteed payments to partners and draws are taken (when and how much). G. Ownership cannot change; partners cannot sell individual interest in the business. H. Partnership dissolves upon death of any partner or when a partner leaves the business (some states provide for short-term ongoing operations) I. A federal information tax return is filed annually (1065); and recognition of income is determined for each partner (K-1s) 1. Each partner pays personal income taxes based on income recognized(K-1s) based on guaranteed payment to partner and ownership income or loss from profits or losses generated by partnership 2. Self-employment taxes (Social Security and Medicare) are borne by each partner based on partner's income recognition J. A partnership agreement is highly recommended describing duties, interest in the company, etc. LIMITED PARTNERSHIP A. Consists of limited partner(s) and at least one general partner B. Fictitious name required C. Limited partners usually bring financial strength - investment into the business D. Limited partners' losses are typically to the amount of their investment - as long as they do not participate in day-to-day operations - hence, the term Limited Partner E. General partners take the risk of losses above and beyond the resources of the partnership - including investments by limited partners F. General partners manage the business affairs of the company - day-to-day operations G. More formal and complicated organizational requirements than a general partnership - articles of agreement are filed with the state H. Information tax return is filed annually, and income/losses pass through to general and limited partners according to agreement JOINT VENTURE A. Comprised of two or more individuals or entities B. Typically created to complete a specific project, because the pooled resources - experience, expertise, finances - of the partners are needed to perform the work C. Acts as a general partnership D. Fictitious name required E. Professional accounting and legal advice recommended Income statement equation (R - COC = GP - G&A = NPBT) Gross Profits = GP = Revenue - Cost of Construction Net Profit Before Taxes= NPBT = Gross Profit - overhead One for the Money Teach family members early the importance of working and earning. Teach children to make money decisions in keeping with their capacities to comprehend. Teach each family member to contribute to the total family welfare. Teach family members that paying financial obligations promptly is part of integrity and honesty development. Learn to manage money before it manages you. Learn self-discipline and self-restraint in money matters. Use a budget. Make education a continuing process Work toward home ownership. Appropriately involve yourself in an insurance program. Strive to understand and cope with existing inflation. Appropriately involve yourself in a food storage program. Temporal Wealth and the Kingdom of God The love of money leads to disappointment and loss of the Spirit. Patient labor brings temporal possessions and eternal riches. Patient labor brings temporal possessions and eternal riches. We should devote our temporal wealth to building up the kingdom of God. Constancy Amid Change Constancy No. 1: Pay an honest tithing. Constancy No. 2: Live on less than you earn. Constancy No. 3: Learn to distinguish between needs and wants. Constancy No. 4: Develop and live within a budget. Constancy No. 5: Be honest in all your financial affairs.